09. May 2019

Holidays are one of the central concerns of employee protection with which employers, HR specialists and labour lawyers deal with in their daily practice. The case law of the German Federal Labour Court (Bundesarbeitsgericht – BAG) has meanwhile answered many questions of detail with regard to the employee’s holiday claim. But also the European Court of Justice (ECJ) regularly intervenes and has turned established legal principles upside down in several cases. This blog post is therefore intended to provide a brief outline of various relevant topics relating to holiday law, which in the recent past have been significantly influenced by case law.

Vacation and Illness

Much attention has already been paid to the fate of the holiday entitlement in connection with sick leave. The underlying principle is that the employee’s entitlement to paid leave depends on the existence of an employment relationship, but not on the actual performance of the work. The case law of the BAG and the further development by the ECJ in the cases Schultz-Hoff and KHS can be summarized to the following principles:

• Employees also acquire leave entitlements for periods of incapacity to work due to illness.
• Paid leave cannot be granted during sick leave.
• If the annual leave cannot be taken during the holiday year or during the regular carry-over period until 31 Mar of the following year due to illness, it shall be transferred up to a maximum of 15 months after the end of the holiday year.

Relation of Special Leave and Paid Leave

In principle, the holiday entitlement does not require any work performance, e.g. during illness but also in a dormant employment relationship. In accordance to this principle, the BAG decided in 2014 that holiday entitlements would arise despite the suspension of the main obligations from the employment agreement of both parties, e.g. in the case of unpaid special leave (BAG, judgement dated 6 May 2014, 9 AZR 678/12). Fortunately, however, with a more recent judgement, the BAG has turned away from this previous view (BAG, judgement dated 19 Mar 2019, 9 AZR 315/17) and is once again placing greater focus on the recreational purpose of holidays. In practice, this means: no paid leave for times of (special) leave. If special leave is contractually agreed, no further holiday entitlements will arise during the suspension.

Relation of Parental Leave and Paid Leave

In principle, employees also acquire a holiday entitlement for periods of parental leave. But Sec. 17 of the German Federal Parental Benefit and Parental Leave Act (Bundeselterngeld- und Elternzeitgesetz) grants the employer the right to reduce the annual leave entitlement by 1/12 for each full month of parental leave, provided that he gives an adequate notice of this. With its judgement dated 19 Mar 2019, the BAG has now pointed out that this regulation is in conformity with European law, without referring the case to the ECJ itself for a preliminary ruling (BAG judgement dated 19 Mar 2019, Az 9 AZR 362/18). In October 2018, the ECJ had ruled that a comparable regulation of Romanian law was in conformity with European law (ECJ, 4 Oct 2018, C-12/17).

Employers have to make use of the right of reduction by declaration. The declaration can be made at the earliest after the employee has bindingly requested parental leave. Also during or even after the end of parental leave, the employer can make use of his right of reduction. It should be emphasised that the employer has no obligation to inform the employee about the right of reduction before the employee takes parental leave.

Transfer and Expiry of Leave

In general, the arising of the holiday entitlement is rather less problematic, whereas the expiry of holiday entitlements is more often a matter for the labour court.

Until the end of last year, the German labour courts interpreted Sec. 7 para. 3 of the German Federal Leave Act (Bundesurlaubsgesetz) in settled case law in such a way that leave not taken generally expires at the end of a calendar year, but at the latest after 31 Mar in the case of exceptional transfer to the following year. The ECJ recently put an end to this long-established practice in two preliminary ruling proceedings (ECJ judgements dated 6 Nov 2018, C-619/16 and C-684/16):

Employees may now only lose acquired holiday entitlements (or entitlements to financial compensation after leaving the company) if employers have indicated the possible expiry of the holiday and the employees demonstrably waive their leave entitlement voluntarily.

In order to prevent the uncontrolled accumulation of holiday entitlements, employers must consider this change in case law in their operational practice. In order to be able to prove in future that employees have voluntarily waived their leave, the following recommendations should be taken into account even before the courts have specified the concrete requirements.

• Written request in due time to all employees to plan and apply for leave, specifying the amount of remaining leave entitlement;
• Instruction that, otherwise, the holiday entitlements will expire on 31 Dec or 31 Mar of the following year;
• Confirmation of receipt by employees and documentation.

Against this background, the already widespread provision in the employment contract that the statutory minimum holiday entitlement shall be used first is recommendable, since the additional clause that additional leave must expire at the end of the calendar year is still permissible. Given that likely very few employees do not plan a holiday at all during a calendar year, the accumulation of holiday entitlements can be curbed also in this way.

Inheritability of Holiday Entitlements

The ECJ has also recently turned the German law upside down regarding the inheritability of holiday claims.

According to the former view of the BAG, a holiday entitlement expired with the death of the employee instead of being transformed into a compensation entitlement within the meaning of Sec. 7 para. 4 of the German Federal Leave Act and could therefore not be included in the inheritance. In the past, it was only possible to inherit entitlements to financial compensation already existing before death. In November 2018, the ECJ definitively clarified that this case law is incompatible with European law and that an employee’s holiday entitlement may not expire upon his death under EU law (ECJ, judgments dated 6 Nov 2018, C 570/16 and C 569/16). Subsequently, the BAG now interprets the German Federal Leave Act in accordance with EU law, with the result that in the event of the death of an employee, remaining leave is to be compensated financially and the compensation claim is to be included in the inheritance as part of the assets (BAG, judgment of 22 Jan 2019, 9 AZR 45/16).

Statutory Minimum Leave and Additional Leave

Finally, the importance of the differentiation already mentioned between the statutory minimum leave under the German Federal Leave Act and any additional leave granted on basis of the employment contract should be emphasised again. These additional leave days are very common in the working world. Therefore, employers are well advised considering this distinction also in the employment contract design. If the employment contract does not specifically stipulate the fate of additional leave in special cases, the principles of the German Federal Leave Act as well as the further development through case law also apply to these claims, e.g. with regard to the expiry of leave at the end of the holiday year or in the event of illness.