Germany: Forfeiture of paid annual leave entitlements and compensation claims

Following two ECJ decisions, the Federal Labour Court decided on two cases regarding the forfeiture of paid annual leave in December 2022.It also added a clarification regarding the forfeiture of claims of financial compensation for prior paid annual leave entitlements after the end of an employment in a further case of January 2023.

The Court found that in order for the statutory limitation period of three years to begin, the employer needs to inform the employee individually regarding the specific paid annual leave entitlement and the forfeiture period and has to instruct the employee to take their leave to avoid forfeiture. If the employee then decides to not take paid annual leave, the statutory limitation period starts but not before the end of the year in which the employer complied with its duty to inform.

As soon as the employment comes to an end, a remaining annual leave entitlement converts to a claim to financial compensation. This claim becomes subject to forfeiture, however, without requiring any prior action by the former employer as the underlying need for protection ends with the termination of the employment. However, the Federal Labour Court clarified now that the statutory limitation period cannot start before the 6th of November 2018 as only then the ECJ developed the requirement of prior information by the employer for the forfeiture of annual leave entitlements (C-684/16). Before that employees could not be expected to enforce corresponding claims in court.

“Practical Point”

• Even though the case law obligating employers to inform employees about their remaining leave entitlements and the rules of expiry is not recent, many employers still do not adhere to this obligation in practice.
• 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, employers can be confronted with significant leave entitlements that have to be granted in kind or compensated financially upon termination of the employment.
• We strongly recommend to inform employees about their individual outstanding leave entitlement and applicable forfeiture periods various times throughout the year in order to be able to rely on limitation periods.