Recent European decisions to impact annual leave policies

Employer practices in relation to the treatment of employee annual leave entitlements came under the scrutiny of the Court of Justice of the European Union (CJEU) last month. The German courts referred a German ‘use it or lose it’ annual leave law to the CJEU to query its compliance with the EU Working Time Directive. Under the domestic legislation, German employers were entitled to deduct untaken annual leave from employees who did not avail of their entitlement during a given leave year. Max-Planck-Gesellschaft v Shimizu & Kreuziger v Land Berlin Both cases concerned employees who had their contracts of employment terminated with substantial amounts of unused accrued annual leave. Kreuziger did not take any paid leave between January and May 2010 when his traineeship ended. Following termination of his traineeship, he requested a payment in lieu of the untaken accrued annual leave. His employer refused the request on the basis of the German ‘use it or lose it’ law. Shimizu had accrued 51 days of annual leave. He asked his employer for a payment in lieu of the 51 untaken days which spanned two leave years. The employer likewise refused the request by relying on the German ‘use it or lose it’ law. The question considered by the CJEU The question to be determined by the CJEU was whether an employee loses the right to be paid in lieu of accrued but untaken annual leave in circumstances where the employee failed to request the leave during the relevant leave period. Imbalance of power in employment relationship The CJEU emphasised that the objective of the EU Working Time Directive is to ensure that employees take the annual leave they are entitled to with a view to protecting their health & safety. The CJEU also noted that the employee is to be regarded as the weaker party in the employment relationship and employers must not be in a position to impose restrictions on the employee’s rights. Given the imbalance in power in the employment relationship, the CJEU ruled that the employee may be dissuaded from explicitly claiming their annual leave entitlements if s/he feels that it would be detrimental to his/her employment prospects. Employees must be afforded adequate opportunity to take their annual leave entitlement Although the EU laws on working time allow member states to prohibit the carryover of annual leave into the next leave year, such policies are only legal where the employee has been afforded an adequate opportunity to exercise his/her right to take annual leave during the relevant reference period. Employer must meet the burden of proof The CJEU set out specific requirements which employers must abide by to avoid having to make a payment in lieu of untaken annual leave. Employers must specifically and transparently ensure that employees are actually given the opportunity to take any paid annual leave to which they are entitled. The burden of proof in this respect rests with the employer. Employers should review annual leave procedures The decisions of the CJEU require employers to review their annual leave policies. Following these decisions, employers will be prohibited from simply relying on their annual leave policy to justify a decision to refuse a request for unused annual leave on termination of employment. Only if employees have been encouraged, formally where possible, to take their annual leave entitlement and told accurately and in good time that they will lose their annual leave if they don’t take it, will employers be entitled to refuse to make a payment in lieu of accrued, untaken annual leave. Consider the introduction of documentary annual leave reminders Employees will therefore only lose their entitlement to paid leave if it can be shown that they have expressly declined to take their annual leave and that they are specifically aware of the consequences of doing so. One way to meet the burden of proof would be to issue specific documentary reminders in good time to any employees who have not taken their four weeks’ annual leave during a relevant leave year. A paper trail should allow employers to demonstrate that due diligence has been exercised and that employees have specifically been made aware of their annual leave entitlements. Employers should also note that they retain the right to operate a “use it or lose it” rule in respect of any discretionary contractual annual leave entitlements over the statutory minimum. The CJEU decisions will only apply to the statutory minimum period of paid annual leave to which an employee is entitled. To find out more about employer obligations in relation to annual leave and working time, call our 24-hour advice line on 0818 923 923.