Related People Sophie Miller-Molloy, Trainee Solicitor
The UK Government has relaxed the Working Time Regulations 1998 ("WTR") on carrying over untaken annual leave due to the effects of COVID-19. Under the Amendment Regulations, workers will now be able to carry over untaken annual leave into the next two leave years where they have been unable to take it due to the COVID-19 pandemic. This update explores the key changes to the regulations, practical points to consider and potential problem areas for employers. It is important to appreciate that the new rules apply to all employees and are not restricted to furloughed or to non-furloughed employees only.
General Rule: "Use it or Lose it"
The WTR grant a statutory right to 5.6 weeks' paid holiday each year. This consists of two elements. 4 weeks holiday leave are derived from the Working Time Directive ("WTD"). 1.6 weeks additional leave is a UK legal right. As a general rule, this holiday entitlement cannot be carried over into subsequent leave years so workers must either "use it or lose it". It is possible to carry over 1.6 weeks into the following holiday year but it is much more difficult to carry over the WTD holiday entitlement. There is an obligation on employers to ensure that there is adequate opportunity for workers to take their holiday entitlement. Failure to do so could result in financial penalty.
The Working Time Regulations apply to almost all workers including agency workers, hourly-paid workers and those on zero-hours contracts. Workers who cannot take annual leave (such as those on long-term sick leave and maternity leave) are not included.
Amendment Regulations: Key change and purpose
The Amendment Regulations relax the requirements on employees to take holiday in 2020. Now, workers can carry up to four weeks of unused leave into the next two leave years. This applies only "where it is not reasonably practicable for a worker to take some, or all, of the holiday to which they are entitled due to the coronavirus". Clearly the Amendment Regulations should provide some relief and flexibility to those particularly hard hit by the crisis (due to increased working hours and inevitable increased sick leave absences) such as key workers and employers working in healthcare and food industries. It is worth noting that there needs to be some link back to the coronavirus pandemic to explain why the employee has not been able to take the holiday in question. We think that in practice this test is going to be relatively easily met, since if both parties agree holiday should be carried over, there is going to be no one to dispute the necessary linkage back to the challenges created by the coronavirus.
Business Secretary Alok Sharma commented: "Whether it is in our hospitals or our supermarkets, people are working around the clock to help our country deal with the coronavirus pandemic. [These] changes will mean these valued employees do not lose out on the annual leave they are entitled to as a result of their efforts, and employers are not penalised." Environment Secretary George Eustice added: "We welcome the measures the food industry is already taking to keep shelves stocked and supply chains resilient, and will continue to support them with their response to coronavirus."
The Amendment Regulations also restrict an employer's right to refuse leave being taken on particular days. Employers will only be able to require a worker not to take carried-over leave on particular days where they have a "good reason" to do so. "Good reason" for this purpose has not been defined, although genuine operational reasons are likely to be sufficient.
Similar rules apply to bank holidays which are generally included in the 5.6 weeks of entitlement. If a worker cannot take a bank holiday off due to circumstances connected with the coronavirus, employers should allow the leave to be used at a later date in their leave year. If this is not possible, bank holidays can be included in the 4 weeks' paid holiday that can be carried over. On the other hand, employers can also (by giving notice) require workers to take a bank holiday as paid holiday. An exception to this is if a worker is on sick leave or maternity leave.
Practical points for employers
We think that the management of holiday during 2020 is going to be one of the key challenges for employers and the Amendment Regulations are going to assist with that, but are not the magic bullet solution.
Despite the Amendment Regulations, employers should generally still encourage all workers to take all of their holiday entitlement during the current holiday year or as much as is feasible. Allowing staff to hoard large amounts of untaken leave could cause problems for staffing levels later down the line, not to mention the additional strain not taking holiday or downtime places on workers' mental and physical health, consequently leading to inefficient work practices. On top of this, employers may want to consider requiring employees to take their holiday at certain times to ensure an even coverage throughout the leave year. We wrote about the particular issues affecting furloughed employees and taking holidays in an earlier note.
It is important to appreciate that the Amendment Regulations permit the carry-over of holiday. They do not mandate it. So if employees wish to take their full holiday entitlement this year then these Regulations do not allow an employer to defer holiday into 2021 as a right. The Regulations permit the carry-over of holiday if both parties agree. An employer may point to the ability to carry-over holiday as supporting a decision by the employer not to permit holiday to be taken in, say, December, because the employee is not going to lose that holiday altogether if it is not taken. The Regulations do not sanction the wholesale deferral of holidays into 2021.
Given the lockdown restrictions, many workers are likely to want to postpone any holiday until they are allowed to travel abroad again. This could lead to a backlog of untaken holiday, which might make it difficult to manage staff coverage. We also think that identifying a fair way of authorising competing leave requests will be important. This is likely to be easier if the employer has considered this as a general challenge and has considered announcing a policy aimed at enabling staff to know how holiday will be managed during the remainder of the year.
Employers should keep track of staff holiday entitlements to avoid being short staffed. It will be important to first check any agreed provisions in employment agreements and record remaining holiday entitlements so they can be monitored. The Amendment Regulations do not affect any agreements already in place on carry-over.
The main question is whether employers are going to take the unpopular road of requiring holidays to be taken in 2020 when foreign travel is severely restricted, or to push some 2020 holiday into 2021, which stores up liability on termination for increased costs, and may simply defer the staffing challenges and holiday pinch points for 12 months. Employers can give statutory notice to employees requiring them to take holiday. The period of notice must be twice the length of the holiday that is to be taken. This can be overridden by a contract but we think it is very likely that employers who are concerned about the build-up of accrued holiday are going to be willing to take the unpopular step of designating holiday for employees.
The new rules mean that if the contract is terminated within the two additional leave years, a worker can receive a payment in lieu of any of the statutory holiday they have carried over under these new rules, but have not taken at the time of termination. If employees are serving out their notice then of course it is usually open to the employer to require the individual to use up their holiday leave before the termination date. We think many more employers will be keen to avoid paying for notice plus significant carried over holiday, and so we will see many more employers making employees serve out their notice period, to eliminate or reduce significantly the holiday costs on termination.