When can an employer require an employee to take annual holidays?

In this post-COVID world, some employers may be finding that their employees’ annual holiday balances have crept up, and they may be asking themselves whether they can direct those employees to take a period of leave.

The Holidays Act 2003 (“the Act”) allows an employer to require an employee to take annual holidays in two situations:

• If the employer and employee are unable to reach agreement as to when the employee will take their annual holidays; or
• During a closedown period if the employee has a current annual holiday entitlement at the commencement of the closedown period.

In either case, the employer must give the employee no less than 14 days’ notice of the requirement to take the annual holidays.

In order to satisfy the requirements of the Act in the former case, the employer must consult with the relevant employee/s, in good faith, to genuinely try and reach agreement over the timing of the holidays, before making any direction. Only if agreement cannot be reached, following genuine consultation, may an employer make a direction that the employee/s take annual holidays.

This issue was recently considered by the Employment Court in E Tū v Carter Holt Harvey LVL Ltd [2022] NZEmpC 141, which examined a direction requiring employees to take annual holidays in April 2020 during the COVID-19 Alert Level 4 lockdown.

The employer argued that in the circumstances – when financial support from the government was not certain, and it was required to immediately close its plant – its direction requiring employees to take annual holidays was justified.

The employer also argued that the Act allowed a direction to be made where the employer did not have the means or capacity to reach agreement over the timing of the holidays. It argued that the employer’s assessment may be based on its experience with the workforce, commercial realities, and the need to make a quick decision; and that in this case, it was unable to reach agreement because:

• The employees had a history of not engaging in work-related communications outside of work hours and the communication options were limited;
• There was very little time between the Prime Minister’s announcement and commencement of the lockdown;
• It was practically constrained during the intervening time by the health and safety considerations involved in shutting down its operations and the shift arrangements; and
• In its commercial judgement, it wanted to ensure employees got clarity and certainty about their pay before the lockdown began.

Essentially, the employer believed that even if it had engaged with the employees, agreement would not have been able to be reached.

Even in these circumstances, the Court found that “there was no suspension of employee rights or employer obligations”, and that the employer was still obliged to at least attempt to reach agreement over the timing of the annual holidays. An employer cannot say it was unable to reach agreement, when it has made no attempt to do so.

The key takeaway from this case is that even where consultation or agreement appears near impossible, an employer is obliged to at least try and reach agreement over the timing of annual holidays before making a direction they be taken. If it fails to do so, its direction may be challenged.

To find out more get in touch with our team.