The Advocate General has issued a non-binding opinion concerning the carry over of paid annual leave. The opinion provides that where a worker is deterred from taking annual leave because it is unpaid they can say that they have been prevented from exercising their right to paid leave. In such circumstances, the right will accrues and carry forward, without limitation, until the worker is permitted to exercise the right. A limitation on carry over would only be lawful where the employer had permitted the worker to take paid annual leave. This opinion could mean that workers are entitled to payments in lieu of accrued annual leave for the entirety of their engagement. In the present case, this could potentially span a period of 13 years (King v The Sash Window Workshop Ltd and another).

Background law

Entitlement to carry over annual leave

Our domestic legislation originally stated that annual leave had to be taken in the leave year in which it was due and it could not be paid in lieu, save upon termination (regulation 13 (9) of the Working Time Regulations 1998 (WTR)). However, these provisions conflicted with the ruling of the ECJ in Pereda v Madrid Movilidad SA, where it was held that if workers did not wish to take their annual leave entitlement during a period of sick leave then the annual leave must be granted at a different time, even if it meant carrying it over to another leave year.

This conflict was resolved by the Court of Appeal in the case of NHS Leeds v Larner where the following words were read into regulation 13(9) of the WTR to allow compliance with the Working Time Directive (WTD): "Leave to which a worker is entitled under this regulation may be taken in instalments, but (a) it may only be taken in the leave year in respect of which it is due, save where the worker was unable or unwilling to take it because he was on sick leave and as a consequence did not exercise his right to annual leave". The Court also read words in to allow any carried over leave to be included in a pay in lieu of accrued but untaken holiday upon termination.

Further, in the case of Sood v Healey the EAT confirmed that the requirement to allow the carry over of annual leave for sick workers only applies to leave which is derived from the WTD (i.e. 4 weeks' leave per annum). The WTR prohibits the carry over of the additional 1.6 weeks' granted under the WTR, unless there is a relevant agreement.

Limitations on the right to carry over

Although it was clear that the carry over of annual leave for sick workers must be permitted, what was less clear was whether this was an unlimited right. In the case of KHS AG v Schulte the ECJ held that there should be a limitation on the carry over period, although the carry over period should be significantly longer than the leave year. In that case the ECJ held that a carry over period of 15 months was lawful, although it was not clear whether this was the minimum for all cases or fact specific. Indeed, the Advocate General in that case had recommended a carry over period of 18 months, on the basis of the recommendation set out in the International Labour Organisation Convention.

In Plumb v Duncan Print Group the EAT concluded that the WTD does not require indefinite carry over of leave, but "at most" required carry over of 18 months.

The Claimant worked as a salesman for the Respondent for 13 years, engaged under a "self-employed commission-only contract". He was not paid a salary and nor did he receive any paid annual leave. Nine years into the engagement, the Respondent offered to engage the Claimant on an employment contract (which would have provided for paid annual leave), however, the Claimant refused and continued under the "self-employed" contract.

After the termination of his contract, the Claimant brought a Tribunal claim alleging he was a worker and claiming unpaid holiday pay, arguing that he had not taken his full entitlement of annual leave because it would have been unpaid. The Tribunal found that the Claimant was a worker and proceeded to award holiday pay in respect of both taken and untaken holiday in the previous 13 leave years.

The Respondent appealed the Tribunal's decision to award holiday pay in respect of the untaken holiday from the previous 13 years. The EAT overturned the Tribunal's decision on the basis that it was not clear that the Claimant had been prevented from taking annual leave due to reasons beyond his control.

The Claimant appealed and the Court of Appeal referred a number of questions to the ECJ. In a nutshell, the Court asked whether a worker can claim that an employer's failure to pay for periods of annual leave meant that they had been "prevented" from taking their leave (and, in which case, the leave should carry over). The Court also asked about the length of any such carry over: was it indefinite or would an 18-month carry over period be lawful?

Ahead of the ECJ's decision, Advocate General Tanchev has given an opinion.

Advocate General's Opinion

The Advocate General gave the following opinion:

  • Employers must "provide adequate facilities" for workers to exercise their right to take paid annual leave. This might take the form of specific contractual terms conferring the right to paid leave, or the: "establishment of a legally enforceable administrative procedure through which an application to take paid annual leave can be made".
  • Workers are not required to first make an application to enforce their right to take paid annual leave before they can pursue a damages claim. This would be akin to: "…requiring a worker to ask the employer to provide a protective mask when dealing with a toxic substance". The burden on compliance with the WTR lies with the employer, not the worker.
  • If a worker is deterred from talking annual leave because it is unpaid, they are entitled to say that they have been prevented from exercising their right to paid leave.
  • In such circumstances, the right to paid annual leave will carry over until the worker is permitted to exercise the right. Further, this right to carry over continues throughout the whole of the employment and gives rise to a right to a payment in lieu of all the untaken holiday upon termination.
  • Any limitation on the amount of leave that can be carried over can only be imposed from the point, if any, that the employer has permitted the worker to take paid annual leave. The logic here is that once the employer provides an adequate facility for exercising the right to paid annual leave, the worker then becomes responsible for taking it up. Further, any such carry over period must also comply with the WTR (in the UK a carry over period of 18 months has been approved by the EAT – see "Limitations on the right to carry over" above).
  • In this case, the Respondent had offered the Claimant an employment contract in 2008, which would have provided for paid annual leave. The UK Court of Appeal will have to decide whether that offer of employment amounted to the provision of an opportunity to the Claimant to take paid annual leave. If it did, then the Claimant would be entitled to a payment in lieu of untaken annual leave from the beginning of his engagement to the date at which the employment contract was offered. If it did not, then the Claimant would be entitled to payment in lieu of untaken leave for the entire period of his engagement. An 18-month limitation on carry over would not be lawful in this case.

This opinion suggests that if a worker is deterred from taking their paid annual leave because the employer refuses to pay, their leave entitlement will accrue for the entirety of their engagement and entitle them to claim a payment in lieu of untaken holiday upon termination in respect of the whole period (under s.30(1)(b) of the WTR). There will be no limitation on how far back they can claim, unless it could be shown that they had been permitted to take paid annual leave.

It's worth noting that workers who elect to take their annual leave, despite it being unpaid, will be in a different – and significantly worse - position. Workers in this position would need to bring a claim for unlawful deductions from wages under s.23 of the Employment Rights Act 1996. Legislation introduced after the Bear Scotland holiday pay case limited the scope of such claims. Such claims must be brought within 3 months of the last in the series of deductions. Where there is a gap of more than 3 months between any 2 deductions (as there often will be between periods of holiday), the series of deductions will be broken.

The Advocate General's opinion in this case is not binding on employers. However, if it is followed by the ECJ the decision will be of particular concern to employers who purport to engage people on a self-employed basis who may, in reality, have worker status and be entitled to paid annual leave. Clearly, this could be an issue for businesses operating in the "gig economy", but it could also affect mainstream businesses who engage self-employed contractors. Employers should carefully assess their contractor relationships and assess the risk of their having worker status.