Federal Labor Court: Vacation is only forfeited if the employer informs the employee.

 No automatic expiry after three years – duty to cooperate even in the event of long-term illness.

Federal Labor Court: Vacation is only forfeited if the employer informs the employee.

In the lead-up to Christmas, the German Federal Labor Court presented employers with a decision with far-reaching consequences: Claims to remaining leave can still be asserted even years later. Leave neither expires automatically nor does it simply lapse after three years. The obligation to inform employees of the impending expiry of leave also applies in the event of long-term illness. We shed light on the consequences for HR.

Whereas the expiry of unused remaining leave provides companies with reliable planning, it often proves to be an annoyance for employees. This is particularly the case when employees were forced to forgo leave due to company needs. Accordingly, employers and employees often end up in labor courts, disputing compensation claims for leave not taken.

The German Federal Labor Court follows the ECJ ruling

As already reported, common case law already exists: The entitlement to leave pursuant to Section 7(3) of the German Federal Leave Act does not automatically expire on December 31 or March 31 of the following year. Instead, the European Court of Justice (ECJ) has ruled that employers have a duty to cooperate. It is not merely that they have to notify employees that forfeiture is imminent, but rather they are also required to encourage employees to take their remaining leave (C-619/16 and C-684/16). The ECJ recently issued a preliminary ruling on the matter: A leave entitlement does not simply expire automatically but only if the employer has fulfilled its cooperation obligation.

No notification, no expiry!

Despite what you may think, things have changed: The current ruling by the German Federal Labor Court addresses the ECJ case law and clearly states that entitlements to leave can also be claimed from previous years if the employer has failed to fulfill its notification obligation. In this case, employers also cannot fall back on the three-year expiry period pursuant to sections 195 and 199 of the German Civil Code (BGB). The expiry period does not begin until the end of the calendar year in which the employer informed the employee of their specific leave entitlement and the expiry deadlines. Moreover, the employee must have then failed to take the vacation of their own free will. This means that if the employer fails to notify the employee or if the employee was unable to take the leave due to company reasons, for example, the employee may still request the leave years later. Or they can demand compensation for unused leave upon termination of the employment relationship in accordance with Section 7(4) of the German Federal Leave Act.

101 vacation days accrued over 20 years

In the specific case, a tax clerk and accountant from North Rhine-Westphalia took legal action. She had accrued 101 vacation days over the course of more than 20 years. Upon termination of the employment relationship, the defendant employer paid the plaintiff 3,201.38 euros gross as compensation for 14 days of vacation. The employer refused to comply with her demand for compensation for the remaining vacation days from previous years.
Whereas the first instance rejected the tax clerk’s claim in February 2018, the Düsseldorf Regional Labor Court granted her 17,376.64 euros gross as compensation for a further 76 working days. It did not share the defendant’s opinion that the vacation claims had expired. The employer took the case before the Federal Labor Court – without success.

Federal Labor Court: The employer is responsible for its own legal security

With their current decision, the Erfurt judges have implemented the requirements of the ECJ: The purpose of the limitation period and the guarantee of legal security for the employer were secondary considerations in this case. The primary objective of Article 31(2) of the Charter of Fundamental Rights of the European Union is to protect the health of the employee by providing them with the opportunity to take recreational leave. The employer can ensure legal certainty by fulfilling its obligations to the employee. Conversely, legal certainty does not represent an argument for not first enabling the employee to actually take their annual leave due to lack of notice before subsequently asserting their own failure. The plaintiff had filed the claim for compensation within the limitation period of three years.

When does leave entitlement expire in the event of illness?

In another case, the Federal Labor Court clearly stated that the employer’s cooperation obligation also applies to employees suffering from a long-term illness.
As already reported, leave entitlement generally expires 15 months after the end of the calendar year if the employee has been continuously ill since the beginning of the vacation year until March 31 of the second calendar year following the vacation year. In this case, the Erfurt judges ruled that it does not matter whether the employer has fulfilled its cooperation obligations. Because in this case, the employer could not have enabled the employee to take the leave.
However, the case that has now been decided was a different situation: An employee with a severe disability was employed by an airport company in Hesse. From December 1, 2014 to August 2019, he was unable to work due to a complete reduction in earning capacity, and was unable to take his leave as a consequence. In his lawsuit, he claimed remaining leave from 2014. This leave had not expired because the employer had failed to fulfill its cooperation obligation with regard to granting and taking leave.

The deciding factor is whether the employee was able to take leave at all

The judges in Erfurt ruled in the employee’s favor: The plaintiff employee had actually worked during the leave year before suffering a complete reduction in earning capacity or the inability to work due to illness. The Federal Labor Court stated that, in this case, the expiry of the vacation entitlement regularly assumes that the employer has enabled the employee to actually take their vacation in due time before the incapacity to work occurred.

What are the consequences for HR?

Neither of these decisions come as a surprise. HR departments at large companies have generally implemented the cooperation obligations concerning leave expiry since the decision of the Federal Labor Court in 2019. This also helps to eliminate the need to establish provisions in the annual financial statements for settling vacation entitlements that have not expired.
Even if the rulings provide clarity with regard to the limitation period, vacation law continues to hold numerous pitfalls for employers. For example, it is worth noting that the case law of the ECJ and the Federal Labor Court refers to the statutory minimum leave according to the Federal Leave Act. If employment contracts or collective bargaining agreements grant additional leave, separate agreements can be concluded regarding expiry and limitation.

Threat of mass lawsuits?

The question remains as to whether the current rulings can enable employees to also file lawsuits against former employers for compensation for unused remaining leave? Does this create the threat of mass lawsuits for decades-old, unfulfilled leave claims? According to a press release, this need not be assumed. Rather, the decision was based on the employer failing to fulfill its cooperation obligations during the ongoing employment relationship. The ruling by the Federal Labor Court regarding the limitations period cannot necessarily be transferred to the claim for compensation for vacation after termination of the employment relationship. Furthermore, such a claim will also be subject to any existing limitation periods.

Almost exactly one year ago, we examined the cooperation obligations concerning the expiry of leave together with a suggested wording available as a download to enable employers to fulfill their information obligations. Companies that have not yet addressed this issue need to take action now at the latest examine all of their employee groups. This applies to mini-jobbers in particular as they are often forgotten. The current decisions from the Federal Labor Court regarding the limitation period and forfeiture of unused leave also provide further indications that issues related to leave law are not only governed by national law, but also have to be considered in conjunction with EU requirements.