In two German cases relating to the right to a payment in lieu of accrued but untaken annual leave the European Court has ruled that, under the Working Time Directive, a worker does not automatically lose their accrued but untaken holiday entitlement at the end of a holiday year in when they have failed to seek to take their holiday entitlement for that period. However, holiday entitlement can be lost if the employer can show that it took steps to encourage the worker to take the holiday before the end of the holiday year.
If the worker has not lost their holiday entitlement, they are entitled to a payment in lieu of that entitlement on termination, or to carry the entitlement forward into the next holiday year.
In another interesting extension to workers’ rights the European Court ruled that the right to paid annual leave was a directly enforceable right between a private sector employer (rather than a public sector employer) and an individual.
National courts are required to interpret domestic legislation as far as possible in compliance with the Article 7 of the Working Time Directive which states:
”(1) Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice.
(2) The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated.”
The first case concerned Mr Kreuziger who was a legal trainee employed by the Land of Berlin (a public sector employer). He did not take any paid annual leave in the last months of his training contract and following termination requested an allowance in lieu of the days of leave which he had not taken. The Employer refused the request in reliance on national law. Mr Kreuziger challenged that refusal and the German national courts ruled initially that the entitlement under Article 7(2) of the WTD to a payment in lieu on termination is conditional on the worker not having been able, for reasons beyond their control, to exercise their right to paid annual leave before termination.
The second case concerned Mr Shimizu who was employed by Max-Planck-Gesellschaft zur Forderung der Wissenschaften eV (MPG). MPG were a private sector employer. Two months before the end of his employment, MPG invited Mr Shimizu to take his remaining leave (without forcing him to take it on the dates it had set). He only took two days and requested payment in lieu of 51 untaken days from 2012 and 2013. MPG refused, also in reliance on national law. The German national court ultimately ruled that he was not entitled to the payment in lieu under the relevant German law because he could have taken his leave. However, the court was unsure whether this position complied with the Working Time Directive.
The question referred to the European Court was whether Article 7 of the WTD prevent national legislation that excludes the payment in lieu of untaken holiday on termination where the worker did not apply to take leave, even though they could have done so.
In Mr Shimizu’s case, because he was employed by a private employer, the question was also asked whether the Directive could be enforced directly by him against his employer.
The European Court of Justice ruled that national law cannot provide for the automatic loss of accrued but untaken annual leave entitlement on termination, or at the end of a holiday year, on the basis that the worker failed to seek to take the leave unless the employer could show that it had encouraged the worker to exercise their entitlement, particularly through the provision of sufficient information. The employer has the burden of proof in this respect.
Paragraphs 52 and 54 of the Kreuziger judgments contain the following further guidance:-
”[t]he employer is in particular required … to ensure, specifically and transparently, that the worker is actually given the opportunity to take the paid annual leave to which he is entitled, by encouraging him, formally if need be, to do so, while informing him, accurately and in good time so as to ensure that that leave is still capable of procuring for the person concerned the rest and relaxation to which it is supposed to contribute, that, if he does not take it, it will be lost at the end of the reference period or authorised carry-over period, or upon termination of the employment relationship where the termination occurs during such a period.”
”[i]f the employer is able to … [prove] … that it was deliberately and in full knowledge of the ensuing consequences that the worker refrained from taking the paid annual leave to which he was entitled after having been given the opportunity actually to exercise his right thereto, Article 7(1) and (2) of Directive 2003/88 does not preclude the loss of that right or, in the event of the termination of the employment relationship, the corresponding absence of an allowance in lieu of the paid annual leave not taken.”
Enforcement against a private employer
In Mr Shimizu’s case, since he was employed by a private sector employer, the European Court had to go on to decide whether he could rely on its interpretation of Article 7 of the Working Time Directive.
The European Court restated the established principle that national courts must interpret national legislation as far as possible in compliance with applicable directives. This right also applies in disputes between private persons and that it is incumbent on the national court to disapply a contrary provision of national law.
These cases are important. Untaken holiday cannot automatically lapse at the end of the holiday year and will carry over to the next year unless an employer has enabled the worker to take it. If not then when the employment then terminates, the right to payment in lieu is to the total untaken entitlement. In Mr Shimizu’s case this amounted to 51 days over to two different holiday years.
Steps for an employer to take:-
- ensure, specifically and transparently, that the worker is actually given the opportunity to take the paid annual leave to which they are entitled, by encouraging them, formally if need be, to do so;
- inform the worker, accurately and in good time that leave is still capable of being taken in the relevant holiday year;
- inform the worker that it is important for them to take the holiday for the purposes of rest and relaxation;
- inform the worker that if they do not take the leave, it will be lost;
- keep a full and detailed record of correspondence with the worker and have the worker acknowledge that they have been advised of their rights.
In the UK, the Working Time Regulations 1998 state that the four-week leave entitlement may only be taken in the leave year in respect of which it is due. This regulation will need to be read as being subject to the condition that the employer has enabled the employer to take the leave.
These cases appear to have added to the list of carry-over exceptions already established in case law (eg. for workers who are on sick leave). However, it is also possible that a limit to carry-over would be permissible such as the 15-month limit in the KHS AG v Schulte, provided that the employer has not unlawfully prevented the worker from taking holiday.
In addition, the Shimizu case confirms that the EU right to paid annual leave is directly enforceable against a private sector employer. This means that if the Working Time Regulations are considered incompatible with EU law, the UK courts should disapply the offending provision. Arguably this could apply to both the 4 weeks holiday entitlement and the additional 1.6 weeks provided for in the Working Time Regulations.