The ECJ has handed down an important decision on carrying over holiday with significant consequences for employers.  In two cases referred by the German Courts Kreuziger v Land Berlin and Max-Planck-Geselleschaft v Shimizu the ECJ held that under the Working Time Directive a worker who does not seek to take holiday does not automatically lose it at the end of the holiday year.  This means that on termination a worker may be entitled to a payment in lieu of accrued and untaken holiday from the current and previous holiday years.  In one of the referred cases, the worker had only taken 2 days holiday and asked for pay in lieu of 51 untaken days from 2012 and 2013.

The Working Time Regulations (“WTR”) provide that any unused statutory leave will be lost the end of the holiday year.  The Courts have held that the exceptions to this are in the case of long-term sickness absence or maternity leave, where the worker cannot take leave, or where the employer has unlawfully failed to provide for paid holiday.  However, in contrast, in this situation the worker is ostensibly in a position to take holiday but for whatever reason does not ask to do so. 

The Court considered that because a worker is the weaker party and to ensure they are not dissuaded from exercising their right to take holiday by suffering detrimental consequences, the onus should be on the employer to exercise “due diligence” to enable the worker to take their paid holiday entitlement.  The employer is not required to force the worker to take leave but instead should encourage the worker to take it and give them sufficient and accurate information in good time about the risk of losing their leave at the end of the holiday year if they fail to take it.  The Court also held that if the worker deliberately refrains from taking holiday in full knowledge of the consequences, after being given the opportunity to exercise the right to annual leave, the Directive does not preclude loss of the right or the allowance in lieu.

Practical considerations

• This decision puts the onus on the employer to manage holiday by “specifically and transparently” ensuring that the worker is in a position to take the holiday he or she is entitled to. 
• It is likely to affect organisations where the culture is not to take holiday or the worker feels under pressure from volume of work such that taking leave is very difficult. If a worker has a significant build-up of untaken leave, this could indicate other issues e.g. with workload or work-related stress, which also need to be addressed.
• Employers should ensure there is a system in place for monitoring each year how much holiday workers have left with sufficient time to remind them of this and enable them to take it.  Ideally, this should be at least 3 months or more before the end of the holiday year. 
• Workers should be specifically encouraged to take holiday, formally if necessary, and made aware of any limits on carry-over and that they might lose leave if they do not take it.   Line managers and/or HR should ensure they keep a record of any conversations.
• This decision applies to the four weeks leave available under the Directive and will override any contractual terms which restrict carrying forward leave.  It is still possible to limit carrying forward the extra 1.6 weeks leave under WTR and any additional contractual leave.  It is also advisable to have a provision in the contract specifying that the four weeks leave under the Directive is deemed to be taken first.
• It is possible under the WTR to give workers notice to take holiday and this could be an option for employers to consider in the case of workers with a lot of leave left to take late in the year.
• Employers should remember this applies to workers as well as employees.
• It is not clear from the decision how many years can be carried forward although in decisions on long-term sickness the Courts have decided that between 15 and 18 months after the end of the relevant holiday year was appropriate.  

For more information please contact David Green.