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First published in CSR Law Report on 20 June 2012
The entitlement to payment in lieu of untaken annual leave applies only to the minimum four weeks' paid leave provided by the European Working Time Directive (2003/88/EC) ("the Directive"). The German law which limited the carry over of statutory annual leave to a period of nine months after the expiry of the relevant leave year was incompatible with the Directive.
N, a retired fire fighter, had been unfit for service on medical grounds between 12 June 2007 and the date of his retirement in August 2009. N was therefore prevented from taking holiday by reason of sickness. N accrued a total of 86 days untaken holiday entitlement during his absence.
On N's retirement in 2009 the employer made the decision not to pay N in lieu of his accrued but untaken holiday. This decision accorded with German civil and public service law, which made no provision for financial compensation on termination for untaken leave.
N brought a holiday pay claim before the Frankfurt Administrative Court, which referred a number of questions to the ECJ to determine whether the national law in question was compatible with Article 7 of the Directive. Under Article 7, member states are obliged to ensure that workers are entitled to at least four weeks' paid annual leave. Article 7 also states that the minimum period of paid annual leave may only be replaced by a payment in lieu where the employment relationship is terminated.
The ECJ determined that the Directive entitles a public servant, on retirement, to be paid an allowance in lieu of untaken statutory annual leave entitlement where they have been prevented from taking such leave due to sickness. The ECJ also determined that this requirement only applies to the minimum four weeks' paid leave provided by the Directive. It would therefore appear to be for a member state to decide whether to make a payment in lieu in respect of any additional annual leave (over and above the four weeks). Finally, the ECJ held that although national law can provide for carried over leave to 'expire' if not taken within a set period, the Directive precludes a national law limiting the carry over period to nine months after expiry of the year long reference period to which the holiday entitlement relates.
The UK government is due to amend the Working Time Regulations 1998 ("the WTR") in order to clarify that workers who have been prevented from taking annual leave due to sickness must be able to carry it over into the following leave year. The UK government's proposals are restricted to the four weeks' minimum leave entitlement under the Directive and do not include the additional 1.6 weeks' entitlement under the WTR. This approach appears to be consistent with the ECJ's decision in this case. It remains to be seen whether the WTR will also be revised to incorporate a fixed limit on the carry over period.
Neidel v Stadt Frankfurt am Main C-337/10 (ECJ)
Hannah Cunningham, Associate, in our Employment and Pensions Group at Field Fisher Waterhouse LLP