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Holidays Use it or lose it?31st January 2019 Employment
In Kreuziger v Berlin (C-619/16) EU:C:2018:872 and Max-Planck-Gesellschaft zur Forderung der Wissenschaften eV v Shimizu (C-684/16) EU:C:2018:874, the European Court of Justice (“ECJ„) gave guidance on the circumstances in which workers do not lose accrued holiday entitlement or the right to payment in lieu of that entitlement on termination.
Both cases concerned the effect of Article 7 of the EU Working Time Directive (“WTD„) which confirms that the minimum period of paid annual leave (four weeks) may not be replaced by an allowance in lieu, except where the employment relationship is terminated. National rules can provide for the loss of the right to take accrued leave at the end of a leave year, provided that the worker actually had the opportunity to take the leave.
The ECJ has previously held that leave carries over to the next leave year in certain situations, for example, in sickness or family-related absence cases. The case of KHS AG v Schulte C-214/10 (ECJ), confirms that where this occurs a limit to carry-over might be permissible, such as the 15-month limit in the Schulte case, provided that the employer has not unlawfully prevented the worker from taking holiday.
Mr Kreuziger was a paid legal trainee employed by a German state entity, the Land of Berlin (the “Land„). Following his termination, he requested payment in lieu of his holiday entitlement as he had not taken any paid annual leave in the last months of his traineeship. The Land refused his requested in reliance on national law.
Mr Shimizu was employed by Max-Planck-Gesellschaft zur Forderung der Wissenschaften eV (MPG). Two months prior to his employment terminating, MPG invited him to take his remaining leave. However, he only took two days holiday and requested payment in lieu of 51 untaken days from 2012 and 2013. MPG refused, also in reliance on national law.
Although these two cases were separate, the courts were required to consider the same question, namely, whether an employer was able to refuse to make a payment in lieu of untaken holiday on termination where the worker did not apply to take leave, even though they could have done so.
The ECJ held that untaken annual leave entitlement on termination could not be automatically forfeited by the worker in circumstances where they failed to seek to exercise their right to annual leave, unless the employer could show that it had enabled the worker to exercise their entitlement. The ECJ held that the employer had the burden of proof in this respect which could be achieved by providing the worker with sufficient information.
The ECJ also stated that any national law which provided an automatic loss of rights of holiday entitlement on termination of employment without ensuring that the worker had an effective opportunity to take annual leave would not be compliant with Article 7.
In reaching its decision the ECJ commented that the worker is the weaker party in an employment relationship and therefore, the court must protect the worker against the possibility of dissuading the worker to exercise their rights to annual leave. As such, whilst Article 7 doesn’t require an employer to force a worker to take annual leave, it must ensure there is an opportunity to do so. This can be done by encouraging the worker to take leave and explaining the risk of losing that entitlement at the end of any applicable reference period.
If the employer can show that it has satisfied the above, the court can then take a view that a worker deliberately declined to exercise his entitlement whilst being aware of the consequences and in these circumstances a worker may lose his right to paid annual leave under EU law.
To our knowledge, there is no current reported UK case law which suggests that a worker who seeks payment in lieu of holiday entitlement attributable to the holiday year in which termination occurs, could lose the right to the payment in lieu because they did not try to take the leave before termination.
The most significant point to note about these judgments is that they suggest that accrued, untaken holiday cannot automatically lapse at the end of the holiday year. Therefore, an employer needs to show that the worker was able to take their entitlement in the holiday year and actively encourage the employee to take annual leave. As it is on the employer to discharge this burden, as part of good practice, employers could confirm to a worker in writing what their entitlement is and explain that if leave is not taken within a certain period such entitlement will be lost.
This update was drafted in conjunction with Dominic Coyle. To contact either Simon or Dominic please do not hesitate to use the form and our team will get in touch at a time convenient to you.