The experts, Neil Gill and Esther Smith advise on whether it can be made compulsory to take remaining holiday when serving notice.

The question: Notice period holiday

Can employers include a clause in their employment contracts which states that any outstanding holiday entitlement must be used up during notice periods? For example, if an employee gives one month notice and has 5 days holiday remaining, can the employer insist that they take their outstanding holiday rather then paying them in lieu of it?

If so, can the employer also enforce this provision in a redundancy situation and other dismissal situations (for example dismissal for under performance)?
 

Legal advice:
 

Neil Gill, solicitor, Speechly Bircham

The short answer to the first question is yes; an employer can include a clause in their employment contracts which states that any outstanding holiday entitlement must be used up during notice periods. Such a clause is useful to avoid having to make a payment for unused holiday on termination and it can also be a handy means of requiring an employee to stay away from work at a sensitive time.

Care should be taken when drafting these clauses to avoid breaching certain notice requirements under the Working Time Regulations (the WTR). Under the WTR, employers have the power to require a worker to take leave on specified dates (including their notice period) but only if they give proper notice. This notice must be at least twice the length of the period of leave that the worker is being required to take. For example, taking the scenario in question 1, if the employer requires the worker to take five days’ leave, it must give at least 10 days’ notice.

There is no set form that this notice must take but, to avoid any doubt, it is best to give written notice.  
These WTR notice provisions can however be varied or excluded by agreement (i.e. in the contract of employment). Therefore, the contract could provide that either party giving notice to terminate employment will trigger an obligation on the worker to use up their unused holiday before termination. It may also reduce the period of notice required to be given to take leave or, more usually, dispense with notice altogether.

For the avoidance of doubt, the clause should expressly state that it is varying the notice provisions in the WTR. This is not however strictly necessary. In Industrial & Commercial Maintenance Ltd v Briffa, the employer gave the employee one week’s notice of dismissal, and required him to take his four days’ accrued holiday during that period. This would not ordinarily have been permitted by the WTR, since the employer had not given eight days’ notice of the requirement to take four days’ holiday. However, the EAT held that the notice provisions in the WTR had been varied by a clause in the contract which stated: "If an individual gives or receives statutory notice and is not required to perform physical work during that period of notice, the employee shall be regarded as being on holiday during the period of notice". Having said this, to avoid dispute, it is best to have clearly drafted clauses which expressly deal with the WTR requirements.

In response to the second question; a clause requiring a worker to take holiday in their notice period would be enforceable in a redundancy scenario, as it would in the event of a resignation from a worker or any other lawful dismissal situation. 

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Esther Smith, partner, Thomas Eggar

There is nothing to stop you having a contractual provision providing that accrued holiday must be taken during periods of notice whether served by the employer or the employee. This can be used in a termination by the employer for any reason, whether they are dismissed or made redundant. Obviously if they are dismissed for gross misconduct no notice would be due to them, but you would still be obliged to provide them with payment in lieu of accrued holiday. This would be the case if the period of notice was shorter than the length of holiday they had accrued; you would have to pay them for the balance.

Holiday is not really an “additional benefit” in the same terms that say a car or mobile telephone is. It does not really give you anything in addition to your salary – holiday is the right to take time off work without losing pay or having your salary reduced. Therefore there is no reason why you cannot legitimately ask, as a matter of contract, for employees to use accrued holiday entitlement during their notice.

Esther Smith is a partner in Thomas Eggar’s Employment Law Unit. For further information, please visit Thomas Eggar.