The European Court of Justice has given some important clarification about the steps employers must take if they are to enforce a “use it or lose it” rule for holidays at the end of the leave year. In a number of separate references from Germany, heard together last month, it has said that national legislation is not compatible with the Working Time Directive if it stipulates that the four weeks' leave guaranteed by the Directive is automatically lost if not taken by the end of the relevant reference period.
The most widely relevant reference involves a private sector worker engaged on a series of fixed term contracts, who had accumulated 51 days of untaken annual leave by the time the final contract in the series expired. He sued his employers for a payment in lieu of this entitlement. They sought to rely on a provision of German Federal Law implementing the Directive, which prevents carrying forward of leave unless justified on “compelling operational grounds or for reasons personal to the employee”.
The ECJ has said that in these circumstances the burden of proof is on the employer to demonstrate that the worker deliberately refrained from taking the leave “in full knowledge of the consequences”. Whether the employer in this case has satisfied this requirement will be for the national court to assess, but the ECJ has given some guidance about what will be sufficient. In particular, the employer must ensure “specifically and transparently” that the workers are in a position to take the annual leave they are entitled to, by encouraging them to do so “formally if need be”. They must also warn them in good time that untaken leave will be lost at the end of the reference period or authorised carry-over period.
In the UK the use it or lose it principle is set out (more baldly than its German counterpart) in regulation 13 Working Time Regulations, which says that leave “may only be taken in the leave year in respect of which it is due”. This principle has already been significantly qualified by subsequent case law in the event of long-term sickness and maternity leave, or if entitlement has been positively denied by the employer. This latest ruling from the ECJ potentially extends these exceptions to cases where the employers have not done enough to encourage workers to take their leave, though it is reassuring to note that it does not expect them to “force their workers to actually exercise their right to paid annual leave”.