Expiry of Vacation Entitlements

In its ruling of December 20, 2022 (docket-no. 9 AZR 266/20), the Federal Court of Labor (Bundesarbeitsgericht - "BAG") decided that an employee's statutory entitlement to be paid annual leave is subject to the statutory limitation period, but that the three-year limitation period only starts to run at the end of the calendar year in which the employer instructed the employee about his specific holiday entitlement and the time of its expiration and the employee nevertheless did not take the leave of his own free will.

Facts

The ruling of the BAG is based on the following facts: the defendant employed the plaintiff during the period from November 1, 1996 until July 31, 2017 as a tax clerk and balance sheet accountant. After the termination of the employment relationship, the defendant paid the plaintiff 3,201.38 Euros gross in compensation for 14 days of vacation. The defendant did not comply with the plaintiff's further demand for compensation for 101 days of vacation from previous years. While the Labor Court dismissed the claim filed on February 6, 2018 - insofar as it is relevant for the appeal proceedings - the LaborCourt of Appeal awarded the plaintiff 17,376.64 Euros gross in compensation for a further 76 working days. In doing so, the Labor Court of Appeal (Landesarbeitsgericht, „LAG“) considered the defendant's objection that the asserted vacation claims were time-barred to be unfounded.

Reasons for decision

The defendant's 2^nd appeal (“Revision”) was unsuccessful. It is true that the provisions on the statute of limitations [Sec. 214 (1), Sec. 194 (1) of the German Civil Code ("BGB")] apply to statutory minimum vacation. However, if Section 199 (1) BGB is interpreted in accordance with the European Directive, the regular limitation period of three years does not necessarily begin at the end of the vacation year, but only at the end of the year in which the employer informed the employee of his specific vacation entitlement and the applicable expiry periods and the employee nevertheless did not take the vacation of his own free will. The BAG has thus implemented the requirements of the ECJ based on the preliminary ruling of September 22, 2022 (docket-no. C-120/21). According to this, the purpose of the statute of limitations, the guarantee of legal certainty, in the present case constellation takes a back seat to the objective of Art. 31 (2) of the Charter of Fundamental Rights of the European Union to protect the health of the employee through the possibility of claiming. The guarantee of legal certainty should not serve as a pretext for allowing the employer to rely on its own failure to enable the employee to actually exercise his entitlement to paid annual leave. The employer could ensure legal certainty by making up for its obligations to the employee.

The defendant did not enable the plaintiff to exercise her vacation entitlement by fulfilling the obligations to request and notify. The claims therefore did not expire at the end of the calendar year [Sec. 7 (3) Sentence 1 of the German Vacation Act, "BUrlG"] or of a permissible carryover period [Sec. 7 (3) Sentence 3 BUrlG], nor could the defendant successfully argue that the vacation not granted had already become time-barred during the current employment relationship after the expiration of three years. The plaintiff filed the claim for compensation for the vacation within the limitation period of three years.

Note for practice

The decision of the BAG is not surprising in view of the ECJ ruling of September 22, 2022 (docket-no. C-120/21). Holidays that have not been taken or granted can only expire at the end of the calendar year or the carryover period if the employer has previously informed the employee of the impending expiry of the leave and has thus enabled the employee to actually exercise his leave entitlement. This notice must be specific and transparent. The employer must provide clear and timely notice that the vacation will expire at the end of the reference or carryover period if the employee does not take it.

The ruling of the BAG puts employers who have not complied with this obligation to cooperate in the past, and this is likely to be the majority, in great concern that a large number of employees, who may have already left the company, will claim a considerable amount of vacation entitlements not taken from long ago. Employers will not be able to invoke protection of legitimate expectations. The ECJ had not commented on this issue in its decisions of September 22, 2022. Accordingly, employers must assume in principle that they will have to fulfill existing vacation entitlements retroactively without any time limit if they have not fully complied with their obligation to cooperate - if necessary, also retrospectively. In this context, another aspect is likely to be discussed again, namely the question of whether the preclusion periods regularly agreed between the parties to an employment contract can be held against such claims for compensation.

For a further evaluation, the publication of the complete reasons for the decision must first be awaited. In this context, the rulings in the two parallel proceedings concerning docket-no. 9 AZR 245/19 ("Fraport") and 9 AZR 401/19 ("St. Vincenz Krankenhaus"), also issued on December 20, 2022, should definitely be taken into account. In these cases, the BAG referred the legal disputes back to the competent Labor Courts of Appeal, at least insofar as the forfeiture of vacation is at issue with regard to reference periods in which the plaintiffs were incapacitated for work.