Unlimited Holiday: The myth, the legend

Silicon Valley tech companies were the first to promote unlimited holiday as a benefit, with Netflix regularly referred to as the first to really implement the policy-that-isn’t. The principle is that employees may take as much holiday as they like provided they get their work done.

In the UK, parts of the Virgin group have announced that they now allow employees being given the right to take unlimited amounts of holiday, albeit with the caveat that they and their team are up-to-date on projects and that their absence “will not in any way damage the business – or for that matter their careers”.

Employers who have adopted the approach are pointing to a reduction in holiday days taken as evidence of it causing no reduction in productivity. They have asserted that it is intended to stop tracking and counting annual leave taken and to change the focus on “face time” and presentee-ism, although arguably unlimited holiday might encourage such behaviour. Employees would no longer have a guaranteed right to take holiday, and instead have to justify their absence. A better approach might be to tackle the culture of presentee-ism in a more direct manner, such as actually focusing on what people get done rather than the hours worked.

The advantages of an unlimited holiday policy are clear:
• it sounds attractive;
• it suggests a relationship of trust between employee and employer;
• it could improve productivity and act as greater motivation for employees who are being rewarded for their output and productivity, rather than hours worked;
• it does not appear to diminish productivity;
• it could mean less paperwork; and
• ultimately, such a policy may better serve the needs of the business.

However, unlimited holiday in effect removes the concept of holiday being a guaranteed right for employees. While in the US annual leave is not seen as an entitlement but a benefit, the UK has an established statutory minimum level of annual leave which creates an automatic entitlement to 5.6 weeks’ paid holiday. It is inherent across Europe that not only are employees entitled to a minimum annual leave allowance, but that they should not be inhibited from taking it. The danger of an unlimited holiday policy is the risk of putting the employer in breach of its obligations under the Working Time Regulations as employees may not take the holiday to which they are entitled, and the employer also runs the risk of being accused of deterring employees from taking holiday.

Making the policy work

The impact of an unlimited holiday policy is usually heavily influenced by the ethos of the company. If its use is part of an attempt to eradicate a “face-time” culture, or to combat a culture of persistent absence, think about the wider context and other solutions that may be appropriate to use in conjunction to make changes. Considering the needs of the business is at the heart of an unlimited holiday policy-that-isn’t. This might include the need to control, reject or require employees to take holiday or to build in some checks whilst maintaining the essence of unlimited holiday so that it is not seen as a free-for-all. Such an approach could be a workaholic’s dream, and monitoring annual leave from this perspective will provide information to manage this risk and prevent a breach of UK working time requirements.

A policy is likely to still be needed in order to explain the company’s ethos and approach because, aside from managing absence, it would be required in the event of abuse as a reference point to demonstrate (particularly to an employment tribunal) that an employee had acted inappropriately. Similarly, provisions should be built into the holiday and termination provisions of a contract allowing an employer to discipline employees where it suspects or believes employees are abusing the unlimited holiday policy, as much for deterrent purposes as for practical reasons.

A hybrid approach is often the best way to make this work in practice in the UK, i.e. employers offer the statutory minimum 28 days, and unlimited holiday on top of this. This at least helps to avoid breaches of the Working Time Regulations and arguably does not inhibit employees taking annual leave. It can also make the unlimited holiday portion appear a genuine benefit. Employers are likely to still insist on employees formally notifying the employer in some way of their intention to take holiday, and the dates of that proposed holiday. But a distinction could be drawn between the 28 days statutory holiday (to be notified and logged in the usual way), and additional unlimited holiday (to be taken at the employer’s discretion and/or notified to the employer).

An unlimited holiday policy has worked for certain employers, citing that employees get the freedom to choose when and how they take annual leave, and employers get a motivated workforce that only takes holiday when it best suits the business. And it can work, if the underlying business approach and commitment is in-line with EU and UK law, i.e. to encourage employees to work hard and to rest.

By associate Stephanie Creed and professional support lawyer Kathryn Clapp at Taylor Wessing.