Holiday Rights: ECJ Rules on Payments in Lieu and Carry Over Periods

The right under the Working Time Directive to be paid in lieu of untaken holiday on termination only applies to the four week minimum entitlement.  In addition, a nine month carry-over period was unlawful as it was substantially shorter than the annual leave reference period of a year.

In Neidel v Stadt Frankfurt am Main, the ECJ was asked whether a Member State which gives workers additional annual leave entitlement over and above the four week minimum required by the Working Time Directive must provide for them to receive payment in lieu on termination of any additional holiday which they have been unable to take due to sickness.  The ECJ ruled that there is no such requirement under the Directive and it is for national law to decide whether to require payment in lieu in such circumstances and to lay down the conditions for such an entitlement.

The ECJ was also asked to consider the lawfulness of a nine month limit on the right to carry over the minimum four week entitlement under the Directive.  Applying its earlier decision in KHS AG v Schulte, it stated that the carry over period must be substantially longer than the reference period in respect of which holiday is granted.  The nine month carry over period in this case was shorter than the reference period of one year (the holiday year) and so was unlawful. 

The decision in this case clarifies that although workers are entitled on termination to pay in lieu of holiday which has not been taken due to sickness, this only applies to the four week basic entitlement under the Working Time Directive unless national legislation provides otherwise.  It follows that the obligation to allow carry over of unused entitlement also only applies to the four week basic entitlement.

In the UK, workers are entitled to an additional 1.6 weeks annual leave under the Working Time Regulations 1998 (“WTR”).  The WTR provide for payment in lieu of the current year’s basic and additional untaken holiday entitlements on termination but do not allow for untaken holiday to be carried over from one holiday year to the next.  The Government has indicated, it its Consultation on Modern Workplaces, that it will be amending the WTR to comply with ECJ case law which requires carry over to be permitted where an employee has been unable to take holiday due to sickness.  It has said that it will limit carry over to the basic entitlement of four weeks and, following this case, it would appear that it is not obliged to go further than this.  However, the Government’s proposal to limit the carry over period to one year for workers who have been unable to take holiday due to sickness may be unlawful on the basis that it is too short.

An announcement on the precise changes which the Government will be making to the Working Time Regulations is still awaited.