Holidays (Un)Limited

Richard Branson is now offering his staff unlimited holidays. Below we set out the key UK employment law considerations to bear in mind if you want to follow suit.

We’ve received a number of requests in the past 12 months to include an unlimited holiday clause in standard employment contracts. It’s a Silicon Valley trend edging its way into the UK employment landscape via tech companies. At first glance it appears to be an incredibly attractive benefit and the oft quoted reason for unlimited holidays is to offer a unique perk to lure in and retain the best talent.

But can it be used to the same effect in the UK? In his statement Branson writes that:

“The assumption [is] that [employees] are only going to [take holiday] when they feel 100% comfortable that they and their team are up to date on every project and that their absence will not in any way damage the business – or, for that matter, their careers!”

When you break that statement down, it seems like quite a lot to ask of an employee before they can have their week or two in the sun to recharge their batteries! Many workers would not feel comfortable saying that their team was up to date on every project. Even fewer would be willing or able to say that their absence would have no negative impact on the business. A role that’s dispensable might start to look quite like a role that’s redundant on closer inspection, and no worker wants that.

Given his success and drive, Branson probably has higher standards than many employers (not to mention employees) and likely expects a great deal. It is worth remembering, however, that in the UK and the EU, the concept of a statutory minimum holiday entitlement was brought in as a health and safety measure, to protect workers’ well-being. The argument is that there are benefits to the long term health, happiness and productivity of employees who take time away from the office and this applies across the EU. Indeed, the recent steps taken in France and Germany to prevent employees from receiving emails outside of office hours are a more extreme version of this same idea.

So can it work in the UK? When we are asked to draft unlimited holiday or time off clauses into an employment agreement we say yes, and remind employers that they have an obligation to ensure that their employees take their statutory minimum holiday entitlement (5.6 weeks per year, including bank holidays, pro-rated for part time employees).

The risk of operating an unlimited holiday policy and not ensuring your employees actually take the necessary holiday requirement is a claim by an employee under the Working Time Regulations 1998 to the effect that the employer has not let them take their statutory leave entitlement. The remedy is “just and equitable compensation” that may leave the employer out of pocket. Secondly, if an employee is fired as a result of asserting their right to take 5.6 weeks’ holiday per year, they have an automatic unfair dismissal claim (i.e. they do not need 2 years’ qualifying service to make the claim and the dismissal will be judged to be unfair automatically).

No reasonable employer would accept that they terminated an employee’s employment because they went on holiday. But with an unlimited holiday policy, it may not be that straightforward. If employees and HR are not properly educated on the operation of the policy, and indeed if workplace pressures end up making employees feel that they simply cannot take their holiday, an employee might resign and claim constructive dismissal, and make an unfair dismissal claim that way.

Unlimited holiday policies are undoubtedly becoming more popular and they are attractive to employers and employees alike. As a result, we expect to see a lot more of them, and other innovative ideas to maximize employee productivity. If you are considering adopting such a policy for your business, we recommend you ensure you set performance targets and operate the policy in such a way that does not discourage your staff from taking their holiday. This should help minimize the risks to your business while we wait for the legal landscape to catch up with the latest developments.

Richard Branson probably didn’t get a luxury private island by taking lots of time off work, but now he’s got one, probably even he would admit it’s good to take a holiday every once in a while…