Holiday Pay: Use it or Lose it?

One issue I have found myself advising workers on more and more recently is on the subject of holiday pay, specifically whether an employee should be compensated for any holiday she has not been able to take because of her long term absence from work. It has also become a check I take on all cases when a member has been dismissed, again especially when a member has been absent and is dismissed for sickness absence reasons.

The holiday that is relevant here is not a worker’s entire contractual holiday allowance but the 20 days a year that is guaranteed by the EU Working Time Directive (WTD). There have been numerous cases that are helpful to employees that allow a worker’s annual leave allowance to be carried over into subsequent years on the basis that because a worker could not take leave in a particular year then that carries over (meaning of course that if they return they have a lot more annual leave or, if they leave employment they can make a claim for the unpaid holiday pay).

These cases have focused on those who been unable to take leave because of sickness and it has generally been assumed that if a worker can take the leave but does not do so then the entitlement is lost and can not get carried over. In Max-Planck-Gesellschaft v Shimizu the CJEU (EU Court) has provided a helpful correction to that view.

Prior to his departure from his employer Mr Shimizu had taken limited annual leave in the preceding two year, only two days in fact. In the week before he left employment Mr Shimizu asked his employer for compensation for 51 days taken annual leave over the previous two years (called an “allowance in lieu”) but this was refused – the employer taking the view that Mr Shimizu had been able to take the leave and just did not do so.

The German court made a preliminary reference to the CJEU on the interpretation of Article 7 of the WTD. Article 7(1) requires that

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.

Article 7(2)  also clarifies that

The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated.

The CJEU recognised that workers are the weaker party in an employment relationship and could be dissuaded from taking leave – even if not actively obstructed – for many reasons. The court determined that in cases where there is no sickness absence it is still not the case that a worker will automatically lose entitlement to holiday if he has not taken this. Whilst it is the case that entitlement to the leave can cease at the end of a leave year this will only apply if the employer can prove that they have given the worker every opportunity to take the leave in advance of the end of the year leave. Therefore, the burden will now be on an employer to show that they have encouraged and facilitated the exercise of a worker’s holiday rights rather then on the worker to show that they could not take the leave.

What does this means for EU workers

For workers in EU member states the implications of this judgement are significant and helpful in two ways.

For workers of private (non state) employers the WTD is not directly effective, this means a worker cannot rely on the WTD in any legal claims for breaches of their individual rights. Instead the member state (e.g., the UK) must pass regulations to implement the WTD into domestic law, this was done in the UK through the Working Time Regulations 1998.

Domestic regulations must now be interpreted with this judgement in mind so that domestic courts should now allow claims from former workers on the basis that they dd not take their full WTD holiday pay before they ended their employment – and if you are such a worker who has ended their employment in the last few years it might be worth your while to seek legal advice on whether you can now pursue a claim.

Interestingly however, if courts are not amenable to interpreting holiday pay regulations consistently with this judgement or the regulations are contrary to this a worker may not need to wait to bring a claim until the regulations are changed or face bringing action against the member state itself in EU proceedings. Max-Planck-Gesellschaft v Shimizu also made clear that holiday pay is a constitutive element of Article 31(2) of the Charter of Fundamental Rights of the European Union which states

Every worker has the right to limitation of maximum working hours, to daily and weekly rest periods and to an annual period of paid leave.

The significance is that the Charter is directly effective, this means it is a right that does not depend on further legislation or action by the member state but can be relied upon as it is by a worker in any legal action (including in an Employment Tribunal). And so, in the case of the actual complainants while it is likely that German labour law was incompatible with both the WTD and Article 31(2) even if the German Goverment were not to act on this finding that would not change the right of every German worker (or other EU worker for that matter)  from seeking unpaid holiday pay, irrespective of whether they were employed by a public authority or private employer.

What this means for UK workers

As it stands the judgement means the same for UK workers as any other EU worker. For UK workers they can, while the UK remains an EU member, make a claim in UK courts directly relying on Article 31(2) of the Charter or relying on the CJEU interpretation of Article 7 of the WTD to interpret the UK Working Time Regulations (in this case section 13(9)(a) of the WTR 1998).

Brexit is of course a volatile subject and who knows what will change between now and Brexit day. Based on the current situation the fact that this interpretation is based on  direct EU legislation and takes place before Brexit day then this will be binding on UK courts and tribunals even in the event of a no-deal by the application of section 6(1) of the European Union (Withdrawal) Act 2018 although Supreme Court will not.

Therefore the EU Withdrawal Act does indeed mean that EU case law that was promulgated before Brexit day will remain binding on court and tribunals, meaning this holiday pay judgement will too. However, it does introduce some uncertainty in that the when faced with a question the Supreme Court, unlike other courts and tribunals will not be bound to follow EU case law. And so, for the short term at least, this judgement will remain applicable to UK workers as it relates to the WTD.

Unfortunately, while the WTD will continue to apply it seems very unlikely that the Charter for Fundamental Rights will. Of course, since the WTR have long been the subject of Conservative sabre rattling it is not hard to imagine that if they have their way  that days of holiday pay as we know it may well also be numbered.