Germany: Recent Developments In Vacation Law

Last Updated: 31 December 2012
Article by Georg Mikes

Vacation is an important aspect of the employment relationship. Problems in this context arise mostly when employment is interrupted by long-term illness or concluded by termination or death. Several recent decisions have addressed this issue.

Payment in Lieu of Vacation—Abandonment of the "Surrogate" Theory

The German Federal Vacation Act (Bundesurlaubsgesetz; BUrlG) assumes the basic principle that vacation is to be granted and taken in each calendar year and will lapse if not taken. As an exception to this rule, carry-over to the next quarter is possible if "urgent operational reasons or reasons concerning the person of the employee justify this" (Section 7 Para. 3 Sentence 2 BUrlG); "reasons concerning the person of the employee" are usually health issues. Upon the expiration of the three-month carry-over period, the vacation lapses unless a further exception occurs, i.e., an incapacity to work extending beyond the transfer period. This extension was introduced in accordance with the established practice of the European Court of Justice (ECJ).

A further provision holds that if vacation cannot be taken due to the employee's termination, financial compensation is to be paid (Section 7 Para. 4 BUrlG). In this context, the German Federal Labor Court (Bundesarbeitsgericht; BAG) thus far has treated the compensation payment as a "surrogate" of the actual grant of vacation and has therefore based its expiration on the same time periods that apply to the expiration of the actual vacation claim.

In a case dated May 4, 2010 (9 AZR 183/09), the BAG indicated that it intended to abandon the surrogate theory; in a judgment dated June 19, 2012 (9 AZR 652/10, Press Release 43/12), it actually did so, deeming the statutory vacation claim a "purely pecuniary claim" that is not subject to the time limits of the BUrlG. Contrary to the judgment of 2010, the BAG expressly confirmed that an incapacity to work is not relevant in this context. For employers, this means that vacation which has not lapsed but cannot be taken due to termination will regularly have to be compensated for and that employees may assert this compensation claim after December 31 of the vacation year and/or March 31 of the subsequent year. Section 195 of the German Civil Code states that the compensation claim is subject to a three-year statute of limitations unless a shorter preclusive period under a collective bargaining agreement or employment agreement is already in effect.

Scaling of the Duration of Vacation Depending on Age

In a judgment dated March 20, 2012 (9 AZR 529/10, Press Release 22/12), the BAG held that granting older employees more vacation time than younger employees constitutes discrimination against the young. In this particular case, the employer granted employees 26 vacation days until the 30th birthday, 29 days until the 40th birthday, and 30 days thereafter. The action was brought by a female employee entitled to 29 vacation days who also requested the 30th day. In this case, the BAG could find no justification for disadvantaging those under 40 and thus held that vacation time must be equal for all. Nevertheless, the court recognized that additional vacation days might be justified for employees nearing retirement, since these workers usually have decreased resistance to fatigue, illness, and stress. Consequently, while employers can avoid charges of age discrimination by granting the same amount of vacation time to all employees, it may also be permissible to provide extra time to those in their 50s and 60s.

Release From Work by Set-Off Against Vacation

In the context of terminations, it frequently happens that the employer wants to release the employee from work during the notice period. This usually includes the desire to set off the release time against the employee's vacation time. From the BAG judgment dated May 17, 2011 (9 AZR 189/10, Press Release 37/11), it may be inferred that the employer can also release the employee in advance from the vacation time owed to him/her in the following year if the notice term extends from one year to the next. The judgment held that the employer must clearly express whether the set-off refers to all of the employee's vacation time or only part of it, with the employer bearing the risk resulting from any ambiguous statements.

In the case at hand, on November 13, 2006, the employer notified the employee of the termination of the work relationship, effective March 31, 2007. The employee was to receive remuneration while being released from work, combined with a set-off against his vacation days during the four-and-a-half-month notice period. When the termination was subsequently held to be ineffective, the employee returned to work after the scheduled termination date.

Had the termination been effective, the employee would have been entitled to partial vacation for 2007 (pursuant to Section 5 Para. 1 c) BUrlG), so a dispute arose as to how much of the vacation claim from 2007 had already been granted. The employer contended that the employee had used all his vacation time for 2007 during the notice period; the employee stated that he was entitled to additional vacation because the employer's statement at the time of the notification had been unclear. The BAG sided with the employee because of the ambiguity in the original statement. Had the employer clearly informed the employee that the release from work covered any vacation claim, no further time would have been awarded.

Lapse of Vacation Claims

As stated above, payments in lieu of vacation come into consideration only if the vacation has not lapsed. A BAG judgment dated August 9, 2011 (9 AZR 425/10; Press Release 64/11) returned to this issue, providing further guidance on when vacation can be held to have lapsed. The complaining employee in this case had been continuously incapable of working due to illness from 2005 through the middle of 2008, at which time he returned to his duties. In the second half of 2008, he was granted 30 vacation days. In 2009, however, the employee demanded a declaratory judgment stating that he was entitled to 90 additional vacation days covering the years 2005 through 2007.

The BAG denied this. It stated that an employee who recovers early enough in the calendar year to take all his/her accumulated vacation days within that year must do so. Failure to take the vacation before the end of the year will cause the claim for accrued vacation time to lapse. In this case, the employee's claim for the accumulated vacation time lapsed on December 31, 2008.

In the meantime, the ECJ also passed guiding decisions on the total amount of vacation that can be accrued. Following a series of rulings indicating that employees incapable of working due to illness could accumulate vacation claims to an unlimited extent, the court now appears to be accepting limits. In a judgment dated November 22, 2011 (Case C-214/10), the ECJ made no objection to a transfer period of 15 months under collective bargaining law. Since the substantiation applied by the ECJ is applicable to statutory vacation pursuant to the BUrlG, accumulation of three years' worth of vacation should no longer be feared.

Transferability by Succession

Last but not least, the BAG dealt with the question of the transferability of vacation claims by succession. The fact that a deceased employee cannot take vacation goes without saying. However, the question might be raised whether his/her heirs could assert a monetary claim against the employer. In this particular case, the employee in question had been employed during the years 2008 and 2009 but suffered from a long-term illness that prevented him from taking his vacation. After his death, his heirs requested payment from the employer in lieu of vacation, which the Regional Labor Court awarded. However, in a judgment dated September 20, 2011 (9 AZR 416/10, Press Release 72/11), the BAG decided differently: it assumed that a vacation claim becomes extinct with the employee's death and is not transformed into a claim for payment, pursuant to Section 7 Para. 4 BUrlG.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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