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Holiday. Use It Or Lose It?

The summer holidays may be at an end, but if you’re employees have been too busy to take their allocated leave so far in 2019 – and are unable to take it before the end of the working year, then is the holiday entitlement lost? It all depends – as one recent German court case demonstrates.

Do you have a policy?

Most businesses will have a ‘use it or lose it’ policy meaning that an employee or worker will lose their holiday entitlement and is not able to take it across to the next year. But this needs to be stated within their employment contract in the Employer’s Policy on using holiday entitlement.

The options that employers can choose to add:

  • Some holiday entitlement can be carried to the next year with specific permission or under extenuating circumstances
  • Holiday entitlement absolutely cannot be carried forward

What is the law on holiday entitlement?

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.

  • Is it stated in the contract?
  • Has there been a company precedent?

Employees’ holiday entitlements derive both from employment contracts and statutory employment law. Statutory employment law on holiday leave comes from

the Working Time Regulations and the minimum requirements set down by the European Union’s Working Time Directive.

What does the law say?

If an employee or worker has been unable to take their annual leave allocation due to maternity leave or sick leave, or because their employer has refused to allow or has made it impossible for the leave to be taken, then under the Working Time Regulations, any tribunals and courts may well say the holiday entitlement could carry forward by law (at least for a reasonable amount of time) – regardless of what the employer’s contracts say.

However, the employment law position was recently shaken as a result of the Court of Justice of the European Union’s decision in the Max-Planck-Gesellschaft v Shimizu case.

In this case, an employee brought a claim for unpaid holiday. Under German law, it was found that the employee was unable to carry over untaken leave from one year to the next year. However, on referral to the CJEU they held that the European Working Time Directive requires that if a worker did not exercise the right to paid annual leave in any year, the leave “should not automatically be lost unless the employer has ‘diligently’ brought it to the workers attention that leave would be lost.”

They also stated that the employer had to show that it had brought the matter to the employee or worker’s attention; ‘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’.

[Link to judgments: https://www.bailii.org/eu/cases/EUECJ/2018/C68416.html and https://www.bailii.org/eu/cases/EUECJ/2018/C61916.html ]

What does this mean for UK employers?

HR representatives and employment lawyers are becoming more proactive about ensuring that employees and workers are aware of their entitlements and that they may be lost at the end of the year.

As with many legal cases, this decision also poses additional questions: will it be decided in the future that it is enough for an employer to simply state in its employment contracts or policies that leave is only to be taken during the holiday year? Will employers be required to draw their employees’ attention to their remaining leave and remind them of the “use it or lose it” policy?

Can an employee ask to be paid for the unused leave?

An employee cannot insist on being paid for unused holidays whilst they are still employed – but can do at the end of the employment. It will still depend on the reasons behind why holidays were not used, how long ago that holiday year was, and whether the employer has asked for the leave to be used in the meantime.

If you are a business and are unsure of your position then contact Harris Law on 01803 861086