UK: Coronavirus-Related Reasons to Carry Over a Holiday Entitlement

​For most U.K. employers that operate a Jan. 1 to Dec. 31 holiday year, there are around 15 weeks of the current holiday year left, in which to encourage the workforce to take their accrued holiday entitlement. Special rules were introduced earlier this year that allow workers to carry over any unused holiday entitlement if COVID-19 meant that it was not reasonably practicable to take holiday. This article covers some of the most frequently asked questions about the new rules regarding carry-over.

Background: What Are the Usual Pre-Coronavirus Rules Regarding Holiday Carry-Over?

All workers are entitled to a minimum of 5.6 weeks holiday per year. The 5.6 weeks holiday is made up of four weeks of ordinary holiday, which derives from the EU Working Time Directive, and 1.6 weeks of holiday, which is a domestic add-on. Many contracts designate the additional 1.6 weeks' holiday (eight days) as statutory/bank holidays.

The usual pre-coronavirus rules regarding carry-over were that:

• Ordinary leave (i.e., the first four weeks' holiday each year): This can only be taken in the leave year in respect of which it is due—this cannot be carried over (save in pregnancy/maternity/ill health situations—see below).
• Additional leave (i.e., the additional 1.6 weeks' leave each year): This can be carried forward into the next leave year if the employer, a written agreement or the contract permits such carry-over.
• Ill health/pregnancy/maternity: Case law has established that employees unable to take holiday due to ill health/pregnancy/maternity leave, can carry over leave into future holiday years. (Case law suggests for a period of 15-18 months after the end of the leave year in which it accrued.)

What Do the Newly Relaxed Rules Say About Coronavirus-Related Holiday Carry-Over?

New regulations were introduced in relation to the COVID-19 outbreak on March 27. That was when many employers were extremely busy furloughing their workforce, so awareness of the new rules is poor. These amended the principal regulations (the Working Time Regulations 1998). The new rules regarding carry-over of annual leave can be summarized as follows:

• Ordinary leave (i.e., the first four weeks' holiday each year): If it was not reasonably practicable for the worker to take some or all of the holiday to which the worker was entitled, as a result of the effects of coronavirus (including on the worker, the employer or the wider economy or society), up to four weeks' holiday can be carried over into the following two leave years, and the employer cannot refuse to allow a worker to take the carried-forward holiday on particular dates without good reason. If it was reasonably practicable for the worker to take holiday (i.e., the effects of coronavirus on the worker, the employer or the wider economy or society have not prevented the employee from taking holiday), the four weeks ordinary leave cannot be carried over (save in maternity leave or ill health situations—see above).
• Additional leave (i.e., the additional 1.6 weeks' leave each year): This can be carried over into the next leave year if the employer, a written agreement or the contract permits such carry-over.
• Ill health/pregnancy/maternity: The rules regarding employees unable to take holiday due to ill health/pregnancy/maternity leave (outlined above) have not changed. However, if the reason for the ill health is coronavirus-related, then the carry-over period will be two years.

Why Is the Precise Wording of the Contract Regarding Holidays Important?

Many contracts now specify that the first four weeks' annual leave is "ordinary leave." Such wording has risen in popularity because of EU holiday pay decisions in recent years, which only apply to that part of a worker's minimum annual leave entitlement. For example, a common form of contract wording is: "In each holiday year, the first four weeks of your holiday entitlement (or the pro rata equivalent during the first and final holiday years) shall be deemed to be the leave to which you are entitled under the Working Time Directive 2003."

If the employment contract or annual leave policy contains such wording, any leave that a worker or employee has already taken in the current leave year will reduce the amount of ordinary leave he or she can potentially carry over for coronavirus-related reasons into the following two holiday years.

When Will It Not Be 'Reasonably Practicable' for an Employee to Take Their Holiday for Coronavirus-Related Reasons?

The phrase "reasonably practicable" is not defined in the regulations. It is a phrase used in other employment legislation and is specifically designed to allow an employment tribunal a wide discretion to determine whether it applies or not.

