At a time when Brexit is dominating headlines, it is easy to miss other important employment law developments...  

As many will know, under EU law, a worker has the right to take a set period of paid holiday each year. The Working Time Directive specifically provides for this and member states (such as the UK) have been required to implement this in their own national laws.  

So, is this right automatically lost if the worker doesn’t apply to take the holiday by the end of the holiday year? No it isn’t, according to the European Court of Justice (“ECJ”)’s latest position.  The right is only lost if the employer diligently gives the worker the opportunity to take the holiday and has taken appropriate steps.   

This latest development is a stark change from what the UK employment law position was understood to be previously with the “use it or lose it” principle often applied by employers here.  It also means that employers could now be held liable to pay out more holidays to leaving staff in some instances – namely holidays from past holiday years as well as the final holiday year in employment!  So, why the change and what can employers do to best protect their position?

We’ll now take a look at the case developments and learning points. 

Case Developments

Two recent cases have confirmed that workers who fail to request their accrued but untaken holiday in one holiday year do NOT automatically lose their right to be paid in lieu for that holiday when their employment ends.  The relevant cases are Kreuziger v Berlin and Max-Planck-Gesellschaft v Shimizu. 

In one of those cases for example, Mr Shimizu, was employed at the Max Planck Institute in Germany until 2013. Two months before the end of the employment relationship, Mr Shimizu was invited to take his remaining holiday. He only took 2 days and requested payment in lieu of the other 51 untaken holidays from 2012 and 2013. His employer refused to make the payment and Mr Shimizu brought proceedings before the German labour courts.

After winning at first instance and on his first appeal, the German courts held on a later appeal that Mr Shimizu was not entitled to be paid in lieu of the untaken holidays under German law. This was because they found that he could have taken his holiday and had lost the right to carry over untaken holiday from one year to the next under the national legislation.

However, as a result of the uncertainties raised by this claim relating to the requirements of the Working Time Directive (“WTD”), the German Federal Labour Court referred the matter to the ECJ.   

The ECJ held that national laws cannot provide for the automatic loss of accrued but untaken holiday where the worker failed to exercise their right to take the annual holiday, unless the employer could show that it had enabled the worker to exercise their entitlement.  The ECJ confirmed that employers must inform workers of their right to paid holiday accurately and in good time.  

In other words, whilst the employer does not have to force an employee to take their annual holidays, it must be able to show that it has diligently enabled the worker to take it.  Otherwise, the holiday will not be lost at the end of the holiday year and it will roll over into the next holiday year.  This also means that employers will be liable to pay out for those holidays at the end of employment if then still untaken! 

The ECJ confirmed that any contrary provision of national law would have to be disapplied, given that the right to paid holiday is a fundamental right of EU law.  This means that UK courts will have to take this into account when interpreting our UK legislation governing holidays, the Working Time Regulations 1998.   

Learning points

The case developments confirm that employers should encourage workers to take their holiday and inform them accurately and in good time of the risk of losing that holiday if they don’t use it by a specific time.  This includes, for example, use by the end of the holiday year and / or by the end of the employment relationship.  

This is particularly important given the confirmation that individuals of member states (such as the UK) can enforce their EU law rights directly against private companies (e.g employers).  It remains to be seen whether this will increase litigation in the UK and other member states, but the onus will be on employers to show that they have sufficiently enabled the holidays to be taken where such a challenge is brought. 

We have previously seen some exceptions where carry over of holidays is automatically enabled by law – for example, for those on long-term sick leave who have not been able to take holidays as a result.  The latest case developments confirm that the carry over principle can now be applied much more widely.   We have seen some limits applied to carry over in other cases (for example, a 15 month limit to carryover in the case of KHS AG v Schulte) but it is not clear if the same limit will also be applied more generally here. 

Many workers will be pleased to see this development and it could be seen as an example of the more favourable interpretation from the European courts mentioned in the quote below.  For employers, it raises a point that needs some careful consideration from them and a review of their internal practices. 

Ultimately, given that the onus will be on employers to show that they have sufficiently enabled the holidays to be taken, an active approach should be adopted in reminding staff of their holiday entitlements in this regard.     

As ever, if any advice is needed on the issues I have commented on, feel free to get in touch.