Legal Q&A: Can employees carry over annual leave?

Employers often face the thorny issue of whether or not employees can carry over annual leave into the next leave year. Qian Mou, employment law editor at XpertHR, answers common employer questions about this evolving area of law.

Q: What are the different types of annual leave?

There are three different categories of annual leave.

The first type is the statutory annual leave that originates in EU law and gives workers four weeks’ paid holiday. This type of leave come from the Working Time Regulations 1998 and has to follow EU and European Court of Justice (ECJ) requirements.

The second type is the statutory annual leave that originates in UK law and gives workers 1.6 weeks’ paid holiday. This type of annual leave is also found in the Working Time Regulations but it does not have to follow EU or ECJ requirements (although the UK courts can choose to follow them in some instances).

The third type is contractual annual leave, which may be provided by an employer above and beyond the statutory requirements in the Regulations. The employer generally decides the terms and conditions for employees to use contractual annual leave.

Q: Can employees carry over annual leave into the next leave year in ordinary circumstances?

The first type of annual leave cannot be carried over to the next leave year in ordinary circumstances.

The second type of annual leave can be carried over to the next leave year if the employer and the employee agree to allow carry-over in writing – for example, in the employment contract.

An employer can decide on what terms to offer the third type of annual leave, contractual annual leave, including whether or not to allow carry-over.

This means that, in ordinary circumstances, at least four weeks’ of an employee’s annual leave must be used during the leave year in which it arises and cannot be carried over.

An employer can agree to allow its employees to carry over the additional 1.6 weeks’ statutory annual leave and any further contractual leave, but is not required to do so.

Q: Can the first type of annual leave of four weeks be carried over if an employee was on sickness absence and did not take his or her leave entitlement as a result?

Yes. While there is currently no legislation addressing exceptional circumstances when employees might be able to carry over the first type of annual leave, there have been quite a few cases from the ECJ and the UK courts on this issue.

The UK Court of Appeal in NHS Leeds v Larner (applying ECJ case law) held that, where an employee is on sickness absence and does not take all of his or her EU annual leave entitlement as a result, the prohibition against carrying over this annual leave should not apply.

This means that an employee should therefore be allowed to carry over any of his or her remaining four weeks’ annual leave into the next leave year.

For example, if an employee is on long-term sickness absence and does not take all of his or her four weeks’ entitlement as a result, any of the remaining four weeks’ leave should be carried over.

The same applies in cases of short or medium-term sickness absences.

Q: Are there other situations where an employee may be able to carry over his or her four weeks’ annual leave?

In The Sash Window Workshop and another v King, the Employment Appeal Tribunal (EAT) accepted that there may be reasons other than sickness absence that are beyond the control of an employee, and that might prevent an employee from taking the four weeks’ annual leave.

In such cases, the employee should also be able to carry over any of the remaining four weeks’ annual leave.

However, there do not yet appear to be any appellate-level decisions applying this principle, and the UK Court of Appeal has referred the Sash Window case to the ECJ for further guidance.

Q: If an employee is on sickness absence and does not take his or her 1.6 weeks’ annual leave as a result, will he or she be able to carry over this leave?

The second type of annual leave can only be carried over if there is a written agreement in place which allows for this (for example, in an employment contract).

The EAT in Sood Enterprises Ltd v Healy has ruled that, if there is no written agreement in place allowing for carry-over, an employee cannot carry over the leave, even if he or she was not able to take it due to sickness absence.

If there is a written agreement in place, its terms will govern whether or not an employee will be able to carry over the 1.6 weeks’ annual leave, and if so, how much leave he or she can carry over.

Q: And finally, what if an employee does not take his or her contractual leave as a result of having been on sickness absence?

Again, if an employer provides contractual leave, it can set out if and when an employee can carry over such leave, and how much he or she can carry over.