The right to paid holiday has been the subject of intense judicial scrutiny over recent years. As we approach the festive holiday season, two new cases decided by the Court of Justice of the European Union within the same week illustrate that the issue is not yet settled and shows no signs of abating.

Max-Planck-Gesellschaft v. Shimizu considered the right to payment in lieu of untaken annual leave while the linked cases of Wuppertal v. Bauer and Willmeroth v. Brossonn concerned the right of a deceased worker's heir to receive payment for untaken leave. We have discussed both cases in our blog but the continued focus of the courts prompts us here to provide a brief recap of some key points to remember.

Entitlement to paid annual leave

The Working Time Directive (the Directive) is implemented into UK law by the Working Time Regulations 1998 (WTR). Full-time workers have a basic right to a minimum of 5.6 weeks' paid leave in each year, which is equivalent to 28 days' leave for those who work five days per week. Entitlements are reduced pro rota for part-time employees, and those who join midway through a holiday year.

• The UK entitlement actually enhances or "gold plates" European law (because the minimum requirement under the Directive is lower at four weeks). This means that, in the UK, holiday can be broken down as follows:four weeks' annual leave derived from the Directive (referred to below as "basic leave"); and
• additional 1.6 weeks' UK enhancement (referred to below as "additional leave").

The distinction is important because, as a general rule, European case law and principles will apply to basic leave but not necessarily the UK's additional leave.
Eagle-eyed readers may also have spotted that the 1.6 weeks' additional leave equates to eight days for full-time employees. This is the same as the number of public holidays each year, although there is no requirement that the leave is used for those days.

Discrimination

Some employers have schemes where holiday entitlement increases alongside length of service. For example, an additional day is awarded for each year of service up to a capped amount. As with all service-based arrangements, an employer must consider whether the arrangement could be indirectly discriminatory on the grounds of age. For example, an increase after 10 years may be indirectly discriminatory because younger employees are statistically less likely to have achieved such long service. Ordinarily, the onus is then on the employer to show that the provision is objectively justified.

However, there is specific legislation providing that an increase in holiday will not be unlawful age discrimination if:

• the length of service requirement is five years or less; or
• the length of service requirement is more than five years but it reasonably appears to the employer that it "fulfils a business need…for example, by encouraging the loyalty or motivation, or rewarding the experience of some or all of its workers". This is generally considered to be easier to satisfy than the objective justification test.

Similar issues can arise in relation to sex discrimination. For example, length of service requirements may indirectly discriminate against women who are statistically more likely to take career breaks to care for children. Unlike age discrimination, there are no statutory exceptions and so an employer must be able to satisfy the objective justification test. As a rule of thumb, the longer the service requirement, the more likely it is to be discriminatory and the harder it will be to justify.

Separately, problems can crop up in the context of religious holidays. There is no statutory obligation to allow holiday to be taken for reasons relating to religion or belief. However, if permission is refused, then the employer will, again, need to be able to objectively justify that decision. It is a good idea to have a policy in place to help in these circumstances.

Holiday and sick leave

The inter-relationship between holiday and sick leave has proved to be a fertile area for dispute. The case law has resulted in the following principles of note:

• workers are entitled to take holiday during periods of long-term sick leave (but cannot be required to do so by an employer);
• if a worker has pre-booked some holiday but is then sick during that leave, the worker has the right to re-use the holiday at another time (even if this would be after the end of the holiday year); and
• on the face of the WTR, basic leave (i.e. four weeks) can only be taken in the leave year in which it is due, otherwise it is lost. Only additional leave (i.e. the extra 1.6 weeks) may be carried forward. However, case law has determined that if an employee has not been able to take their basic leave because of sick leave, then basic leave must also be allowed to carry over into the next holiday year. There is support for the proposition that, in cases of long-term sick leave, carry-over can be limited so that, if not used within 18 months of the leave year in which it accrued, it will then be lost. However, this is not yet settled beyond doubt.

Other circumstances where holiday must be carried over

In addition, an employee is also entitled to carry over their holiday in the following circumstances:

• an employer must allow an employee to carry over any basic leave she has been unable to use (because she has been on maternity leave) over to the following year. The case law in question comes from Europe and so strictly it applies only to basic leave. Arguably additional leave need not therefore be carried over, although many employers permit this;
• given that parental leave is taken in small blocks, it is less likely that the issue of leave spanning two holiday years will arise. However, if it does, European case law suggests that basic leave carry-over must be permitted;
• if a worker has been told that leave will be unpaid, their holiday will carry over potentially indefinitely until termination. This is because being told the leave will be unpaid is likely to deter the individual from exercising their right at all. This situation can arise where, for example, the employer believes (incorrectly) that the worker is a genuinely self-employed contractor with no right to paid holiday.

Further comment

We focus above on the entitlement to paid holiday. The question of how pay for that holiday should then be calculated is outside the scope of this article, but no less knotty. You can read our recent People Management article "Are you calculating holiday pay correctly?" here. For help or advice in this complex area, please contact a member of our team.