Annual leave is the paid time off from work to which all employees are entitled during each working year. Article 7 of the Working Time Directive (Council Directive 2003/88/EC), which ‘lays down minimum safety and health requirements for the organisation of working time’, stipulates a period of paid annual leave of at least four weeks for all employees. This requirement is an absolute entitlement that cannot be reduced, and the directive does not allow any exemption. Conditions for the entitlement and granting of annual leave are subject to national regulation. However, any such regulation cannot replace the minimum period of paid annual leave by an allowance in lieu, except where the employment relationship is terminated. 
Background and regulatory aspects
Rulings on annual leave
An employee’s right to annual leave has been the subject of many decisions of the Court of Justice of the European Union (CJEU) following Case C-173/99 in 2001. In that case, the CJEU ruled against legislation in the United Kingdom that made entitlement to paid annual leave subject to a qualification period of 13 weeks’ employment. It ruled that this legislation deprived employees with fixed-term contracts of their right under EU law to paid annual leave. The CJEU set out the principle that:
The entitlement of every worker to paid annual leave must be regarded as a particularly important principle of Community social law from which there can be no derogations. 
Furthermore, in March 2006, the CJEU ruled that so-called ‘rolled-up holiday pay’ – the practice of incorporating the payment of annual leave into a worker’s hourly or daily wage without the worker receiving additional payment – is contrary to the directive, as the practice does not guarantee that the minimum four-week leave will actually be taken.  With the same concern to protect the health and safety of workers, the ruling in Case C-124/05 held that the directive:
Is to be interpreted as precluding a national provision which, during a contract of employment, permits days of annual leave … which are not taken in the course of a given year, to be replaced by an allowance in lieu in the course of a subsequent year. 
Entitlement in relation to sick leave
In the 2009 case of Schultz-Hoff and Stringer, the CJEU stated that an employee’s absence due to illness must not deprive them of their right to paid annual leave. Equally, an employee who has not been able to exercise their right to paid leave before the end of the employment relationship for reasons beyond their control is entitled to financial compensation. This compensation must be calculated in such a way that it compares to the rights the employee exercised during the employment relationship. The CJEU stated that:
It is common ground that the purpose of the entitlement to paid annual leave is to enable the worker to rest and to enjoy a period of relaxation and leisure. The purpose of the entitlement to sick leave is different. It is given to the worker so that he can recover from being ill. 
In 2009 and 2012, the CJEU ruled that if a worker is sick and incapacitated for work, and where that incapacity occurs during a period of paid annual leave, the worker has the right to receive future annual leave that corresponds to the period of incapacity for work.  In addition, the CJEU has accepted that periods not worked can be taken into account for the purpose of calculating entitlements to paid annual leave, notably maternity leave and sick leave.  However, it has refused to apply this case law to parental leave. 
Assuming that a worker who is unable to work for several consecutive years cannot have the right to the unlimited accumulation of entitlements to paid annual leave acquired during that period, the CJEU stated that ‘it may reasonably be considered that a period of 15 months for carrying over the right to paid annual leave … is not contrary to the purpose of that right’;  a postponement period limited to 9 months is contrary to the directive.  In general terms, the principle is that ‘any carry-over period must substantially exceed the length of the reference period for which it is granted’. 
In 2018, the CJEU clarified the employer’s responsibility to ensure that its employees take the annual leave to which they are entitled.  It ruled that employers should not have ‘to force their workers to actually exercise their right to paid annual leave’, but that they must ‘ensure that workers are given the opportunity to exercise such a right’. If the employer can demonstrate ‘that it was deliberately and in full knowledge of the ensuing consequences that the worker refrained from taking the paid annual leave to which he was entitled after having been given the opportunity actually to exercise his right thereto’, then EU law does not preclude the worker losing their right to paid leave.
In the same year, the CJEU further enforced the right to annual leave. Invoking Article 31, paragraph 2, of the EU Charter of Fundamental Rights, which states that ‘every worker … shall have a right to … annual paid leave’, the Court stated that the right to annual leave is both mandatory and unconditional in nature. As a result, in all cases where national legislation is at odds with EU law and, in one way or another, deprives an employee (or their heirs) of the right to paid leave, the court to which such a matter is referred must disapply the relevant national legislation. As such, the CJEU has made it significantly easier for employees who are denied the right to paid annual leave by national legislation that is non-compliant with EU law to seek recompense, as demonstrated in Joined Cases C-569/16 and C-570/16, for example.