The European Court of Justice (ECJ) has ruled that the practice whereby an employer provides pay in lieu of minimum paid holiday leave not taken is unlawful, even if the holiday year in question has expired and the allowance was carried forward to the next year.
Reference was made to the ECJ in the course of proceedings in the Dutch courts as to whether the practice was contrary to article 7(2) of the Working Time Directive.
The Netherlands government had argued that where an employee has not made use of his or her minimum leave entitlement in one year, that entitlement does not count as part of the minimum entitlement to paid leave for the following year, as this will have its own separate minimum entitlement. Therefore, compensation could be provided in respect of the unused entitlement from a previous year.
The ECJ was of the view that the harmonisation of the laws on working time across the European Union is intended to guarantee better protection of the health and safety of workers by ensuring that they are entitled to paid annual leave and adequate work breaks. The possibility of receiving compensation in lieu of the minimum period of annual leave carried forward could provide an incentive for workers not to take their holiday and this would be incompatible with the objectives of the Directive.
It is only where the employment relationship is terminated that article 7(2) allows payment in respect of holiday not taken.
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