The numbers speak for themselves: In 2022, almost 50 million people traveled in Germany, more than one out of two. 61% spent their vacation in Germany and 39% abroad. These statistics show how important the legal framework for vacation leave is.
For labor law practice, it is therefore particularly important to keep these legal framework conditions in mind. This is not least because leave entitlement has recently also been the subject of decisions by the European Court of Justice (ECJ) and the German Federal Labor Court (BAG). Particular attention should be paid to two recent decisions of the ECJ (judgments of 22 September 2022, C-518/20 and C-727/20 as well as C-120/21) and subsequently the implementation by the Federal Labor Court with its decisions of 20 December 2022 (9 AZR 266/20 and 9 AZR 245/19).
In these decisions, the courts have confirmed that it is relevant for the employer to fulfill its notification obligations also for the limitation of leave entitlements and the forfeiture of leave for health reasons. The situation is only different with regard to the entitlement to compensation for leave. In this respect, the Federal Labor Court ruled in its decision of 31 January 2023 (9 AZR 456/20) that this is subject to the three-year limitation period irrespective of the employer fulfilling its notification obligation.
Lapse of leave entitlement
According to the decision of the Federal Labor Court, leave entitlement only lapses at the end of the calendar year or of a permissible carry-over period if the employer properly fulfills its notification obligation. This means that the employer must specifically, and in complete transparency, ascertain that the employee is actually able to take his or her paid annual leave.
According to the decision of the Federal Labor Court, in the event of a continuing period of incapacity for work, the statutory leave entitlement generally lapses after a carry-over period of 15 months after the end of the leave year (Federal Labor Court, judgment dated 7 August 2012 – 9 AZR 353/10). Previously, it had been unclear whether the employer’s notification obligation must also be fulfilled in the case of employees being unfit for work for a prolonged period of time while the employee is still unfit for work, or whether this obligation only applies once the employee has recovered.
Considering this, the Federal Labor Court requested a preliminary ruling from the ECJ in July 2020. The Federal Labor Court detected a possible conflict in the interpretation of the national provision of Section b7 III of the German Leave Act (BUrlG) which provides for the loss of leave entitlement, irrespective of the failure of the employer to fulfill its notification obligation if leave cannot be taken due to long-term incapacity for work as per Article 7 of Directive 2003/88/EC.
The ECJ interprets leave as time to recover from work and as an opportunity for relaxation and leisure. That purpose is based on the premise that the employee actually worked during the reference period. However, in situations in which the employee is placed on sick leave during the reference period, this condition is not reasonable. Employees who are absent from work on sick leave are to be treated in the same way as those who have actually worked. The Court ruled that it cannot therefore be accepted that the minimum annual leave is reduced where an employee could not fulfil his or her obligation to work during the reference period due to an illness. However, as the ECJ points out, referring to its own judgment, this does not mean that an employee may accumulate without any limit all the entitlements to paid annual leave that are acquired during his or her absence from work.
Consequently, the Court has held that national provisions limiting the leave entitlement to a carry-over period of 15 months after the end of the reference period are effective. According to these provisions, the right to paid annual leave may lapse.
This legal consequence is, however, subject to an essential premise:
The principle, determined by the ECJ and consequently also by the Federal Labor Court, that the employer must fulfill its notification and cooperation obligation applies even if an employee falls sick (for a prolonged period of time) during the respective calendar year. Otherwise, according to the ECJ, the right enshrined in Article 7 of Directive 2003/88 and Article 31(2) of the Charter of the Fundamental Rights of the European Union could prove nugatory.
The decision shows how much significance is placed on the employer’s notification obligation. The employer still must fulfil its obligations to cooperate in the granting and taking of leave if and as long as the employee is unfit for work.
It should be observed that the ECJ and the Federal Labor Court distinguish between leave entitlements acquired before the onset of an incapacity for work and those acquired during an incapacity. Only if the employee has been unable to take his or her leave from the beginning of the leave year continuously until 31 March of the second calendar year following the leave year, the notification obligation is not relevant. It is only in such a situation that the leave entitlement lapses after 15 months as of the end of the leave year, whether the employer fulfils its obligation to cooperate in the granting and taking of leave or not. In the opinion of the ECJ, this counteracts an unlimited accumulation of paid annual leave.
