A reminder of the entitlement
The Working Time Directive (the Directive) provides, as a minimum, that workers and employees are entitled to paid holiday of at least four weeks. This minimum right can be improved upon by member states or employers. In Great Britain, the Directive is implemented by the Working Time Regulations 1998 (the Regulations). The Regulations give workers and employees 5.6 weeks' annual leave, made up of the right under the Directive and an additional 1.6 weeks' leave. Under the Regulations, the first four weeks of statutory holiday may only be taken in the holiday year in respect of which it is due.
As the right to paid leave extends to workers and employees, we have grouped these two classes together for the remainder of this article and referred to them both as workers.
What did British case law say about carrying over leave?
The Employment Appeal Tribunal (EAT) found in 2012 that the Directive did not require carry-over of the 1.6 weeks' additional leave given by the Regulations in cases where a worker was unable to take this leave as a result of sickness absence. The EAT found that this leave could not be carried over unless a relevant agreement provided for such carry-over (Sood Enterprises Ltd v. Healy).
This principle has now been tested by the highest court in the European Union, the European Court of Justice (ECJ) in the Finnish cases of Terveys- ja sosiaalialan neuvottelujarjesto (TSN) ry v. Hyvinvointialan liitto ry and Auto- ja Kuljetusalan Tyontekijaliitto AKT ry v. Satamaoperaattorit ry.
The view from the ECJ
The Finnish courts asked the ECJ to determine whether, in two cases, it was permissible to restrict the amount of paid holiday that can be carried over to another holiday year.
In the first case, a laboratory assistant was on sick leave from 2 to 23 September 2015. She also had holiday leave booked for 7 to 13 September 2015. Since she had not been able to take her holiday because she was sick, she asked that the six days' holiday be carried over to a later date. This was an entitlement under a collective agreement that had been agreed with a workers' representation organisation, TSN. However, her employer only carried over two days, since this was her entitlement under Finnish law. TSN argued that, according to the Directive and the Charter of Fundamental Rights of the European Union (the Charter), it was wrong to limit her carry-over to that given by Finnish law.
In the second case, an employee was on sick leave between 29 August and 4 September 2016. His request for six days' holiday to be carried over as a result of his absence was refused by his employer. This was on the basis that the holiday was due under the freight transport sector collective agreement rather than Finnish national law. The workers' representative organisation, which had signed the relevant collective agreement, claimed before the courts that the Finnish law on annual leave as regards carry-over was contrary to EU law.
The Finnish Labour Court asked the ECJ if the Directive or the Charter prohibited a national law which provides for additional holiday over and above the four-week Directive entitlement, but which limited carry-over of holiday to those four weeks (and did not allow additional holiday to be carried forward).
The ECJ said such national law was not prohibited. National laws, which provide for holiday in excess of the four weeks provided by the Directive, can restrict carry-over of such holiday in the event of illness. Member states may or may not make provisions for the carry-over of additional leave where a worker has been incapable of working due to illness during all or part of a period of paid annual leave.
If a member state chooses to allow the carry-over of additional leave in such circumstances, it can also decide on any rules around this, provided the worker's right to paid annual leave when they are on sickness absence does not fall below the minimum period of four weeks.
Take-away points from the case for employers
Sood changed the law and was met with some caution. The ECJ's decision is therefore welcome confirmation that employers can continue to limit carry-over of holiday in cases of sickness absence to the four weeks' leave under the Directive.
The timing of this decision is quite apt. At the end of the calendar year lots of workers may be looking to carry over their holiday leave to next year. Employers are likely to already have a policy in place which deals with this. It is usual to see a provision that says up to five days' holiday can be carried over to the next holiday year, but it must be taken within the first three months of the next holiday year. Absent such a provision, the default position is "use it or lose it". It is important to remember that payment in lieu of holiday cannot be made, except on termination of employment. However, it is key that workers are made aware of their right to take paid leave, and employers enable them to do so.
As described above, the entitlement granted by the Directive must be taken in the leave year to which it relates, or it will be lost. Parties can agree that the additional leave, i.e. the 1.6 weeks' leave arising from the Regulations, may be carried forward into the next leave year. However, as noted, there are exceptions to the "use it or lose it" stance, and case law has established some circumstances where workers should be permitted to carry over unused statutory holiday.
Where the worker is told his holiday leave will be unpaid
Whether this is by mistake (perhaps because it is thought the worker is an independent contractor without the right to paid holiday) or on purpose, since workers will be deterred from taking unpaid holiday, the right to any untaken leave under the Directive will carry over.
Where the worker has been on maternity leave
If a worker has been on maternity leave and therefore been prevented from taking all or any of her 5.6 weeks' holiday entitlement in the holiday year in which it accrued, she will be entitled to carry this over to the following holiday year.
Where there was no opportunity to take holiday
If a worker has not had an effective opportunity to take their Directive holiday entitlement, they are likely to be entitled to carry it over. The circumstances of the case will have to be examined in this situation, but generally an employer will need to show that it provided the worker with information about their holiday entitlement and the potential loss of it if they were not to take it in the holiday year.
Where a worker has been sick
As the main cases in this article highlight, workers can carry over their Directive entitlement where sickness absence has prevented them from taking their entitlement in the year in which it accrued. As a reminder, employers are allowed to set some rules in relation to the date by which carried over holiday must be taken in cases of long-term sick leave. An employer can state that holiday not used within 18 months of the end of the leave year in which it accrued is lost.
Therefore, at this most wonderful time of the year, take a break and enjoy the holiday season and encourage workers and employees to do the same. Alternatively, Scrooge may be round the corner waiting to take it away!