Statutory holidays - use it or lose it?
Max-Planck-Gesellschaft v Shimizu; Kreuziger v Land Berlin
Workers cannot be deprived of paid statutory holiday entitlement on the termination of employment or at the end of a particular reference period/authorised carry-over period unless the employer has ensured ‘specifically and transparently’ that the worker is given the opportunity to take the leave.
In the UK the Working Time Regulations specify that all workers (apart from those who are genuinely self-employed) must receive at least 5.6 weeks paid holiday each year (pro-rated for part-time staff). Four weeks of this leave is mandated by the Working Time Directive; the remaining 1.6 weeks is a UK-specific entitlement.
These two cases joined together before the European Court of Justice (ECJ) both featured employees in Germany who had left their employment with accrued untaken holiday.
Mr Kreuziger did not take any paid leave in the last months of his traineeship. After termination he requested an allowance in lieu of the leave he’d not taken, which his employer refused in reliance on German law. Mr Shimizu’s employer had asked him to take his remaining leave two months before the end of the employment relationship (without forcing him to take it on the dates it had set). He only took two days leave and asked for payment in lieu of 51 untaken days spanning two leave years. Again, his employer refused relying on German law.
The employees brought claims in the German court, and the German courts asked the ECJ whether the German ‘use it or lose it’ law was compatible with the Working Time Directive.
In both cases the ECJ emphasised the importance of paid annual leave as a principle of EU social law from which there may be no derogations.
National law cannot, said the ECJ, provide for the automatic loss of accrued but untaken annual leave entitlement on termination, or at the end of the relevant reference period, on the basis that the worker failed to seek to exercise their right to annual leave – unless the employer can show that it had enabled the worker to exercise their entitlement, particularly through the provision of sufficient information. In this respect, the burden of proof is on the employer.
Annual leave entitlement from an earlier leave year is not automatically lost just because the employee failed to request to use it. To be able to show that payment in lieu for such leave is not owed to the employee, the employer must be able to demonstrate that they provided the employee with the opportunity to take the leave and made them aware of the circumstances under which the entitlement would be lost. What exactly would qualify as sufficient ‘opportunity’ is not totally clear, however the ECJ noted that employers are required in particular ‘to ensure, specifically and transparently that the worker is actually given the opportunity to take the paid annual leave … by encouraging him, formally if need be to do so while informing him accurately and in good time … and that if he does not take it, it will be lost’.
Importantly, although the employers here were private institutions, the ECJ ruled that the right to paid leave was still enforceable between private parties (rather than only against state bodies) because, although the right comes from a directive, it is enshrined in the EU Charter.
These decisions suggest that employers will need to do more than simply having a leave policy in place. Workers (i.e. not just ‘employees’) should be encouraged, formally if necessary, to take their leave entitlement and told accurately and in good time that they will lose it if they don’t take it. Consider issuing specific reminders a reasonable time before the end of the leave year to those who have not taken four weeks’ leave encouraging them to take it.
The burden of proof will be on the employer to show that ‘it has exercised all due diligence’ to enable the worker actually to take his or her entitlement. Loss of entitlement will only be lawful if the worker deliberately declines to take their leave knowing the consequences.
In line with other ECJ decisions, this applies to the first four weeks leave only. Employers are entitled to operate a ‘use it or lose it’ approach to the remaining 1.6 weeks holiday.