Annual leave is an important employee right. It gives employees the opportunity to rest, recover and recharge from the time they have spent working. The law provides that employees are entitled to continue receiving their wages during annual leave. But when does a day off qualify as annual leave, and what exactly is meant by wages in this context?

Shortly before the summer holidays, the Dutch Supreme Court (Hoge Raad) delivered four judgments on this issue. The cases concerned four employees of NS Reizigers B.V. (“NSR”). This blog explains the issues that arose in those cases and what the Supreme Court decided.

Holiday Scheme under the NS Collective Labour Agreement (CAO NS)

The employment contracts of the four employees were governed by the NS Collective Labour Agreement (CAO NS). Under the terms of the CAO NS, employees of NSR are entitled to:

• ‘leave days’, equal to four times the agreed weekly working hours, which correspond to the employee’s statutory annual leave entitlement; and,
• ‘additional days off’, the number of which depends on the employee’s age and job position.

The CAO NS also provides that employees may include their additional days off in the Choice Plan. This means that these days can be exchanged for other benefits, such as a bicycle, additional pension accrual, or used to help finance a sabbatical leave period.

Two of the four employees whose cases were considered by the Dutch Supreme Court had exchanged their additional days off for a reduction in working hours under the Older Employees’ Working Time Reduction Scheme.

Agreement Between NSR and the Trade Unions

In 2016, a dispute arose between the trade unions and NSR regarding whether NSR employees were entitled to receive an irregular hours allowance during periods of annual leave. NSR and the trade unions subsequently agreed that employees were entitled to the irregular hours allowance in respect of their statutory annual leave days, but not in respect of their additional days off.

The Four Employees’ Arguments

The four employees disagreed with this arrangement. They argued that they were also entitled to receive the irregular hours allowance in respect of the additional days off they had taken. According to the employees, the agreement between the trade unions and NSR was contrary to the law and was therefore invalid.

What Does the Law Say?

The law therefore provides that an employee retains the right to receive their wages during annual leave. Based on Dutch and European case law, it is well established that the concept of wages for the purposes of annual leave includes a fixed irregular hours allowance. Consequently, where an employee normally receives a fixed irregular hours allowance, that allowance must continue to be paid during periods of annual leave.

The key questions in these four cases were therefore: (i) whether the additional days off should be regarded as annual leave days and, if so, (ii) whether a different concept of wages may be applied to those additional days off.

What Was NSR’s Position?

Additional days off are not annual leave days

NSR argued that the additional days off were not annual leave days. Its principal argument was that the purpose of these additional days off was not to enable employees to rest and recover from the work they had performed—the so-called recuperative function of annual leave. According to NSR, the additional days off served a different purpose and therefore should not be treated as annual leave within the meaning of the law.

NSR further argued that, even if the additional days off were initially to be regarded as annual leave, they ceased to qualify as annual leave once they were used for a different purpose. After all, two of the four employees had exchanged their additional days off for a reduction in working hours under the Older Employees’ Working Time Reduction Scheme. The purpose of that scheme is to promote the sustainable employability of older employees, rather than to allow employees to rest and recover from the work they have performed. According to NSR, the additional days off therefore lost their character as annual leave when they were used in that way.

A different concept of wages applies to these additional days off than to statutory annual leave days

NSR further argued that a different concept of wages may be applied to contractual (additional) annual leave days than to statutory annual leave days. According to NSR, the agreement reached with the trade unions was therefore lawful and valid.

Judgment of the Supreme Court

The Supreme Court delivered its judgments in the four cases on 9 June 2023.

• Additional days off are annual leave days

With regard to the first question, the Supreme Court concluded that the additional days off must be regarded as annual leave days. The Court held that a day off qualifies as annual leave where its purpose is to enable the employee to rest and recover from the work performed. Since the CAO NS did not specify the purpose of the additional days off, the Supreme Court assumed that, like statutory annual leave days, they were intended to allow employees to recover from the work they had carried out.

According to the Supreme Court, what matters is the purpose of the days off at the time they are granted. The fact that the employees had subsequently exchanged their additional days off for a reduction in working hours therefore did not affect that conclusion. The additional days off retained their character as annual leave days, regardless of how they were later used.

NSR argued that the additional days off were not annual leave days. Its principal argument was that the purpose of these additional days off was not to enable employees to rest and recover from the work they had performed—the so-called recuperative function of annual leave. According to NSR, the additional days off served a different purpose and therefore should not be treated as annual leave within the meaning of the law.

NSR further argued that, even if the additional days off were initially to be regarded as annual leave, they ceased to qualify as annual leave once they were used for a different purpose. After all, two of the four employees had exchanged their additional days off for a reduction in working hours under the Older Employees’ Working Time Reduction Scheme. The purpose of that scheme is to promote the sustainable employability of older employees, rather than to allow employees to rest and recover from the work they have performed. According to NSR, the additional days off therefore lost their character as annual leave when they were used in that way.

• The same concept of wages applies to all annual leave days

The second question was whether NSR was permitted to apply a different (and less favourable) concept of wages to those additional days off, given that they qualified as annual leave days. The Supreme Court held that it was not. According to the Court, the law does not allow a different concept of wages to apply to contractual or additional annual leave days than to statutory annual leave days. As a result, the irregular hours allowance also had to be paid in respect of the contractual/additional annual leave days.

The agreement between NSR and the trade unions was therefore contrary to the law and consequently invalid. As a result, the four employees were still entitled to claim the irregular hours allowance in respect of the additional days off they had taken.

Tips for employers

If you wish to grant employees additional days off, but want to avoid having to pay allowances in respect of those days, it is important to ensure that the agreement from which the entitlement arises expressly states the purpose of those days. That purpose should not be to enable employees to rest and recover from work performed, but rather, for example, to promote the employee’s sustainable employability. By clearly defining a different purpose, employers may be able to avoid those additional days off being classified as annual leave days.

Do you have any questions following the above? If so, please feel free to contact the lawyers at Ko & Co Advocaten for a no-obligation consultation.

Hian Li Ko | Ko & Co Advocaten