The German Federal Vacation Act (Bundesurlaubsgesetz) provides that vacation has to be approved and taken in the current calendar year. The employee is meant to actually take the vacation and enjoy a rest.
Case-law accordingly held that any untaken vacation was generally forfeited at the end of the calendar year unless there were statutory reasons for a transfer to the next calendar year. If, in the event of such transfer reason, the vacation was not taken in the subsequent first three calendar months, it expired without any obligation on the part of the employer to pay compensation in lieu.
The ECJ has now held that such automatic forfeiture of vacation entitlements or vacation compensation entitlements without prior notification of the employee contravenes EU law. This requires employers to take action.
The plaintiff worked for the defendant until 31 December 2013. By letter of 23 October 2013 the defendant asked the plaintiff to take his vacation entitlement by the end of the employment without placing an obligation on him to take the vacation by a certain date set by the defendant. The plaintiff (only) took two days' vacation and requested compensation for 51 days of untaken vacation from 2012 and 2013. The defendant refused.
The previous courts allowed the claim. The Federal Labour Court (Bundesarbeitsgericht) (BAG) held that, in principle, the vacation claimed had been forfeited in accordance with the Federal Vacation Act because the vacation had not been taken within the vacation year. If the employee was able to take the vacation by the end of the vacation year, as was the case here, the entitlement lapsed.
The BAG went on to say that there was no obligation on the part of the employer either to require the employee to take vacation. No compensation was payable in lieu of any lapsed vacation entitlements. In order to eliminate any final doubts, the BAG referred the question to the European Court of Justice (ECJ) for a preliminary ruling.
The ECJ's Decision
The ECJ, by contrast, held that such automatic forfeiture of vacation entitlements or vacation compensation entitlements without prior notification of the employee contravenes EU law.
EU law did not permit that an employee automatically lost his vacation that he was entitled to under EU law and, accordingly, his claim for compensation in lieu of the untaken vacation simply because he did not request any vacation prior to the termination of his employment or during the reference period.
The court argued that the employee was the weaker party in the employment relationship. Therefore, the employee may be deterred from asserting his rights vis-à-vis his employer because any assertion may have negative effects on the ongoing employment relationship. While there was no obligation on the part of the employer to require the employee to take vacation, the employer was however obliged to ensure – specifically and completely transparently – that the employee was actually in a position to take his paid annual leave by requesting – formally, if necessary – that he do so.
The ECJ held that a loss of the vacation entitlement was only justified if the employee has waived his right to take his vacation voluntarily and in full knowledge of the consequences that may ensue.
To-Do's for Employers
Once again, the ECJ declares that the Federal Vacation Act in its current application and established national case-law is not in line EU law. Following the ruling, companies are well advised to remind employees no later than at the beginning of November of each vacation year to take their (remaining) vacation and to expressly point out that any outstanding vacation entitlement is forfeited otherwise.
One option is to include a provision to that end in the employment contract, although it is rather unlikely that this alone will do. Issuing an additional annual reminder to all employees and including a corresponding note in the employee handbook or the vacation policy, if any, are good additional options. As so often, documentation is key here because in case of a dispute the employer will have to prove that the reminder has been received by the employee.
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.