There isn’t any UK case law dealing with this point that we are aware of but there are cases which have been dealt with by the European Court of Justice (ECJ) concerning workers who have changed from working full-time to part-time during the course of a holiday year. The employees in these cases (Brandes and Zentralbetriebsrat der Landeskrankenhuser Tirols) claimed they should be able to take their holiday that was accrued as a full-timer, as a full-timer even though they were now working part-time. The ECJ considered the Part Time Workers Directive and the EC Framework Agreement on part-time working and said the law precludes any national law from having the effect that the employee suffers if they have not been able to exercise their right to take their holiday whilst working full-time. Clearly being on sick leave might mean that the employee has been prevented from using their annual leave as a full-timer.
In the Stringer case it was held that those who have accrued holiday because they have been off sick should benefit from the leave at their normal rate otherwise the returner is worse off by returning to work. This has been endorsed by UK case law in the case of Chief Constable of Strathclyde Police v Lavery although this didn’t relate to a phased return.
Our UK position under the Working Time Regulations 1998 however contradicts that: it directs us to pay an employee taking leave by reference to the pay at the time the leave was taken, not at the time the leave was accrued – see regulation 16(3)(d). We’ve seen in other cases (such as those relating to overtime and holiday pay) the UK Courts reading the Working Time Regulations differently to fit with the ECJ position and being challenged if they don’t do that.
I would pay holiday hours that are taken in the phased return period that relate to holiday accrued before the sickness or during the sickness at normal full-time pay. I would pay any holiday taken in the phased return period that has been accrued during the part-time period of working at part-time rates. This stops the person suffering a reduction in pay as a result of being unable to take their holiday due to sickness and the potential disability discrimination issues that it would raise.