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ECJ ruling: workers may be entitled to payment in lieu

9 November 2018

It is accepted that accrued holiday could be paid in lieu upon termination of employment. Likewise, holiday can be carried over to the next year in some circumstances such as where an employee cannot take annual leave due to being on maternity leave. The European Court of Justice (‘ECJ’) has now ruled that unused holiday, or the entitlement to payment in lieu of the same, may not be automatically lost at the end of the year – even in ordinary circumstances.

The ECJ has clarified the EU Working Time Directive (‘Directive’); reiterating that every worker’s right to paid annual leave is an important principle of EU social law. Incentives discouraging employees from taking annual leave are therefore incompatible with the objectives of the right to paid annual leave.

Before an employee’s accrued annual leave is discarded at the end of a holiday year, the employer must be able to show that it encouraged the worker to take the leave during the respective holiday year and that the worker was informed that the entitlement to that holiday would be lost if not. If the employer cannot evidence this then the worker will not automatically lose the entitlement to that holiday (or to payment in lieu on termination).

The ECJ’s recent ruling is a useful reminder that employers must be proactive, specific and transparent with employees, particularly before the entitlement to holiday pay is lost. A prudent employer should communicate with its employees in good time, and retain copies for their records.

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