Limitation of leave entitlement
The Federal Labor Court has asked the ECJ for another preliminary ruling on whether the entitlement to paid annual leave under Section 194 et seq. of the German Civil Code (BGB) is subject to limitation.
In the application of the general limitation rule on the right to paid annual leave, the Federal Labor Court found a potential conflict with Article 7 Directive 2003/88/EG and Article 31 (2) of the Charter of the Fundamental Rights of the European Union. The Federal Labor Court stated that, if it were to apply the general limitation rule, a non-compliant employer, inasmuch as it has not put the employee in a position to actually take paid leave, would avoid complying with its obligations and benefit financially.
In its decision, the ECJ finds that the application of a general limitation rule laid down in national legislation respects the essence of the right for paid annual leave, as it merely subjects the possibility for the employee to assert his or her right to paid annual leave to a three-year time limit.
In the case at hand, according to the ruling of the ECJ, the purpose of the limitation rule ensuring legal certainty is secondary to the objective of Article 31 (2) of the Charter of Fundamental Rights of the European Union, which is protecting the health of the employee by the possibility of exercising his or her right. The employer’s duty to ensure that the right to paid annual leave is actually exercised should not be put on the employee, the weaker party in the employment relationship. The employer should not take free of the need to fulfil its own obligations by arguing that no request for paid annual leave was submitted. The employer can ensure legal certainty by fulfilling its obligation towards the employee.
While the ECJ acknowledges that the employer has a legitimate interest in not having to handle requests for leave or allowance in lieu of periods of paid annual leave not taken, based on rights acquired more than three years before the request is made, the legitimacy of that interest disappears where the employer, by failing to put the employee in a position to actually exercise the right to paid annual leave, has got itself in a situation in which it is faced with such requests and from which it is liable to benefit to the detriment of the employee.
In light of those factors, the ECJ, and consequently the Federal Labor Court, determined the principle that an employee’s statutory right for paid annual leave is in fact time-barred. The three-year limitation period however only begins at the end of the calendar year in which the employer has informed the employee on his or her concrete leave entitlement and the limitation periods, and the employee has not yet taken his or her leave freely and voluntarily.
Recommended course of action
The recent rulings of the ECJ and the Federal Labor Court confirm how important it is in practice for employers to observe their obligation to notify and cooperate to enable employees to actually exercise their leave entitlement.
It follows from all foregoing considerations that the employer should observe the following:
- The employer should inform the employee in text form how many leave days the employee is entitled to in the calendar year.
- The employer should ask the employee to request annual leave days early enough so that they can actually be taken during the current leave year.
- The employer should advise the employee on the consequences which will occur if the employee does not request to take his or her leave days as he or she was invited to do.
The employee may be notified by e-mail or letter. Generally, there is not a certain form required. It should however certainly be documented in any way and kept for the purpose of establishing proof.
Limitation of entitlement to allowance for untaken leave
The entitlement to allowances in lieu of untaken paid annual leave is treated differently. The Federal Labor Court decided in its ruling of 31 January 2023 that an employee’s entitlement to allowances in lieu of untaken paid annual leave is time-barred, irrespective of whether the employer has previously fulfilled its obligation to cooperate in the actual granting and taking of leave during the ongoing employment relationship. In its decision, the Federal Labor Court explains that despite the common origin of the entitlement to leave and the entitlement to allowances in lieu of untaken leave, their purposes are not identical. Therefore, the entitlement to leave, which constitutes a paid release, does not have to be treated in the same way as the entitlement to allowances in lieu of untaken leave, which constitutes a mere monetary claim. The Federal Labor Court is right to determine that it is not only impossible for the employer to release the employee from his or her working duty once the employment relationship has ended, but also to inform the employee which leave days might expire at what point in time, and to invite the employee to take those leave days before that point in time. The employee’s weaker position towards the employer ends with the termination of the employment relationship.
Conclusion
The German leave law has gradually been amended due to the rulings of the ECJ. While in previous years leave entitlements could lapse after 15 months in the event of persisting illness or incapacity for work, the decisive factor is now whether the employer has clearly and transparently informed the employee of the possibility that leave entitlements could lapse. The Federal Labor Court has adopted this ruling, so that German leave law has now incorporated these amendments.