Do workers automatically lose the right to payment in lieu of holidays that they did not take?

25th February 2019

In the UK the entitlement to paid annual leave is governed by the Working Time Regulations 1998 (WTR) which implements the Working Time Directive.

UK law states that employees must take their entitlement to the 4 weeks leave provided for by the Working Time Directive in the leave year in which it is accrued. A payment in lieu of this leave is not permitted except on the termination of employment. However, the law in Germany states that employees are not entitled to a payment in lieu of termination and will lose the right to leave that has accrued during their employment if they do not take it. At the end of last year the European Court of Justice (ECJ) heard two cases in which a similar question was asked. That question was: -Does the Working Time Directive override national legislation which states that no payment in lieu is to be made where the holiday has not been taken by the termination date, even where the worker did not apply to take that leave but could have done so? Briefly the facts were that Mr Kreuziger was working for a German state entity, The Land of Berlin, and in the last few months of his employment he did not take the leave that he had accrued. On termination he asked for a payment in lieu of that leave which was refused. In a similar case Mr Shimizu did not take much, if any, leave over the two years prior to his employment ending such that he had accrued 53 days of untaken leave. His employer invited him to take his remaining leave but did not force him to do so. Mr Shimizu took 2 days and requested a payment in lieu of 51 days. Both cases were referred to the ECJ who were asked to decide whether the national law preventing a payment in lieu on termination was compliant with the Working Time Directive. Further, Mr Shimizu asked whether Article 31(2) of the Charter of Fundamental Rights could be enforced directly against a private person in order to guarantee his fundamental right to paid annual leave. The ECJ held that in a case such as this the worker is the weaker party and so it is the employer's duty to ensure that it does not restrict the worker's rights either by preventing them from taking leave they have accrued or, on termination, by making a payment in lieu of that leave. The ECJ held that national law cannot provide for the automatic loss of accrued but untaken leave entitlement on termination or at the end of a specific period simply because the worker has not exercised their right to take that leave. However, this would be different if the employer was able to show that it had enabled the worker to exercise their right to take the annual leave. The burden of proof in this respect will be on the employer, which means that as an employer it is important that you record the fact that you have made your employees aware of their right to take annual leave, the amount of annual leave that they have available to them, when that leave will expire and the fact that they will not be able to carry it over or receive a payment in lieu of that holiday if they have not taken it by the end of the leave year (or any carry over period). The ECJ also went on to say that Article 31(2) of the Charter of Fundamental Rights is sufficiently clear and precise and is unconditional, such that it confers a right on workers that they can rely on in a dispute with their employer. It is therefore irrelevant whether the individual is employed by a state entity or by a private company. Whilst the facts of this case are slightly different from the UK where the individual will automatically receive a payment in lieu of any holiday that they have accrued but not taken at the termination date, the decision appears to say that accrued holiday does not automatically lapse at the end of the leave year. Therefore, unless the employer can prove that they have informed their employees of their rights and encouraged them to take that leave, then the leave will carry over to the next year. This case means that the 4 weeks of Directive based leave (unlike the additional 1.6 weeks of leave provided for by the WTR) potentially may be carried over in to the next leave year. So whilst the WTR specifically say that no carry over is permitted, they must, if challenged, be interpreted by the Courts in line with European Law as set out above. This therefore potentially changes the position which previously was that leave could only be carried over either by express consent or due to the personal circumstances of the individual such as where they have been too ill to take the leave or due to a period of family related leave. It may be possible however to limit the period for which the leave can be carried over and ideally this should be set out in the contract of employment. What you should do Whilst this has not been tested in the UK, we would advise businesses to ensure that at regular intervals throughout the leave year you remind your workers when the leave year ends, the fact that leave cannot be carried over, and perhaps remind them of how much leave they have to take and any limitations that might be imposed by the business on their ability to take that leave. This should be recorded so that there are clear and transparent records that you have exercised your obligation to the employee and therefore should an individual attempt to challenge it; it is unlikely that they would succeed. One way of doing this, would be to send out an email at regular intervals or to post it on the company intranet. If neither of these is feasible for your workplace, then you may want to put up posters and/or ask line managers to remind employees at team meetings or similar. This will put you ahead of the game and reduce the risk should a similar case be brought in the UK. Please note this article should only be considered as guidance and should not be taken as specific legal advice. For further advice on this topic contact Kelly Gibson via Kelly.Gibson@tayloremmet.co.uk and 0114 218 4307.

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