Acas guidance suggests that it could apply where a worker:

• Is self-isolating and/or too sick to take holiday before the end of their leave year.
• Has been put on layoff or furlough.
• Has been required to continue working and could not take paid holiday.

However, guidance from the Department of Business, Energy and Industrial Strategy (BEIS) suggests that it will usually be reasonably practicable for furloughed workers to take annual leave (unless, for example, the employer could not afford to top up their furlough pay).

The BEIS guidance recommends that the following factors should be considered in relation to reasonable practicability:

• Whether the business has faced a significant increase in demand due to coronavirus that would reasonably require the worker to continue to be at work and cannot be met through alternative practical measures.
• The extent to which the business's workforce is disrupted by the coronavirus and the practical options available to the business to provide temporary cover of essential activities.
• The health of the worker and how soon they need to take a period of rest and relaxation.
• The length of time remaining in the worker's leave year, to enable the worker to take holiday at a later date within the leave year.
• The extent to which the worker taking leave would impact on wider society's response to, and recovery from, the coronavirus situation.
• The ability of the remainder of the available workforce to provide cover for the worker going on leave.

The BEIS guidance goes on to state: "Employers should do everything reasonably practicable to ensure that the worker is able to take as much of their leave as possible in the year to which it relates, and where leave is carried forward, it is best practice to give workers the opportunity to take holiday at the earliest practicable opportunity."

There is an implicit expectation that employers and workers will work together to use a common-sense approach to whether it is reasonably practicable for a particular worker to take holiday.

How Much Holiday Can Be Carried Over for Coronavirus-Related Reasons?

Where the effects of coronavirus on the worker, employer or wider society render it not reasonably practicable for him or her to take holiday, up to a maximum of four weeks' unused ordinary leave can be carried over under the amendment to the Working Time Regulations 1998.

A written agreement, such as the employment contract or a collective agreement, can allow the 1.6 weeks (additional leave) to be carried over under ordinary rules.

Any contractual enhancement—above 5.6 weeks—can be carried over if this is permitted under the contract, or at the employer's discretion.

When and How Can Staff Use Holiday Carried Over for Coronavirus-Related Reasons?

The maximum of four weeks' unused ordinary holiday, which can be carried over for coronavirus-related reasons, must be used in the following two leave years. For those with a Jan. 1 to Dec. 31 leave year, this will be into the 2021 and 2022 leave years.

An employer usually has wide discretion to specify when a worker can or cannot take their annual leave. However, special rules apply to any leave carried over due to coronavirus-related reasons, so that the employer cannot refuse to allow a worker to take it on particular dates without good reason.

Can We Ask Our Staff to Apply to Carry Over Holiday for Coronavirus-Related Reasons?

There is no process laid out in the regulations for any application process but asking staff to apply to carry over holiday is certainly a sensible approach to take. A simple form could be devised for these purposes. An application process would allow a line manager to have a sensible discussion with a worker about the reasons why he or she has not taken accrued leave. In many cases, it may be possible to facilitate the worker using some accrued but unused leave before the end of the current holiday year or to at least minimize how much leave is carried over. The ability to facilitate a worker taking annual leave would be a good reason to reject such an application to carry over leave because it is reasonably practicable for the worker to use his or her annual leave entitlement.

Be alert to the overlapping duty to make reasonable adjustments for staff with disabilities—both in terms of the application process and in determining whether to grant any application to carry-over leave. Employers may also find that female staff have suffered a greater impact (e.g., because they are statistically more likely to be single parents and may be unable to share caring responsibilities) and this can lead to the risk of indirect sex discrimination claims.

There may also be the need to make exceptions from the need to apply (e.g., if a worker is in a hospital and therefore unable to apply, or where preplanned leave falling close to the end of the holiday year is cancelled at short notice because someone contracts coronavirus).

How Does the Rule that Allows Carry-Over for Coronavirus-Related Reasons Overlap with Contractual Carry-Over Rules?

