Workers do not automatically lose right to holiday at the end of a holiday year...

... unless the employer has reminded them that they should take it

Kreuziger v Berlin (C-619/16); Max-Planck-Gesellschaft zur Forderung der Wissenschaften eV v Shimizu (C-684/16)

Why care?

In this case, the ECJ held that workers have the right to carry their untaken holiday forward to the next year unless the employer has enabled them to take their leave and warned them of the consequences of not doing so.

The right to paid annual leave is an important principle of EU law. Article 7(1) of the Working Time Directive states that member states must ensure each worker is entitled to at least four weeks' paid annual leave, in accordance with the conditions of entitlement and granting of such holiday laid down in national legislation or practice. Article 7(2) says that workers may only receive payment in lieu of paid annual leave on termination.

National laws can and do provide for the loss of untaken leave at the end of a leave year, as long as the worker has had the opportunity to take it. ECJ case law confirms that it may be carried over in certain sickness absence and family leave cases, and where the employer has failed to pay holiday pay, but there are permissible limits on the worker has to use the carried-over leave (for example, 15 months after the end of the relevant leave year in KHS AG v Shulte).

The case

Mr Kreuziger was a legal trainee who took no paid annual leave in the last months of his traineeship. His public authority employer refused to pay him an allowance for the unpaid leave on termination.

Mr Shimizu was employed by a German private company. Two months before the end of his employment, his employer invited him to take his remaining annual leave, but did not force him to take it on set days. He took only two days and then asked for payment in lieu of 51 days from 2012 and 2013.

The two cases were heard separately but the principal issue was the same: does Article 7(2) of the Working Time Directive mean national legislation cannot exclude the payment of untaken holiday in lieu on termination where the worker did not apply to take the leave, although they could have done so?

The ECJ held that national law cannot allow the automatic loss of accrued but untaken leave on termination or at the end of the relevant holiday year because the worker failed to seek their right to take it unless the employer could show it had enabled the worker to exercise their right to take their leave. This would include providing the employee with information about their holiday entitlement. It is for the employer to prove that they have done so.

Article 7(1) allows member states to permit conditions on the exercise of the right to annual leave, but does not permit an automatic loss of rights unless the worker had an effective opportunity to take the leave. However, Article 7(2) does not permit conditions on the right to be paid in lieu of accrued but untaken leave on termination. As the worker is in a weaker bargaining position, the courts must ensure that employers do not restrict their rights and must "guard against the possibility" that the worker will be dissuaded from exercising their right to leave because of the possibility of detrimental consequences. Therefore, it cannot be left up to the worker alone to ensure they are able to exercise their rights.

In Mr Shimizu's case, the referral also included a question on direct effect of EU law, since his employer was a private company and not a public authority. The EU's Charter of Fundamental Rights applies to the exercise and implementation of EU law by member states, and Article 31(2) provides that "every worker has the right to … an annual period of paid leave." The ECJ held that this was sufficiently clear and precise that the EU right to paid annual leave is directly enforceable by a worker against his or her private employer.

Workers must be encouraged to take their holidays while informing them accurately and in good time of the risk of losing that leave at the end of the year if they do not. However, employers do not have to force their employers to take the leave.

What to take away?

It seems that according to the ECJ, accrued untaken holiday in one holiday year will not lapse and instead will carry over to the next holiday year unless the employer can show it had enabled the worker to take their holiday entitlement in the correct year.

Accordingly, the worker would be entitled to payment in lieu of the total accrued but untaken holiday. Employers need to be able to show that they have enabled their employees to take their leave – perhaps, for example, to consider a reminder of what holiday employees still have to take at the half-year and three-quarter year points? Those with management software will find it much easier to do so than employers with less sophisticated tools.

It is possible (as with, for example, Shulte when the worker is absent on long-term sick leave) that a limit on carry-over would still be allowed. In that case, it was 15 months after the end of the holiday year.