Why employers should encourage workers to take annual leave

In the two German cases of Kreuziger v Land Berlin and Max-Planck-Gesellschaft zur Förderung der Wissenschaften eV v Shimizu, the European Court of Justice has held that a worker who does not apply to take annual leave during employment does not automatically lose the right to take leave, or to receive a payment in lieu of accrued untaken leave on termination.

The Court confirmed that workers cannot be deprived of leave or to a payment in lieu on termination unless the employer has ensured “specifically and transparently” that the worker has been given the opportunity of taking leave.

What this means for employers

Employers should encourage workers to take their annual leave entitlement and should ensure they are given a genuine opportunity to take it. A failure by an employer to do so could mean that annual leave entitlement is rolled over into the following leave year(s), even if this contradicts express contractual wording intended to prevent carryover.

Workers should be informed, accurately and in good time, that if they don’t take their annual leave entitlement they will lose it at the end of the applicable reference period. It will only be lawful to extinguish a worker’s right to paid annual leave (or to a corresponding payment in lieu on termination) in this way if the worker deliberately declines to take it knowing the consequences.

 

The burden of proof will be on the employer to show that “it has exercised all due diligence” to enable the worker to take their entitlement.

 

We recommend employers consider issuing reminders to staff about their annual leave entitlements, encouraging them to take leave and informing them that any leave not taken at the end of the leave year shall be lost. These reminders should be sent a reasonable time prior to the end of the leave year.

 

Note that this case only applies to the four-week annual leave entitlement under the EU Working Time Directive. The additional 1.6 weeks’ leave under the Working Time Regulations 1998 (and any additional contractual holiday entitlement) may be forfeited at the end of a leave year, even in circumstances where a worker has not been encouraged to take leave in time.

Details of the decision

Mr Kreuziger was a legal trainee employed by the Land of Berlin, a public sector employer. Towards the end of his traineeship, he refrained from taking paid annual leave. He subsequently requested a payment in lieu of accrued untaken leave when his traineeship ended. Land of Berlin refused to make payment, relying on national law.

Mr Shimizu was employed by MPG, a private sector employer. Two months prior to the end of his employment, MPG invited him to take his remaining leave entitlement. Mr Shimizu took only two days’ leave and then requested a payment in lieu of his outstanding entitlement. MPG also refused, again relying on national law.

Both Mr Kreuziger and Mr Shimizu brought proceedings in the German courts. The respective courts were unsure as to whether EU law precluded national legislation that provides for the loss of paid annual leave which is not taken, and the loss of a payment in lieu of that leave, where the worker does not apply to take leave despite being in a position to do so. They therefore asked the European Court of Justice to give a ruling on the correct interpretation of the relevant provisions of the Working Time Directive.

The European Court of Justice held that whilst it was permissible for national law to set down the conditions for exercising the right to annual leave (including provision for the right to annual leave to be lost at the end of a reference period), it would not be compliant with the Working Time Directive for national law to prescribe an automatic loss of annual leave entitlement in circumstances where a worker has not had an effective opportunity to take their accrued entitlement. The Court went on to hold that employers should not be required to force workers to take their annual leave entitlement, but they must ensure workers have been given a genuine opportunity to do so.

In Mr Shimizu’s case, the Court also had to determine whether the Working Time Directive could be enforced directly by him against his private sector employer. The Court found that the Working Time Directive could be directly enforced against private sector employers given that the right to paid annual leave is a fundamental right of EU law enshrined in the Charter of Fundamental Rights of the European Union.