Rules permitting limited holiday carry-over (for noncoronavirus-related reasons) are common, particularly in workforces where there are peaks and troughs in demand that can render it very difficult for an employee to take all of the annual holiday entitlement or where the annual leave allowance is very generous. They may appear in the employment contract or collective agreement (in which case they are binding), or holiday policy (in which case they can usually be varied by a notice to staff).

An employer can minimize the impact of this potential overlap by doing what it can to minimize how much annual leave is carried over (e.g., by designating specific periods of time as annual leave—see below). If the carry-over rules are nonbinding, the employer may wish to vary them, possibly temporarily. Further, if the right to carry over is not automatic (e.g., if carry-over needs line manager approval) the employer may wish to issue a notice to the workforce confirming that only in exceptional circumstances will carry-over requests be granted in the current holiday year (essentially a "use it or lose it" warning).

Can We Require Workers to Use Their Accrued Holiday?

In many situations, it is possible for an employer to require an employee to take some of his or her annual leave at a time chosen by the employer. The fact that an employee is on furlough leave makes no difference because employees can take holiday while on furlough, provided they be paid their full pay calculated in accordance with the Working Time Regulations 1998 in the usual way during such holidays.

The starting point is to check the employment contract to make sure there are any contractual provisions that allow the employer to designate a specific period of annual leave; such provisions are very common. Secondly, check if there is any "relevant agreement" under the Working Time Regulations, which permits the employer to force an employee to take annual leave (such as a collective agreement). If the contract or relevant agreement contains such provisions, the employer should comply with those terms, which may include giving a minimum amount of notice of a period of leave.

In the absence of such express provisions, an employer requiring a worker to take leave at specified times must give notice equivalent to at least twice the period of leave to be taken. For example, the employer must give two days' notice to take one day of leave, or two weeks' notice to take one week of leave.

An employer can use these powers to designate a particular period as annual leave. However, many employers are choosing to be more flexible and instead set general rules, which still allow the worker a degree of flexibility. For example, issuing a notice saying, "You must have used 80 percent (or 22.5 days) of your annual leave by Oct 31 and 100 percent by Dec 31.

How Can We Tell How Much Holiday Will Be Carried Over?

Now would be a good time to audit how much holiday staff have taken proportionate to the time left in the holiday year (e.g., use a red, amber, green color coding). This audit process should identify staff who appear to be stockpiling their annual leave. What it will not provide, without further investigation, are the reasons why workers have lots of leave outstanding.

This audit should then be shared with relevant line managers who can:

• Identify if there are any reasons why a worker has been unable to take accrued leave.
• Discuss with staff how much leave they are intending to take in the coming weeks.
• Encourage staff to, wherever possible, "use it or lose it."
• In cases where it has genuinely not been reasonably practicable to take leave, outline any application process to carry over holiday for coronavirus-related reasons.

Can We Pay in Lieu Rather than Carry Over Holiday?

The underlying reason paid holidays are provided in law, relates to the health, safety and well-being of the employee. The employer has a duty to encourage the worker to take the paid holiday to which they are entitled.

BEIS guidance states that, "Employers should do everything reasonably practicable to ensure that the worker is able to take as much of their leave as possible in the year to which it relates, and where leave is carried forward, it is best practice to give workers the opportunity to take holiday at the earliest practicable opportunity."

The first 5.6 weeks' annual leave per year (the statutory minimum) can only be paid in lieu upon termination. The amended regulations expressly provide that any payment in lieu on termination must include payment for any holiday carried over for coronavirus-related reasons that remains outstanding.

However, to the extent that the contract provides for additional contractual holidays (above the 5.6 weeks' minimum), the employer and employee can agree to a payment in lieu in respect of the excess holidays if they wish. An employer should not unilaterally impose a payment in lieu. Agreement should be sought from the employee, giving a sound business rationale, to avoid breaching the employment contract.

Emma Ahmed is an attorney with Hill Dickinson LLP in Liverpool, England. © 2020 Hill Dickinson LLP. All rights reserved. Reposted with permission of Lexology.