Landmark ruling by the European Court of Justice on compensation for annual leave
 Contrary to the previous case-law of the German labor courts, a worker does not lose his right to paid annual leave which he has been unable to take because of illness.
In this case, the worker must be compensated for his annual leave not taken. This applies too where the worker has been on sick leave for the whole or part of the leave year and where the incapacity to work has persisted until the end of his employment relationship.
On 20 January 2009, the European Court of Justice handed down a landmark decision on compensation for annual leave in the event of illness. According to this decision, a worker will retain his right to annual leave even where he is unable to exercise his right due to illness. The case was brought by a worker employed by a public body who was incapable of working due to illness in 2004 and 2005. His employment relationship terminated on 30 September 2005. Nor did he become fit for work by the end of the carry-over period, i.e. March 2006. According to the previous case-law of the German labor courts, this meant that his entitlement to leave extinguished. Previously the employer had to examine after issuing a dismissal whether the employee – even if he had been dismissed during the year – would have been able (at least in theory) to take the leave by the end of the carry-over period. If, for example, an employee ceased working in September, it would not be possible to decide conclusively until the end of March of the following year whether the leave entitlement accrued up to the dismissal could actually have been taken. If the dismissed worker was unfit to work until March, compensation could no longer be considered. The Düsseldorf Regional Labor Court had doubts as to whether this was compatible with the Community working time directive and referred the case to the European Court of Justice. Its ruling was in the terms set out in the headnote above.
In the meantime the Düsseldorf Regional Labor Court seized of the case has decided in favor of the dismissed employee and granted him the right to financial compensation. Leave to appeal from the decision was granted. Nonetheless, the Federal Labor Court indicated in a decision handed down in April 2008 that it would not uphold its previous case-law in light of the proceedings before the ECJ.
The decision will result in a considerably heavier financial burden for employers. They will also have to pay compensation for annual leave even where the dismissed worker is not able to take the leave due to illness. However, it should be remembered that this legal consequence only applies where there is a statutory entitlement to leave. Additional leave based on collective bargaining agreements or individual contracts is likely to extinguish in accordance with previous legal practice. This has to be ascertained in a specific case through interpretation.