Senior employment lawyer Matthew Ainscough of commercial law firm Bell & Buxton incorporating Ironmonger Curtis explains the rules around statutory and contractual holiday carry over for employers.
The rules around whether or not an employee can carry over holiday from one holiday year to the next can be confusing, so I hope this post will clear up some of the uncertainty in this tricky area of law.
Under the Working Time Regulations 1998 (WTR 1998), the general rule is that statutory leave may only be taken in the leave year to which it relates, or else it is lost (sometimes referred to as the “use it or lose it” rule). Contractual leave on the other hand (i.e. leave over and above the statutory minimum) may be carried forward into the next leave year as agreed between employee and employer, for example in a contract of employment or collective agreement. Please note that this is subject to changes to the WTR 1998 recently introduced in relation to the COVID-19 pandemic (which I will return to later).
There is nothing to prevent an employer from allowing a worker to carry over unused annual leave, whether accrued under the WTR 1998 or under their contract of employment, if the worker genuinely does not wish to take it in the relevant leave year. However, the employer cannot compel a worker to carry over statutory holiday.
In general terms, it is sensible for an employer to make sure that their employees take their holidays, to maintain a healthy and motivated workforce, and to potentially limit liability in relation to any stress-related claims.
Related article: How to reduce employee stress at work for better productivity
There are some circumstances in which case law has established that employees should be permitted to carry over unused statutory holiday to the next leave year (and sometimes beyond) and these are as follows:
Employers are not allowed to deny employees carried-over holiday simply because the worker failed to seek to take that entitlement. The entitlement can only be lost if the employer can show that the worker had an “effective opportunity” to take it.
This requires the employer to show that it enabled the worker, particularly through the provision of sufficient information, to take their holiday and make them aware of the consequences of not taking holiday (i.e. losing untaken entitlement at the end of the holiday year).
According to the European Court of Justice, steps that the employer might need to take include:
The burden of proof lies with the employer to show that the above steps have been taken, so make sure that this is done in writing and that records are kept.
Related article: Encouraging staff to take annual leave
On 26th March 2020, the government introduced emergency legislation relaxing the restriction on carrying over annual leave. This was introduced to allow businesses under pressure from the impact of COVID-19 the flexibility to manage their workforce, while also protecting workers' rights to paid leave.
The new regulations amend the WTR 1998 to permit leave to be carried over: "where in any leave year it was not reasonably practicable for a worker to take some or all of the leave to which the worker was entitled under this regulation as a result of the effects of coronavirus (including on the worker, the employer or the wider economy or society)".
The Department for Business, Energy and Industrial Strategy (BEIS) guidance suggests the following factors should be considered in relation to reasonable practicability:
The ability of the remainder of the available workforce to provide cover for the worker going on leave.
This carried-over leave may be taken in the two leave years immediately following the leave year in respect of which it was due. Employers will only be able to require a worker not to take carried-over leave on particular days where they have a good reason to do so.
The new regulations also set out that a worker will be paid in lieu of any untaken carried-over holiday where their employment is terminated. Hopefully this has helped to answer some of the questions around holiday carry over.
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