Since the ECJ emphasized in its decision of January 2009 on the Schultz-Hoff case that the employee's claim to paid annual leave is an especially important principle of social law, the German law relating to the annual leave entitlement has increasingly been penetrated by European law requirements. Besides the leave entitlement of employees suffering from long-term illness, on which the decisions in the Schultz-Hoff case and KHS/Schulte case were based, the Luxembourg-based judges rendered judgments on the leave entitlement of part-time employees in the "Tirol" judgment and on the leave entitlement of short-time employees in the most recent judgment of 8 November 2012 (case nos.: C-229/11 and C-230/11).

Pursuant to the underlying facts of the case, two employees of an automotive company in Lower Bavaria which had decided to reduce staff due to financial difficulties filed an action against their dismissal. The social compensation plan agreed with the works council provided for the extension of the employment contracts of the dismissed employees for one year from the date of their dismissal by applying the so-called "Kurzarbeit Null" [zero hours short-time working] to give the employees concerned by the dismissals the opportunity of drawing short-time allowance from the Federal Employment Agency. During the "Kurzarbeit Null" the principal obligations arising from the employment contract, i.e. the employee's obligation to work and the employer's obligation to pay the wages and salaries, are temporarily suspended. After the termination of their employment contracts, both employees filed an action for compensation of leave entitlements for the period of the "Kurzarbeit Null".

The Labor Court of Passau seized with the case then referred the case to the ECJ submitting the question as to whether the Union's law is precluding national legislation or practice according to which the entitlement to paid annual leave is reduced in proportion to the reduced working hours on the grounds of short-time working. The ECJ denied this question and considered that such a reduction of the paid leave was in conformity with European law. It pointed out that the employer would be liable to be reluctant to agree to such a social compensation plan which was aimed at relieving the employees concerned by the dismissal if he was obliged at its conclusion to pay for a paid annual leave based on the full-time working hours during the period of short-time working. In addition, it stated, the employee was free to rest or to devote himself to recreational or leisure activities during the period of short-time working. Accordingly, the ECJ considered that the situation of short-time employees could not be compared to the situation of the incapacity for work due to illness.

The present judgment by the ECJ grants relief to the employer within the scope of short-time working, a key instrument in phases of economic recession. If an employer decides to carry out the "Kurzarbeit Null" this also opens up the opportunity to proportionally reduce the leave entitlement of the employees concerned.

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