The Court of Justice of the European Union (ECJ), in judgments in respect of two German cases, has held that a worker cannot automatically lose the right to take paid holiday because they did not apply to take it.
Both cases – Kreuziger v Land Berlin and Max-Planck-Gesellschaft zur Förderung der Wissenschaften eV v Shimizu – focused on the right to take paid annual leave under Article 7 of the European Working Time Directive (WTD), which says:
- Member states shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks.
- The minimum period of paid annual leave may not be replaced by a payment in lieu except upon termination.
Mr Kreuziger refrained from taking holiday in the last few months of his employment and sought a payment in lieu of untaken holiday upon termination. Mr Shimizu was invited by his employer to take his accrued holiday entitlement before his employment came to an end – he took only two days and sought to be paid in lieu for 51 days accrued over two holiday years.
The employers relied on German national laws to justify not making any payment in lieu. Mr Kreuziger and Mr Shimizu each brought complaints regarding the non-payment which resulted in separate referrals being made to the ECJ for a determination on whether the WTD precluded the loss of a payment in lieu of annual leave on termination where a worker failed to take annual leave despite being able to do so.
In its judgments, the ECJ set out a number of principles on the right to take paid annual leave under the WTD, including:
- While the WTD permits holiday to be lost at the end of a holiday year, it does not permit an automatic loss of rights without first verifying that the worker had an opportunity to take the annual leave available to them.
- The worker is the weaker party. It cannot be left up to a worker to have sole responsibility to ensure they exercise their rights.
- The burden is on the employer to be able to demonstrate that it encouraged the worker to take annual leave (although this does not extend to forcing a worker to take holiday).
- An employer is required to ensure – in good time – that the worker is encouraged to take annual leave, and that they have the opportunity to do so. The worker must also be told the consequences of not taking holiday – ie that it will be lost. This encouragement must be done in a way that is ‘specific’ and ‘transparent’.
- If the employer can show that the worker deliberately, in full knowledge of the consequences, refrained from taking annual leave after having had the opportunity to do so, the WTD does not preclude the loss of holiday or a payment in lieu of holiday on termination.
Although the cases focused on a payment in lieu of annual leave upon termination, the decision has wider implications in respect of the right to take holiday throughout employment. The impact on UK employers has the potential to be significant as the Working Time Regulations 1998 (which implement the WTD) provide that any holiday that is not taken in a holiday year is lost.
This ‘use it or lose it ‘ principle is set out in most employment contracts and, although there are some known exceptions (eg in relation to holiday accrued during maternity leave or sickness absence), in the main this principle is heavily relied on by employers.
However, Kreuziger and Max-Planck-Gesellschaft now seem to place an obligation on employers to proactively encourage workers to take holiday and spell out the consequences of not doing so. If employers are unable to demonstrate this encouragement, workers are likely to be able to carry over unused holiday entitlement to the next holiday year and be paid in lieu of any unused holiday entitlement upon termination.
Although these decisions are confined to the four weeks’ holiday entitlement under the WTD, this is of little comfort to UK employers who once again have a difficult decision on annual leave to deal with. HR teams should now, as a minimum, be ensuring practices include accurately and periodically throughout the holiday year:
- Encouraging workers to take holiday, and making sure they have the opportunity to do so;
- Advising workers that if they do not take all their holiday entitlement, it will be lost; and
- Keeping a written record of points (i) and (ii) above in respect of each worker.
Sophie Askew is a senior solicitor in the employment and employee benefits department at Greenwoods GRM LLP