20.11.2018 | KPMG Law Insights

ECJ on vacation entitlements of the employee

ECJ on employee’s vacation entitlements: no automatic forfeiture in the absence of a vacation request

Several recently published landmark rulings of the European Court of Justice on the loss of vacation or vacation compensation entitlements (rulings in cases Ref.: C-619/16 and C-684/16) will make employers more accountable in the future and give reason to question past practice with regard to the granting of vacation.
In rulings dated 6.11.2018, the European Court of Justice commented on the question of whether employers will in future be obliged to grant leave even if employees have not requested it. It now held that an employee may not automatically lose his or her accrued rights to paid annual leave because he or she did not request leave. Rather, these claims only expire if the employer can prove that the employee voluntarily waived his or her leave, that he or she had previously informed the employee in a timely and appropriate manner about the consequences, and that the employee was actually put in a position to take leave.

The backgrounds
The ECJ’s decision is based on two disputes before German courts. The plaintiff in the first case (C-619/16) was a legal trainee with the State of Berlin who, after the end of his preparatory service, applied for financial compensation for vacation days not taken by him. This request was rejected by the country. The legal trainee then challenged the rejection before the German administrative courts.
In the second case (C-684/16), the plaintiff was employed by the Max Planck Society for the Advancement of Science, which asked him to take his remaining leave shortly before the end of his employment. The initial plaintiff took some of the vacation days and requested payment for those not taken. This was rejected by the Max Planck Society. The original plaintiff then turned to the German labor courts.

Previous legal situation
The BAG has consistently held that employers cannot be obliged to “impose” leave on employees. Only the non-granting of leave requested and applied for in due time leads to a claim for replacement leave, which is converted into a claim for compensation upon termination of the employment relationship (BAG, judgment of August 6, 2013 – 9 AZR 956/11).
Meanwhile, the ECJ repeatedly emphasized that it considered the right to paid annual leave to be a particularly important principle of Community social law from which no derogation is permitted. Some national courts, including the Berlin-Brandenburg Regional Labor Court, took this as an opportunity to deviate from the case law of the BAG (LAG, judgment dated June 12, 2014 – 21 Sa 221/14). In support of this, they argued that the entitlement to paid annual leave primarily serves to protect the health of employees and that the employer is therefore obliged to fulfill the entitlement to statutory annual leave even without a request for leave.
Against the background of these discrepancies, the Higher Administrative Court of Berlin-Brandenburg and the Federal Labor Court, in their request for a preliminary ruling, now wanted the ECJ to determine whether national regulations (in this case: Section 9 of the EUrlVO Berlin and Section 7 of the BUrlG), which provide for a forfeiture of the vacation or vacation compensation entitlement in the absence of a vacation application, violate Union law.

ECJ: No automatic loss of vacation and compensation entitlement due to failure to submit vacation request
With its decisions, the ECJ confirms the opinion of the Advocate General at the European Court of Justice of 29.05.2018, according to which both the forfeiture of vacation days and the entitlement to financial compensation for vacation not taken may not be automatically extinguished because no vacation was requested prior to the termination of the employment relationship (or expiry of the reference period).
These claims could only be forfeited if the employee had previously been adequately informed by the employer of any loss and had actually been put in a position to take the vacation days in question in good time. The employer has the burden of proof for this. It does not matter whether the employment relationship is governed by public or private law.
In justification, the ECJ states that employees are to be regarded as the weaker party to the employment relationship due to the imbalance of power. Since the assertion of rights, such as the assertion of vacation entitlement, could lead to adverse consequences, there is a risk that employees could be deterred from explicitly asserting their rights in case of doubt.

Need for concretization by national courts
The BAG, which must now decide the cases on which the questions of reference are based, taking into account the ECJ case law, will draw its conclusions from the ECJ ruling and in doing so will also have to answer the question as to the scope of the duty of information incumbent on the employer and when information is to be qualified as still being provided in good time. For employers, it also remains an exciting question as to the type and extent of organizational precautions that are necessary in order to exculpate employees in the event of a dispute and thus to be able to ward off any claims by employees.
It is also unclear how and in what period claims will expire if the employer fails to act. In case of doubt, the usual limitation period is likely to apply, which would mean that the claims would expire after three years at the earliest. The preservation of vacation entitlements in the event of a failure on the part of the employer to provide information raises consequential problems with regard to equal treatment with employees who have been on long-term sick leave. In order to limit the time in which vacation entitlements can be “saved up” in the event of prolonged illness, it was previously the case that vacation saved up in cases of illness expired no later than 15 months after the end of the vacation year (BAG, ruling dated August 7, 2012, 9 AZR 353/10). In consequence, however, this would lead to a worse position. Here, too, there may still be a need for clarification.

Employer must not only request and indicate – he must also actually make annual leave possible
There is still no obligation to force employees to take leave or to unilaterally determine their leave. However, the ECJ ruling leads to a significant strengthening of employee rights and to the fact that in the future employers will have to explicitly request their employees to take their leave. Otherwise, the claim no longer expires automatically.
However, a mere reminder, in the form of a general notice that the leave must be taken, is not sufficient against the background of the ECJ’s statements. The ECJ also requires “adequate information” about the consequences, i.e. the possible loss of claims. Only if the employee then still fails to comply with this request do vacation or subsequent compensation claims lapse.
However, this only applies to the extent that employees were actually able to take their leave. If this was not the case (e.g. because new tasks continued to be assigned or the workload is obviously unmanageable), even a request and clarification meeting the aforementioned requirements does not lead to an expiration of the claims. According to the ECJ, the employer is not only subject to information obligations regarding the forfeiture of the vacation or compensation entitlement, but must also take suitable and concrete organizational measures to enable the annual leave to be taken. The possibility of taking leave must therefore also be realistic. If this is not the case, the employer cannot claim that he has reminded the employee of his vacation entitlement.

Concrete need for action for companies
Whereas it was previously the case that vacation not taken expired at the end of the year, but no later than the end of March 31 of the following year, if the employee had not taken it on his or her own responsibility by then, this principle no longer applies. This applies in any case with regard to the statutory minimum leave. In contrast, a different view is conceivable with regard to the extra-legal leave, at least insofar as it is shown separately in the employment contract.
Employers are advised to review their leave practices in light of the new requirements. Furthermore, employers should communicate as quickly and unambiguously as possible at what point vacation entitlements expire without replacement. This information should be provided clearly, in a timely manner – ideally at the beginning of the year and regularly thereafter – and in a comprehensible manner.
However, in order to provide this clarification to employees, it must first be ensured that companies create internal processes that provide an ongoing overview of employees’ respective vacation entitlements. In addition, it seems sensible to document vacation days taken as well as those still outstanding even more carefully than before and to implement regular reminders, for example in the form of automated notices or in personal discussions.
Failure to provide such information to employees now results in a claim for the subsequent granting of residual leave in the following year or a compensation payment in the event of termination of the employment relationship. In order to avoid this, companies should already obtain an overview of their employees’ vacation entitlements at short notice and with a view to the approaching turn of the year and, in the case of outstanding vacation entitlements, immediately request that the remaining vacation be taken by the end of the year with reference to a possible expiration.
The ECJ’s decision has far-reaching consequences and presents companies with new challenges. Our specialists at KPMG Law Rechtsanwaltsgesellschaft will be happy to support you both in the implementation of concrete measures and in all legal issues related to the new requirements.

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