“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:

Member states shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks.
The minimum period of paid annual leave may not be replaced by a payment in lieu except upon termination. 

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:

While the WTD permits holiday to be lost at the end of a holiday year, it does not permit an automatic loss of rights without first verifying that the worker had an opportunity to take the annual leave available to them. 
The worker is the weaker party. It cannot be left up to a worker to have sole responsibility to ensure they exercise their rights.
The burden is on the employer to be able to demonstrate that it encouraged the worker to take annual leave (although this does not extend to forcing a worker to take holiday). 
An employer is required to ensure that the worker is encouraged to take annual leave. The worker must also be told the consequences of not taking holiday – ie that it will be lost. This encouragement must be done in a way that is ‘specific’ and ‘transparent’. 
If the employer can show that the worker deliberately, in full knowledge of the consequences, refrained from taking annual leave after having had the opportunity to do so, the WTD does not preclude the loss of holiday or a payment in lieu of holiday on termination.

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:

Encourage staff to take holiday, and make sure they have the opportunity to do so; 
Advise staff that if they do not take all their holiday entitlement, it will be lost; and
Keep written records of efforts to do this so there is an audit trail.

Privacy Policy



Powered by The Logic of Eight - Creative Media