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Rulings are good and bad news for employers, say law firms

21 January 2009

There is good and bad news for employers this week, in the form of rulings in the European Court and the employment appeal tribunal, according to two legal firms.

Bad news: holiday pay

The European Court has determined that employers are now liable for full holiday pay to staff who have been absent from work due to illness – regardless of the length of the illness.

The judgment follows the culmination of the long running case of Stringer v HMRC (formerly known as Ainsworth v HMRC). The Court of Appeal in England had ruled that an employee who had been absent from work for a full year had their right to paid holidays under the Working Time Regulations extinguished. But on a reference by the House of Lords regarding the correct interpretation of the regulations, the European Court has now ruled that employees do continue to accrue an entitlement to paid holidays, regardless of how long they have been absent due to illness.

National courts can decide whether that leave has to be taken and paid for during the year the employee is absent on sick leave, or whether it can be carried into a subsequent holiday year, or paid at termination of employment. But ultimately employers will have to pay. Employers may also be liable for pension and NIC payments.

David Hughes, employment partner with McClure Naismith, said: “This decision will be extremely unpopular with employers, who will now have to re-assess the entitlements of employees on long term sick leave.

“Ultimately, it is another cost to businesses when many are reeling from the recession. We would advise any company that thinks it might be affected to obtain professional advice as soon as possible.”

Good news: TUPE

The good news for employers concerned a previously untested point of law regarding the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE).

Construction company City Building (Glasgow) LLP successfully appealed to the employment appeal tribunal (EAT) over an alleged failure to inform and consult employees under TUPE.

The question raised was whether City Building, to which Glasgow City Council outsourced its building services function, needed to consult with union representatives of the transferred employees from the council after the transfer had taken place, regarding any transfer-related measures they envisaged taking in relation to the employees. Judge Lady Smith said that transferee employers were under no obligation to do so.

Lesley Murphy, of the employment division at Shepherd and Wedderburn, who acted for City Building, said: “This was a previously untested point of law and, if the EAT had not ruled in City Building’s favour, there was a concern that the consequences for all UK employers involved in future transfers could have been far-reaching. Many such transfers might have been stifled or even halted altogether.”

“If the unions' propositions had been accepted, there would be a requirement to consult over changes that needed to be in place on day one after the staff handover. These might include, for example, any relocation of the transferring employees to a new site. As you can't meaningfully consult after the fact, changes like these, which may in practice be necessary to achieve the transfer, would be stalled. With the market in its current state, any further obstacles to business deals could have been a significant blow.”


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