Holiday Pay: Employers need to show they have encouraged their workers to take the holiday they have accrued

K was a paid legal trainee. During the last months of this traineeship, he refrained from taking paid annual leave. After his traineeship ended, he requested an allowance in lieu of the days of leave which he had not taken, which his employer refused to pay relying on German national law. K challenged that refusal before the German administrative courts.

S was employed by MPG. Two months before the end of the employment relationship, MPG invited S to take his remaining leave (without forcing him to take it on the dates it had set). S only took two days off and requested a payment in lieu of the annual leave not taken. MPG refused, also in reliance on national law. S then brought proceedings before the German labour courts.

The respective courts were unsure whether EU law prevented national legislation stipulating that the loss of an allowance in lieu of accrued but untaken holiday is lost where the worker did not apply for leave before the employment relationship ended. They referred this issue to the ECJ.

In its decision the ECJ pointed out that the Working Time Directive does not impose any conditions on the right to a payment in lieu of holiday accrued but untaken on the termination of employment. The ECJ held that it is permissible to stipulate conditions for exercising the right to holiday, including provision for the right to holiday to be lost at the end of a reference period. However, in the ECJ’s view, national law could not prescribe an automatic loss of rights without the employer first verifying that the worker had been given an effective opportunity to take the holiday owed to them. This is because the worker is the weaker party in the situation and the law must guard against the possibility that the worker will be dissuaded from exercising his/her right to take holiday. The ECJ’s clear view was that it cannot be left solely to workers to ensure they exercise their rights effectively. This means the employer must encourage the worker to take his or her holiday, while informing him or her, accurately and in good time, of the risk of losing that leave at the end of the applicable reference period. If the employer does that such that the court is satisfied that the worker deliberately declined to take his/her holiday, and was aware of the consequences of this, national law can provide that the worker loses his/her right to paid annual leave or the corresponding payment in lieu on termination.

In S’s case, since he was employed by a private sector employer, the ECJ had to go on to decide whether the same conclusion applied in a case brought against a private individual. They decided it did.

Although the UK does not have a blanket law that a worker who does not ask for their holiday loses their right to be paid for it in lieu on the termination of their employment this case does have real implications for UK employers. While employers do not have to force workers to take all their Working Time Regulations holiday, they must encourage their workers to take their holiday, and inform them, accurately and in good time, of the risk of losing that leave at the end of the applicable holiday year if they don’t do so. So, employers should have a system to send reminders to workers through the holiday year, particularly in the months towards the end that year, telling them what holiday they still have available to take and encouraging them to take it. This is an effective way of ensuring that workers do not try to use this case to argue that that they were not given the opportunity to take their holiday so they should be paid in lieu of it on the termination of their employment.