Financial compensation in lieu of vacation requires termination of the employment

The Federal Labor Court ruled in its judgment of 16 May 2017 (9 AZR 572/16) that financial compensation in lieu of vacation during a running employment relationship is excluded in accordance with section 7 (4) of the Federal Vacation Act (BUrlG).

The situation

The plaintiff was employed as an editor. She was entitled to 31 vacation days per calendar year. The parties of the employment relationship agreed on a part-time early retirement contract that commenced on April 1, 2012. The work phase of the block model terminated on March 31, 2015.The passive phase of the block model, during which the employee was not obliged to work anymore, was intended to terminate on March 31, 2018.

At the end of 2014, the plaintiff filed a written request in which she asked the employer to grant 31 days' leave for the calendar year 2015.  However, she received only 8 days' leave. Following her entry into the passive phase of semi-retirement, the plaintiff therefore demanded financial compensation for what she considered to be vacation days wrongfully not granted in 2015. As a justification, she argued that her entry into the passive phase of the block model led to the fact that the vacation entitlement cannot longer be fulfilled.

Decision-making reasons

The Federal Labor Court did not subscribe to this legal opinion. As long as an employment relationship is not terminated, there is no entitlement to financial compensation for unfulfilled vacation claims. According to the statutory provisions of the Federal Vacation Act, compensation for unfulfilled holiday entitlements do require a legal termination of the employment relationship. Prior to this, the compensation is limited to a mere "substitute leave", i. e. paid leave in accordance with the Federal Leave Act. According to the Senate, the plaintiff is therefore not in a position to demand financial compensation for her unfulfilled holiday entitlement for 2015 until the employment relationship is legally terminated. This is not the case with the transition from the active phase to the passive phase of the block model, but only after 31 March 2018.

Recommendations for practice

The Federal Labor Court’s approach that the legal termination of the employment relationship is a precondition for the financial compensation of ungranted vacation entitlements corresponds to the dogma of section 7 (4) of the Federal Vacation Act (BUrlG), but is not quite convincing in this specific case. "Substitute leave" has no value for an employee who is not obliged to work anyway. The parties to an employment relationship should - regardless of the decision - clarify and, if possible, fulfill the remaining vacation entitlements prior to the start of the passive phase of the block model.