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Important To Address Employees’ Built Up Annual Leave

Many employers and employees will be noticing that significant annual leave has built up over the course of what has been an unusual 10 months. It is important that employers facing this issue are aware of the legal implications. In this article we examine the options for employers and employees carrying over annual leave into the next year, payment in lieu of taking leave and use it or lose it policies.

Statutory Annual Leave v Contractual Annual Leave

Every employee has a right under the Organisation of Working Time Act 1997 to paid annual leave. The statutory minimum annual leave is considered a fundamental EU social right based in part on the right to health and safety at work. Employers have much more discretion regarding any additional annual leave that they grant employees over and above the statutory minimum, once it is in line with the employee’s contract.

This article will focus on the statutory minimum annual leave.

An employee can refer any complaint regarding their statutory annual leave entitlement to the Workplace Relations Adjudication Service (“WRC”) under the Organisation of Working Time Act. The WRC can require the employer to grant  annual leave if still employed, or pay in lieu of annual leave if no longer an employee. In addition, the WRC can require the employer to pay to the employee compensation for the breach of its obligation.

Who decides when Statutory Annual Leave is taken?

The times at which annual leave is taken by an employee are determined by their employer but the employer must not only take business needs into account, they must also consult with the employee particularly regarding the employee’s family needs and whether or not the timing of the annual leave provides opportunity for them to actually enjoy rest and recreation.

However, employers can require an employee to take annual leave at a specified time but the employer must give the employee one month’s written notice before that leave begins.

Carry Over

Statutory leave accrues throughout the year, while the default statutory leave year begins on 1st April and runs to the 31st of March the following year many employers elect to follow the calendar year instead.

Leave accrued in the leave year should normally be taken during that 12-month period. However, Section 20 of the Organisation of Working Time Act provides that “with the consent of the employee” annual leave can be taken “within the period of 6 months after the end of that leave year.” As such if both employer and employee agree annual leave can be carried over but must be taken in the first 6 months of the new leave year. However, that 6 months is based on the statutory leave year rather than the calendar year and only applies to the statutory minimum annual leave.

For instance, if a business bases their leave year off the calendar year, it is important that they encourage their employees to take any annual leave they have carried over from 2020 to 2021 before the end of June 2021. However, an employee can seek to use the carried over annual leave, if it is within the statutory minimum, up to the end of September 2021, unless it is specifically agreed otherwise. 

Payment in Lieu of Statutory Annual Leave

Some employers find it easier to operate schemes whereby a weekly allowance is included in the employee’s salary in respect of annual leave pay and then the employee could take unpaid annual leave as they pleased. This saved employers from doing calculations which can be tricky, particularly for flexible workers. However, the Labour Court ruled these schemes are not in line with the Act in the cases of Mikoian v Motovila DWT 54/2007 and PD Cygon Ltd v Kowalik DWT 34/2010.

 The EU Court of Justice has gone further in the case of Federatie Nederlandse Vakbeweging v Staat der Nederlanden 2006 E.C.R 1-3423. In this case the ECJ (now referred to as the CJEU) ruled that policies whereby employees can opt for an allowance taken in lieu of their leave are precluded by Article 7 of the European Working Time Directive on the basis that such schemes create incentives not to take leave.

 Use it or Lose it

 Some employers operate a “Use it or Lose it” policy, whereby leave must be taken within the leave year and if an employee fails to take it then they simply lose the leave. These policies were reviewed in two cases before the EU Court of Justice in 2018 Kreuziger v Land Berlin (C 619/16) and Max-Planck-Gesellschaft v Shimizu (C-684/16).

The CJEU found that while this policy is permissible employers must be able to show that the leave was voluntarily not taken i.e. it was the employee’s choice. This can be quite difficult as it is generally accepted that the employment relationship is not one of equals and that the employer tends to have much more power than the employee. If an employee referred the issue to the WRC their employer would need to demonstrate they exercised all due diligence in enabling the employee to use their leave.

This means an employer seeking to apply “use it or lose it” should have a well-known annual leave policy that states that employees cannot carry over their annual leave alongside some sort of system whereby employees are actively encouraged to take accrued annual leave throughout the year.

Conclusion

Facilitating annual leave can be difficult for any business, particularly so when an entitlement has built up as a result of employees not wanting to take leave due to lockdowns and travel restrictions.

It is important that employers regularly communicate with employees on this issue and encourage them to take their annual leave. Follow up such communications with emails to evidence such efforts.

Employers should ensure that an accurate record is kept of outstanding annual leave so that it can manage it as soon as possible and ensure that employees take the necessary annual leave during the leave year rather than having burnt out employees and/or facing a claim or payment in lieu of annual leave upon termination of employment.  

Authors – Anne O’Connell & David Murphy

29th January 2021

Anne O’Connell Solicitors

19-22 Lower Baggot Street

Dublin 2.

www.aocsolicitors.ie

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