Germany: Precautionary granting of Holidays in cases of Extraordinary Termination
Dismissal proceedings take months and may even take years if pursued through all court instances. If a dismissal then turns out to have been invalid, employers are faced with claims to retroactive payment of remuneration for the time between the effectiveness of the dismissal and the (final) court verdict, without receiving any work from the employee for this period in return. Especially in cases of lengthy court proceedings, such remuneration claims can add up significantly. It is, therefore, important for employers to reduce this financial risk as far as possible from the start. Pursuant to a recent ruling of the German Federal Labour Court, granting outstanding holidays to an employee can be a suitable precautionary measure even in cases of extraordinary termination without observing a notice period.
In the case before the court, the employer had terminated the employment relationship with the plaintiff in 2017 without notice, alternatively with due notice. The employer communicated in writing to the employee that the outstanding holidays shall be paid out in the event that the termination without notice is effective. For the event that the termination without notice is ineffective, the employer granted the holidays in kind at the beginning of the notice period. The payment for the holidays should either be deemed compensation or holiday pay, depending on the validity of the extraordinary termination.
Employer and employee closed the dismissal protection proceeding by means of a court settlement. They agreed that the employment relationship had ended on a date between the date of the extraordinary termination and the expiry of the notice period and the employment relationship shall be duly performed until then. However, after the settlement had been concluded, the former employee claimed that declaring the payment for the holidays as holiday pay and considering the holidays as taken in kind was inadmissible. He demanded payment of an additional amount of EUR 1,300.00 as remuneration for the time period for which the employer had granted the holidays.
The court dismissed the claim, as it found that the employee had effectively been granted paid holidays during the time period in dispute and could, therefore, not claim additional remuneration for the same period. In principle, the employer must take the employee’s wishes into account when determining the time of the holidays. However, if the employee does not express any wishes, the employer may determine the holiday period unilaterally. The employer may also grant holidays as a precautionary measure in the event that a termination is later found to have been ineffective. If he does so, the employer must expressly declare that he is granting holidays, stating that the employee is released from work and that holiday pay will be paid. In the case in hand, the employer declared this properly so that the holidays had been effectively granted, and the employee could not claim any further remuneration for the same time period.
This ruling shows that employers should be considerate of their possibilities to reduce financial risks in termination cases. The risk of having to pay remuneration retroactively for several months or even years is a common argument of employee lawyers in settlement negotiations. Therefore, effectively reducing such claims or creating legal risks for employees with regard to such claims can give employers significant leverage in settlement negotiations. Properly granting outstanding holiday entitlements as a precautionary measure is one suitable measure employers should be aware of. In addition, a recent ruling of the German
Federal Labour Court significantly strengthened the employer’s legal position regarding information rights relating to alternative earnings an employee obtained during the court proceeding or could have obtained if he had duly used his workforce. Properly making use of these information rights and even actively challenging the employee to apply for suitable positions, to that extent releasing him from his non-compete obligation for the duration of the court proceeding, can significantly reduce the amount of retroactive remuneration the employee can successfully claim in case of an invalidity of the termination.
For more information on these articles or any other issues involving labour and employment matters in Germany, please contact Dr. Tobias Pusch (Partner) of Pusch Wahlig Workplace Law at pusch@pwwl.de or visit www.pwwl.de.
