international employment law firm alliance L&E Global

Germany: New Case Law on the Forfeiture of Paid Annual Leave Entitlements

The European Court of Justice (ECJ) recently ruled on two issues related to paid annual leave entitlements.

In the first case, an employee sought compensation for paid annual leave from previous years, which she could not take due to the workload. The employer argued that the standard limitation period of three years had already  expired and, therefore, no claims existed any more. However, the employer had not fulfilled his obligation to inform the employee regarding her paid annual leave entitlement and its expiry and to encourage her to take the leave.

The ECJ held that the legitimate interest of legal certainty, which is expressed in the statutory limitation period, ceases to exist when the employer is responsible for causing such an issue by not enabling the employee to take her paid annual leave. A violation of the obligation to provide information on remaining leave entitlements to the employee and to request her to take her leave thus precludes the statute of limitation for corresponding claims to paid annual leave or its compensation.

The second case dealt with a claim for compensation for paid annual leave by an employee who became incapacitated to work due to illness at the end of the year and could not take her remaining leave entitlement from that year as a consequence. In this case too, the employer had failed to comply with the obligation to inform the employee about the remaining leave entitlements and their expiry. The employer argued in court that the leave entitlements had nonetheless expired 15 months after the calendar year in which they arose, according to corresponding case law of the Federal Labor Court which aimed at preventing an indefinite accumulation of leave entitlements.

However, as the employer  had failed to comply with his obligation to inform the employee about the leave entitlements and their expiry, the ECJ decided that the claim does not cease after 15 months, otherwise the entitlement for paid annual leave would be undermined. Furthermore, the employee only referred to claims that originated from a calendar year during which she was actually working, which eliminated the risk of indefinite accumulation.

“Practical Point”

  • Even though the case law obligating employers to inform employees about their remaining leave entitlements and the rules of expiry is not new anymore, many employers do not adhere to this obligation in practice.
  • The recent ECJ rulings show that non-compliance with this obligation can lead to the accumulation of leave entitlements over years, as not even the statute of limitation applies in this case. For employees who do not take their entire leave during the year or who become incapacitated for work over a longer period of time, employers can be confronted with significant leave entitlements that have to be granted in kind or compensated financially upon termination of the employment.