U.K. Employment Law Update: Accrued Holidays, Disability Benefits and Age Discrimination

By Alex Denny, Emma Vennesson, Katherine E. Newman, Philip Novak | Faegre Baker Daniels LLP

If Accrued Holidays Are Not Used, Will They Be Lost?
In the cases of Kreuziger v Berlin (C-619/16) EU:C:2018:872 and Max-Planck-Gesellschaft zur Forderung der Wissenschaften eV v Shimizu (C-684/16) EU:C:2018:874, the European Court of Justice (ECJ) considered the right to payment for accrued but untaken holidays on termination of employment under EU law. As a current EU member state, the U.K. must interpret national legislation as far as possible in line with EU law.

In these combined cases, two German nationals brought claims in the German national courts in relation to their employers’ refusal to pay them in lieu of accrued holidays on termination of their employment. The national courts referred to the ECJ the question of whether it was permissible under EU law for national law to stipulate that payment in lieu of accrued but untaken holidays would not be paid on termination of employment where the worker had not applied to take the holidays before the employment ended.

The ECJ ruled that under EU law workers cannot automatically lose their accrued holidays either at the end of the holiday year or on termination, unless the employer has ensured that they were given an opportunity to take them and provided with sufficient information about the circumstances in which their holidays would be lost in good time before the end of the relevant time period. The ECJ also stated that employers must encourage workers to take their holiday entitlement. The burden of proof is on the employer to show that it has done so.

Employers should review their holiday policies and ensure that they clearly explain the consequences of not taking leave within the relevant time period and encourage staff to take holidays. Employers should also consider sending periodic emails to staff stating how many holidays they have remaining and reminding them that any untaken leave may be lost.

Dismissing an Employee Entitled to Long-Term Disability Benefits: What are the Risks?
In Mr H Awan v ICTS UK Limited UKEAT/0087/18/RN, the Employment Appeal Tribunal (EAT) considered whether the dismissal of an employee receiving long-term disability benefits was unfair and discriminatory.

Mr Awan’s employment contract provided that after six months’ sickness absence, he was entitled to disability benefits which would continue until he returned to work, retired or died. The contract also allowed his employer to dismiss him on notice. Mr Awan went on sick leave with depression and while he was on leave, his employment transferred to ICTS U.K. Limited (ICTS) under TUPE. ICTS’s insurers refused to provide disability benefits to Mr Awan, and he was ultimately dismissed for incapacity. Mr Awan claimed that his dismissal was unfair and amounted to disability discrimination.

The EAT held that there was an implied term in Mr Awan’s contract that he could not be dismissed for incapacity once he had become entitled to the disability benefits. Key to this finding was the fact that the employment contract did not state that his entitlement to the benefits was subject to any insurance rules, and that the employer’s right to terminate on notice did not expressly deal with termination for incapacity. ICTS therefore had an obligation to provide disability benefits to Mr Awan regardless of whether its insurers paid out. Mr Awan’s dismissal was consequently in breach of contract. While this did not necessarily mean that his dismissal was unfair or discriminatory, it would be a highly relevant factor. The case was remitted to the Employment Tribunal.

Employers who provide insurance-based benefits should ensure that the contractual provisions relating to such benefits are appropriately drafted. In a TUPE transfer the incoming employer should also seek appropriate warranty and indemnity cover from the outgoing employer for any liability relating to the provision of any long-term benefits.

Introducing a New Pension Scheme: Can You Favour Your Older Employees?
In a recent case, The Lord Chancellor and others v V McCloud and others; The Secretary of State for the Home Department and others v R Sargeant and Others [2018] EWCA Civ 2844, the Court of Appeal (CA) considered whether the transitional provisions contained in new pension schemes introduced by the U.K. government for judges and firefighters constituted age discrimination.

The claimants in these joined cases were judges and firefighters who objected to the U.K. government’s decision to introduce new pension schemes on a gradual basis. The transitional provisions meant that older judges and firefighters could remain in the older and more generous pension schemes, while their younger colleagues were moved to the newer and less beneficial schemes. The CA held that the transitional provisions amounted to direct age discrimination. Direct age discrimination is the only type of direct discrimination under U.K. law which can be defended if it can be objectively justified, i.e. if it constitutes a proportionate means of achieving a legitimate aim.

The next question for the CA was therefore whether this discriminatory treatment could be objectively justified. It found that it could not. In the case of the firefighters, the U.K. government had not provided enough evidence to show that preferential treatment for older firefighters was a legitimate aim. In the case of the judges, protecting older judges was irrational because they were the least affected by the changes. The cases were remitted to the Employment Tribunal to decide on the amount of compensation payable to the claimants, although these proceedings have been stayed pending any appeal to the Supreme Court.

Employers should be aware that merely stating the aim of a potentially age discriminatory policy is not sufficient; solid evidence may need to be provided that demonstrates, on an objective assessment, that the aim is legitimate.

Compliments of Faegre Baker Daniels LLP,a  member of the EACCNY