A landmark legal ruling allowing workers to claim back holiday time lost to illness will expose employers to exploitation, it was warned today.
The CBI said the European Court judgment, in a case involving a Spanish council worker, was "open to abuse".
Francisco Pereda, employed by Madrid City Council, launched a legal action after being refused the right to alter his holiday plans because of an injury suffered just before he was due to take annual leave.
The European Court of Justice in Luxembourg ruled that he should have been allowed to alter his holiday dates - including the option to postpone his holiday and take it in the next holiday year.
The case did not involve someone taken ill during their holiday and then demanding compensatory sick leave.
The court ruling made clear that if a "worker does not wish to take annual leave during a period of sick leave, annual leave must be granted to him for a different period".
Three months ago the House of Lords reached a similar conclusion in a case brought by UK Customs staff, declaring that workers could, in certain circumstances, build up holiday entitlement while on long-term sick leave.
After the European ruling, Katja Hall, of the CBI, said: "Many firms already take a common-sense and sympathetic approach. But allowing employees to reclassify their holiday as sick leave opens the door to abuse."
Long-term sick leave already costs the UK economy more than £5 billion a year.
The EU ruling does not stipulate any time at which an illness could trigger the right to alter holidays, but lawyers examining the EU ruling say the result could be interpreted as giving workers the right to claim extra holiday time even if they have been taken ill after their holiday has begun.
Owen Warnock, a partner at law firm Eversheds, said most employers currently could the attitude that it is "bad luck" for an employer if they fall ill while on holiday.
"The danger of abuse is clear - an employee could increase his or her holiday entitlement by ensuring that in most years they alleged they were sick while on holiday."
And at law firm Lovells, Naomi Feinstein said: "This could effectively be interpreted as meaning that you are only sick on your employer's time, and not your own."
Conservative MEP Roger Helmer said the impact of the ruling could hit small businesses hardest, because of the difficulties of organising holiday time:
"We are once again replacing the goodwill and strong relationships between employers and employees with legal statutes dictated by unelected judges in Luxembourg" he said.
"This ruling will create a legal minefield for businesses, particularly small businesses, who have to plan all leave extremely carefully. During the summer holidays, this ruling could leave small businesses vulnerable to severe staff shortages."