Expiry of vacation claims - CJEU strengthens rights of employees

The Court of Justice of the European Union (CJEU) strengthens the entitlement of employees to paid annual leave or holiday compensation in a ruling on 6 November 2018. There is now a need for action on the part of employers.

The CJEU ruling concerns the interpretation of EU law as far as the forfeiture of holiday entitlements is concerned. The background is a case before the German Federal Labour Court (BAG): a private employer asked its temporary employee to take the rest of his vacation, but did not specify any specific vacation period. The employee did not follow this request and, after leaving the company, demanded holiday compensation for the days not taken.

So far, Section 7 (3) of the German Federal Vacation Act (BUrlG) has been interpreted as follows: an employee who does not apply for leave in the year in which leave is granted loses his or her entitlement to leave at the end of that year. A transfer to the next calendar year will only take place if the leave could not be taken in the year in which leave is granted due to urgent operational reasons or reasons attributable to the employee.

According to the previous principles of vacation law, the employee would not have been entitled to holiday compensation in the present case. After all, the employee had not applied for leave, which led to the expiry of the vacation entitlement. The CJEU ruled on the questions of the BAG regarding the interpretation of European Union law:

  1. An employer does not have to force its employee to take leave. The employer, therefore, does not have to unilaterally set vacation periods.

  2. The right to paid leave cannot, however, expire merely as a result of the passage of time. The leave entitlement can only expire if the employer has made it possible for the employee to take annual leave. If necessary, the employer must formally and comprehensibly request his employee to take leave. The employer must inform the employee clearly and in a timely manner that otherwise the leave will expire at the end of the calendar year or a carry-over period.

  3. An employee may also rely directly on his or her right to paid annual leave against his or her private employer under Article 31 (2) of the Charter of Fundamental Rights of the EU.

Practical note

Many companies are already making sure that their employees take the paid annual leave to which they are entitled. If this is not the case, employers will immediately run the risk of the having to allow the employee to take any remaining leave or paying compensation for unused leave when the employment relationship ends. Employers can counteract this economic and legal risk by aligning their operational procedures for vacations in accordance with the new case law. For example, an adjustment of employment contracts, appropriate vacation management and clear, concrete instructions to employees on the possible expiry of vacation entitlements are conceivable.

Karsten Kujath, LL.M.oec.int., Attorney at law

December 2018