Global Compliance Desk – Germany
German Federal Labour Court decides on Annual Leave Expiry Rules
German law has set limitations on when employees can utilize their accrued vacation leave. According to Section 3 of the Federal Holiday Act (BUrlG), an employee is entitled to at least 24 working days of paid annual leave in each calendar year. Section 7 specifies leaves can be carried over to the next calendar year if there are urgent operational reasons or personal reasons within the first 3 months (i.e. 15 months) of the following calendar year. However, the European Court of Justice (ECJ) has determined that in a certain set of circumstances, above-mentioned Germany’s restriction on vacation entitlements is in conflict with the EU Directive 2003/88/Ec Of The European Parliament and of the Council Of 4 November 2003 Concerning Certain Aspects Of The Organisation Of Working Time [employers are obliged to take initiative for the realization of the paid leave entitlement of every employee].
On December 20, 2022, the German Federal Labor Court (Bundesarbeitsgericht, BAG) released two landmark judgments by the ECJ, wherein it was held that, contrary to the German Federal Leave Act, employees’ annual leave entitlements do not simply expire at the end of the year or on March 31 of the following year. The prerequisite for expiration is that employers inform their employees in advance about the existing leave entitlements and request that employees utilize them before expiration.
No Limitation Period for Annual Leave Commencement
Facts: In the case BAG, 9 AZR 266/20, an employee who was unable to take all of their paid annual leave in previous years due to the excessive amount of work, filed a lawsuit to recover damages. In relation to the leave, the employer had not complied with its responsibilities to communicate with and assist. However, because the employee’s claims were brought after a period of 3 years ( Section 195 BGB- the standard limitation period according to the German Civil Code is for 3 years), the employer used the statute of limitations in support when the case was presented in front of the BAG.
Decision: On September 20, 2022, the ECJ in their preliminary ruling under case C‑120/21 [BAG, 9 AZR 266/20] ruled that the German law regarding the statute of limitations for paid annual leave is not compatible with the European Working Time Directive. It was held that employers must inform employees of their rights and of the consequences of not taking paid annual leave before the start of a limitation period for a paid annual leave entitlement. It further determined that the employer in the case could not invoke a statute of limitations defense if it did not uphold its duties to inform and cooperate. However, if the employer had adhered to the aforementioned responsibilities, the employer might prevent late claims by employees for untaken annual leave. In the light of the ECJ decision, BAG ruled with the decision of ECJ that the paid annual leave entitlement is not subject to the statutory 3-year limitation period if the employer does not effectively allow the employees to take their annual paid leave.
No Automatic Loss of Leave in Case of Illness
Facts: In the case BAG, 9 AZR 245/19, the employee was continuously absent since 2017 due to illness, because of which he had not utilized his annual holidays since 2017. The employer had not asked the employee to take their vacation leave or informed them that such a holiday could expire at the end of the calendar year or the carry-over period. The employee filed a lawsuit claiming their entitlement to 14 days of vacation leave for 2017. The lower courts dismissed the case.
Prior to the below-mentioned ECJ ruling, according to Section 7 (3) of the Federal Leave Act, vacation must be granted and taken in the course of the current calendar year. The carrying-over of leave to the next calendar year shall be permitted only if justified on compelling operational grounds or for reasons personal to the employee. If leave is carried over, it must be granted and taken during the first 3 months of the following calendar year.
Decision: In two similar cases on September 22, 2022- C-518/20 and C-727/20, which were joined and decided together- the ECJ in their preliminary ruling once again dealt with the German regulations on the forfeiture of paid annual leave entitlements wherein the statutory paid annual leave of employees who are unable to take it due to illness, terminate after 15 months. The ECJ states that this restriction only applies if the employer met the obligation to inform an employee and cooperate with regard to statutory paid leave requirements in the year in which the employee became ill.
The BAG reasserted this position of ECJ that the 15-month period only applies if the employer has fulfilled its obligation to inform an employee of the annual leave entitlement and expiry.
Take Away
The two judgments that were published just before the end of the year make it quite apparent how crucial it is for employers to uphold their duties of cooperation with regard to holiday claims. The aforementioned rulings make the need of an hour for employers to keep track of the number of untaken paid leave days for each employee. If an employee has not requested or taken their annual leave by the middle of the year, it is advisable to notify the employee’s attention of the number of remaining leave days and to ask them to request outstanding leave days for the current calendar year prior to its expiry.
