News on annual leave law – highest German Labour Court follows ECJ position

Triggered by the judgments of the European Court of Justice (ECJ) of 6 November 2018 (Cases C-619/16, C-684/16 and cases C-569/16, C-570/16), the Federal Labour Court (Bundesarbeitsgericht, BAG) held that employers must now urge employees to request annual paid leave before that leave is forfeited (see Judgment of 19 February 2019 in Case No. 9 AZR 541/15) and thus imposed a new duty to inform on employers. In addition, the BAG decided that claims to payment in lieu of leave can be inherited even if the employment relationship ends due the death of the employee (see Judgment of 22 January 2019 in Case No. 9 AZR 45/16).

Core principles of German annual leave law

The German Federal Leave Act (Bundesurlaubsgesetz, BUrlG) regulates the entitlement to minimum statutory paid annual leave for employees and apprentices. This minimum annual leave amounts to 24 workdays per year, based on a 6-day working week. When calculating the number of leave days based on the regular number of workdays per week, this employee would therefore be entitled to four weeks of statutory annual leave per year. The employer remains free to grant additional leave contractually, beyond this statutory minimum leave. To the extent that no special provisions are agreed, the entitlement to such additional leave is also subject to the stipulations of the Federal Leave Act.

The entitlement to leave is not based on the employee’s performance, but on the legal existence of an employment relationship, regardless of whether it is a temporary or perma-nent one. The right to leave also arises with respect to an uninterrupted incapacity to work and, generally, also in the case of an inactive employment relationship. A statutory rule, such as that which applies with respect to parenting leave, is required if the statutory leave entitlement is to be reduced.

The right to the full annual leave arises as soon as the employment relationship has existed for six months in a calendar year. Once this requirement has been fulfilled for the first time, the employee shall have the right to the full amount of annual leave at the beginning of each year. Before this six months waiting period has expired, or where the employee is employed continuously for less than six months, the employee has the right to only part of the leave; one twelfth of the annual leave for each full month of employment.

In principle, the leave shall be forfeited, if it is not used within the calendar year. Leave may only be carried over to the first three months of the following calendar year in accordance with the rules established in the Leave Act when there is an urgent operational reason or due to the employee’s personal circumstances – even if it is common practice in most companies to still grant the leave in the first three months of the following year regardless of the circum-stances. According to the case law of the BAG, an employee who is suffering from a long-term illness will lose their entitlement to annual leave fifteen months after the end of the year. If an employment relationship ends without the annual leave being taken in full, the employee shall have the right to payment in lieu of the leave. In a current employment relationship, leave may not be paid out in lieu, and it is not possible to deviate from this rule even if the employee so desires.

Employees have the duty to advise their employer of when they wish to take leave in good time, i.e. to apply for leave; the employer must take this request into account when granting leave. The ECJ and, subsequently, the BAG have reached a number of decisions on this issue, which also impacts on the forfeiture of leave.

Judgments of the ECJ and BAG

In four policy-making judgments handed down on the same day, the ECJ held that the right to payment in lieu of leave can even arise when the employee failed to request any leave during the employment relationship (Cases C-619/16 and C-684/16) and confirmed that the entitlement to the payment in lieu of leave can be inherited (Cases C-569/16 and C-570/16). In two recent judgments (Judgment of 19 February 2019 in Case No. 9 AZR 541/15 and Judgment of 22 January 2019 in Case 9 AZR 45/16) the BAG followed these views.

Annual leave will not be forfeited unless the employer urges the employee to take leave

The ECJ held that the right to payment in lieu of leave, which was not granted during the employment relationship, was not dependent on the employee having made a request for leave. According to the ECJ, the forfeiture of the right to payment in lieu of leave could only be considered when the employer had actually placed the employee in a position that made it possible for the employee to take leave in due time and had appropriately informed the employee that the leave would be forfeited if it was not taken. If the employee then chooses of his own volition to forego his leave, the right to payment in lieu of leave may also be forfeited.

The BAG shared this legal position in its judgment of 19 February 2019 (Case No. 9 AZR 541/15) and decided – with effect to the right to leave under an existing employment relationship – that an employee’s paid annual leave entitlements will only lapse at the end of the calendar year if the employer had informed the employee in advance about his specific leave entitlements and their expiry date, and if the employee still chose not to take the leave of his own accord. Accordingly, the forfeiture of leave entitlements in a continuing employ-ment relationship depends on a prior request by the employer that the employee takes leave. The BAG left open the question of which requirements the employer must meet when formally requesting that the employee use their leave.

Right to payment in lieu of leave can be inherited

The ECJ had decided that an employee's right to annual paid leave will immediately convert into a right to payment in lieu of leave upon the end of the employment relationship due to the death of the employee and, accordingly, this right can be inherited. Any legal norms of the Member States, which are contrary to this right, must not be applied in such cases.

In its judgment of 22 January 2019 (Case No. 9 AZR 45/16), the BAG followed the legal view of the ECJ and decided, in conformity with EU law, that the entitlement to an allowance in lieu of annual leave that was not taken before the death of the employee is an asset and thus part of the employee’s estate. In addition, the BAG held that the entitlement to a payment in lieu applies not only to the statutory minimum leave and additional leave for severely disabled persons, but also to any agreed leave over and above the statutory minimum leave, to the extent that this has not been effectively ruled out.

Recommended action

Well before the end of the calendar year, employers should urge their employees to take their annual leave and should inform their employees of the fact that their leave will lapse if it is not taken. This written notice should show the remaining number of annual leave days, and note that the leave entitlement will lapse, without replacement, at the end of the calendar year or the period for which leave may be carried over. In principle, an alternative arrangement may apply to any leave in excess of this statutory minimum. Care should be taken to ensure that employment contracts, collective agreements and work agreements distinguish between statutory leave and leave in excess of this statutory leave, and deal with them separately. A stricter rule may apply to the expiry of entitlements to leave that is not part of the statutory minimum leave. If heirs assert claims for payment in lieu of leave with respect to a deceased employee, any time limits under existing rules should also be assessed to see whether they are applicable.

If you have any questions related to this topic, please feel free to contact Isabelle Woidy (Lawyer, LL.M.).