The European Court of Justice (ECJ) has recently handed down its long-awaited decision on the controversial issue of holiday rights for workers on long-term sick leave.

In Stringer and others v HMRC, together with the joined case of Schultz-Hoff v Deutsche Rentenversicherung Bund, the ECJ examined the scope of the Working Time Directive and confirmed a number of key points:

• Workers on sick leave do accrue annual leave during their absence. 

• Whether annual leave can be taken during a period of sick leave, or should be carried over, is a matter for national courts to determine.

• Where workers have been on sick leave for the whole or part of the leave year, the right to paid annual leave is not extinguished at the end of the leave year (as is the position under the Working Time Regulations 1998). Workers must have the opportunity to take the holiday at a later date.

• Workers who have been on sick leave for the whole or part of the leave year and have not been able to take annual leave before their employment is terminated are entitled to a payment in lieu of any outstanding statutory holiday entitlement. This payment must be calculated at the normal rate of pay (i.e. so that workers are put in a position which is comparable to the position they would have been in had they exercised the right during the employment relationship). The Working Time Regulations appear to give a greater degree of flexibility in terms of calculation.

The Stringer case will now return to the House of Lords. They will have to, amongst other issues, decide whether a worker should be allowed to take annual leave during sick leave and also consider amending the Working Time Regulations to allow holiday to be carried forward.

The potential cost implications of this decision will not be welcomed by employers, particularly in the current economic climate. They will need to revisit their sick leave policies and permit workers either to take annual leave during sick leave or carry it over to the following leave year (or pay them in lieu). The decision is likely to lead to many employers terminating the employment of those on sick leave far earlier than they might otherwise have done. However, although this might avoid the costly accrual of annual leave, it may expose employers to claims of unfair dismissal and disability discrimination.

When is an employer exempt from the duty to make reasonable adjustments?

The Employment Appeal Tribunal (EAT) has confirmed that there are four key elements when considering whether an employer is exempt from the duty to make reasonable adjustments under the Disability Discrimination Act 1995.

In Eastern and Coastal Kent PCT v Grey, the EAT noted that in order to decide whether an employer is exempt from this duty, each of the following elements should be satisfied:

• the employer does not know that the disabled person has a disability; 
  

• the employer does not know that the disabled person is likely to be at a substantial disadvantage compared with persons who are not disabled;
  

• the employer could not reasonably be expected to know that the disabled person has a disability; and
  

• the employer could not reasonably be expected to know that the disabled person is likely to be placed at a substantial disadvantage in comparison with persons who are not disabled.

The EAT emphasised that the four elements are cumulative, not alternative, requirements. The Employment Tribunal had made an error in this case when it held that the employer's knowledge of the applicant's disability (dyslexia) thereby constituted knowledge that she was likely to be placed at a substantial disadvantage in comparison with people who did not have dyslexia. The case will be returned to a fresh Tribunal to consider the four requirements.

Compensation rates on the up from 1 February