ECJ rules on payment for untaken holiday
Federatie Nederlandse Vakbeweging v The Netherlands, European Court of Justice,
6 April 2006
Under The Netherlands’ Civil Code, all staff are entitled to paid leave. However, where an employee has not made full use of their minimum entitlement in a holiday year, employers are permitted to provide financial compensation for the unused entitlement.
The FNV (a federation of trade unions) sought a declaration that The Netherlands had acted unlawfully and contrary to the Working Time Directive (WTD), which says that the “minimum period of paid annual leave may not be replaced by an allowance, except were the employment relationship is terminated”. The case was referred to the European Court of Justice (ECJ).
The question referred was whether it was compatible with the WTD for a member state to have a national law that allows for the possibility that an employee who has not taken that minimum annual leave in full in one year might receive financial compensation for that leave in a subsequent year.
The ECJ noted that the positive effects on a worker’s health and safety are maximised where holiday is taken in the current leave year. That benefit could still remain if the leave was taken in a subsequent holiday year. But while it was not contrary to the WTD to carry the leave over, the possibility of financial settlement for carried-over leave created an incentive for the leave to remain untaken, and was incompatible with the WTD’s health and safety objectives.
In the UK, in compliance with the WTD, it is not permissible to make a payment in lieu of untaken statutory holiday entitlement except on the termination of employment. The government has recently announced its commitment to ensure that bank and public holidays are made additional to a worker’s statutory right to four weeks’ paid annual leave, although no timescale for the introduction has been given.