If an employee doesn’t take all of their statutory holiday entitlement in a leave year, do they lose it?

Not necessarily, held the European Court of Justice in the recent case of Max-Planck-Gesellschaft v Shimizu.

The Law

In the UK, employees have a statutory right to 28 days paid holiday per year. This right is derived from the European Working Time Directive and all member states of the European Union introduced legislation to give effect to this Directive.

Over the years, the right to statutory paid holiday has given rise to a great deal of European case law, particularly on the issue of when holiday can be carried over from one year to the next. The following principles have been established so far through these cases:

– National law can provide for the loss of the right to take accrued leave at the end of a leave year, provided that the worker actually has the opportunity to take the leave.

– Annual leave does carry over to the next leave year in certain sickness absence cases, family-related absence cases and where an employer unlawfully fails to pay holiday pay.

– A limit to carry-over might be permissible, although this is somewhat untested territory, provided that the employer has not unlawfully prevented the worker from taking holiday.

– When employment ends, a worker is entitled to payment in lieu of any accrued unused statutory holiday entitlement.

The Facts

Mr Shimizu was employed by Max-Planck-Gesellschaft (MPG) and towards the end of his employment MPG invited him to take his remaining leave. Mr Shimizu only took two days and then asked for payment in lieu of 51 untaken days from 2012 and 2013. MPG refused to pay because under German law, workers lose the right to carry over untaken leave from one year to the next.

Mr Shimizu brought proceedings in the German labour courts for payment of his holiday. He won at the first stage but on appeal the court thought he should not be entitled to payment in lieu because he had the opportunity to take his leave but chose not to. The court however was unsure of this position and decided to ask the European Court of Justice whether the Working Time Directive allows for national law to exclude the payment in lieu of untaken holiday on termination if the worker does not apply to take the leave (even though they could have done so).

The Decision

The European Court of Justice held that national law cannot provide that a worker will automatically lose their accrued but untaken annual leave on termination or at the end of a “reference period” (such as an employer’s holiday year) if they have failed to seek to exercise their right to take that leave UNLESS the employer can show that it enabled the worker to exercise their entitlement.

The Court said that although the Directive does allow national law to set down conditions for exercising the right to annual leave, including provision for the right to annual leave to be lost at the end of a “reference period”, it doesn’t permit an automatic loss of rights in such circumstances without first checking that the worker had an effective opportunity to take the annual leave owing to them.

The Court considered that, because of the imbalance of power in the employment relationship, it was important that it should not be left to the worker to ensure they exercise their entitlement to leave. An employer must encourage the worker to take their holiday and make sure they know that they risk losing that leave.

Points to note

Employers will be familiar with the requirement to pay workers in lieu of accrued holiday on termination for unused holiday that has been earned in the current holiday year. In UK law, the worker won’t lose the right to this payment in lieu because they didn’t try to take the leave before termination.

However, it has generally been understood that if an employee does not use all of their holiday entitlement in a leave year, they cannot carry it over into the next year unless the employee’s contract allows for this or the employer otherwise agrees. The significance of this judgment is it appears to say that accrued, untaken statutory holiday cannot automatically lapse at the end of the holiday year but can be potentially carried over to the next year. It is for the employer to show that it did enable the worker to take their holiday entitlement before the end of the year for that entitlement to lapse.

Action to take

1. With the variety of changes around holiday entitlement and pay it is important to ensure that you are aware of the current rules;
2. Review and amend any holiday rules and procedures that you have in your contracts and handbooks to ensure that they are compatible with the changes;
3. Consider if you take sufficient steps to remind employees to take accrued holiday before the year ends.
4. Schedule regular email reminders to staff to take their accrued holiday and explain the consequences of not taking leave before the year end.
5. If in doubt seek advice and resolve issues as soon as possible.

Case Reference

Max-Planck-Gesellschaft v Shimizu.

Please feel free to leave a comment, question or observation below. Alternatively get in touch directly: hello@realemploymentlawadvice.co.uk

This article was written and researched by Miranda Amos, Solicitor at our Salisbury Office

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