A recent decision of the European Court of Justice (ECJ) in two German cases has provided further guidance on the interpretation of the annual leave provisions in the EU Working Time Directive (Kreuziger v Land Berlin and Max-Planck-Gesellschaft zur Forderung der Wissenschaften eV v Shimizu).

Under German legislation, workers can only receive payment in lieu of accrued holiday on termination of employment if their employer has prevented them from taking it, meaning that workers have to ask to take all their outstanding leave first. Mr Kreuziger and Mr Shimizu brought separate claims for payment in lieu of holiday on termination which were referred to the ECJ to decide whether this law was compatible with the EU Working Time Directive.

The ECJ noted that the Directive allows member states to set conditions under their national legislation on the right to a payment in lieu of accrued holiday, including a provision that holiday will be lost at the end of the leave year. However, the ECJ held that member states cannot legislate for an automatic loss of holiday or holiday pay unless the worker has been given an effective opportunity to take the holiday. In the ECJ’s view, it cannot be left solely to workers to ensure they exercise their rights effectively. This is because workers are the weaker party in this situation, and the law must guard against the possibility that they will be dissuaded from exercising their right to take holiday.

The ECJ held that that employers must therefore actively encourage workers to take their leave and inform them, in good time, that the leave will be lost if it is not taken. If the employment terminates and the employer cannot show that they have taken these actions, the right to payment in lieu must include the total accrued but untaken entitlement. In essence, workers should only lose their leave entitlement or pay in lieu if they have knowingly and deliberately refused to take holiday in full knowledge of the consequences.

Although UK law differs from German law, this case has implications for UK employers. The prohibition in the Working Time Regulations 1998 on carrying over the four weeks’ statutory holiday must now be read alongside this ECJ decision. This means that employers should consider sending out written reminders to workers about annual leave entitlement, encouraging them to take it and informing them clearly that leave will be lost if it is not taken. This will need to be done in sufficient time before the end of the relevant leave year.