Lord Justice Mummery said that the law was "certain and clear" that Janet Larner, a clerical officer with NHS Leeds, could carry her untaken paid annual leave forward to the next year "without making a prior request to do so". The fact that Larner was ill meant that she would not have been able to make any such request, he said.
"[Article 7 of the Working Time Directive] states, without qualification, that every worker is entitled to paid annual leave of at least four weeks," he said in his leading judgment. "It says nothing of the need for a leave request, if the worker wishes to carry it forward to another leave reference period because of absence on sick leave."
Larner was absent on sick leave for the whole of the leave year April 2009 to March 2010 and did not take paid annual leave during this period. When she was dismissed the following year, her employer did not pay her for the leave not taken in 2009-10.
The amended Working Time Directive, implemented in the UK by the Working Time Regulations, provides that EU member states must ensure that every worker is entitled to paid annual holiday of at least four weeks. The Working Time Regulations only allow that entitlement to be replaced by a payment in lieu where the employment relationship is terminated.
Employment law expert Christopher Mordue of Pinsent Masons, the law firm behind Out-Law.com, said that the ruling would increase the costs of long-term sick leave for businesses. Workers off sick for the long term could potentially stack up a "significant period" of untaken leave which would either have to be taken or paid for once the worker was fit to return to work or, as in Larner's case, be paid in lieu on termination.
"The interplay between statutory holiday leave and sickness absence remains a very complex area," he said. "The courts are effectively creating new law here - in a piecemeal fashion, they are dealing with issues that were never properly addressed when the Working Time Regulations were introduced in 1998. That is really unhelpful for business and while the Government has promised a review of the legislation, there are no concrete proposals for reform and EU law may limit their options anyway."
Since the case effectively had retrospective effect, he added, employers could find that staff who had already returned to work after long-term sick leave would claim additional leave accrued but untaken in previous leave years.
"Recent decisions by the European Court of Justice (ECJ) have left open the question about how long workers have to take this leave but have suggested that a time limit of more than a year is required under EU law," he added. "A whole separate string of cases on the question of whether a worker who is ill during annual leave can effectively cancel and retake the period of holiday affected by illness creates its own headaches for employers but also prevents an employer forcing a worker to take paid leave during sickness absence in order to prevent the accrual of long periods of untaken leave."
Employers should, he added, do what they could to make contracts and absence policies as robust as possible, but also consider ways of managing long-term sickness absence more effectively to reduce the period of absence and so limit the amount of annual leave able to accrue.
Last month the ECJ ruled that the Working Time Directive bans "national provisions" that state that workers are not entitled to reschedule paid annual leave covering a period of illness they experienced while on a break. In its ruling, the Court said that the right to paid annual leave was a "particularly important principle of European Union social law from which there can be no derogations" which could not be interpreted restrictively.