“Use it or lose it” principle in question following important holiday court judgments

In an important finding the Court of Justice of the European Union (ECJ), in judgments relating to two German cases has held that a worker cannot automatically lose the right to take paid holiday because they did not apply to take it.

Both cases on the right to take paid annual leave under Article 7 of the European Working Time Directive (WTD), which says:

One of the employees did not take holiday in the last few months of his employment and asked for accrued holiday paywhen his employment was terminated. He was then asked by his employer to take his accrued holiday entitlement before his employment came to an end but took only two days and expected to be paid in lieu for 51 days accrued over two holiday years. 

The employers in both cases believed that German labour laws justified them not making any payment in lieu. The two employees complained to the courts. 

In its judgments, the ECJ set out a number of principles on the right to take paid annual leave under the WTD, including:

Although the cases focused on a payment in lieu of annual leave upon termination, the decision has significant implications relating to the right to take holiday. The ‘use it or lose it ‘ principle is set out in most employment contracts and tends to be relied on by employers. 

These cases may now place an obligation on employers to proactively encourage workers to take holiday and spell out the consequences of not doing so. Therefore good practice moving forward would be to: