Senior employment lawyer Matthew Ainscough of commercial law firm 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.
The general rules on holiday carry over
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 forward unused holiday, 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
Exceptions for statutory holiday carry over
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:
- Where a worker has been unable to take their statutory holiday in the year in which it accrued because of maternity leave, the employer must allow the worker to carry it over to the following year;
- Where a worker has been unable to take their holiday in the year in which it accrued because of taking sick leave, the employer must allow carry over. Employers are allowed to limit carry over in cases of long-term sick leave so that any holiday not used up within 18 months of the end of the leave year in which it accrued is lost;
- Where a worker did not have an effective opportunity to take their holiday entitlement (see below). This requires the employer to show that it provided sufficient information to the worker about their holiday entitlement, and the potential loss of untaken entitlement at the end of the leave year.
Giving employees an effective opportunity to take holiday
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:
- Specifically and transparently giving the worker the opportunity to take their annual leave.
- Encouraging the worker, formally if need be, to take their annual leave.
- Informing the worker accurately and in good time that, if they do not take their entitlement, they will lose it at the end of the holiday year.
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
COVID-19 and carry-over rules
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:
- Whether the business has faced a significant increase in demand due to coronavirus that would reasonably require the worker to continue to be at work and cannot be met through alternative practical measures.
- The extent to which the business’ workforce is disrupted by the coronavirus and the practical options available to the business to provide temporary cover of essential activities.
- The health of the worker and how soon they need to take a period of rest and relaxation.
- The length of time remaining in the worker’s leave year, to enable the worker to take holiday at a later date within the leave year.
- The extent to which the worker taking leave would impact on wider society’s response to, and recovery from, the coronavirus situation.
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.
Written by Matthew Ainscough
Matthew Ainscough is a Senior Employment Lawyer and a Fellow of the Chartered Institute of Legal Executives (FCILEx) who specialises in discrimination and employment litigation for law firm Ironmonger Curtis. He writes about specialist employment law topics and issues for the myhrtoolkit blog.