All of an employee's outstanding leave entitlements will extinguish when he dies. They are not converted into an inheritable entitlement to payment in lieu of leave (Federal Labour Court, judgment of 20 September 2011 – 9 AZR 416/10).
From April 2001 up until his death in 2009, the plaintiff's husband, who was employed by the defendant, had been permanently incapable of working due to illness. He was unable to take his leave entitlements for 2008 and 2009 because of his permanent incapacity for work. His heirs brought an action against the defendant seeking compensation for the leave entitlements outstanding at the date of his death, which amounted to 35 days of leave.
For a long time, it has been established case law of the Federal Labour Court that leave entitlements extinguish upon the death of an employee and can therefore not be passed on to his heirs. In light of the European Court of Justice's "Schulz-Hoff" decision, which held that leave entitlements do not extinguish in the case of long-term incapacity for work, this legal issue has (again) become relevant. In the lower instance, the Hamm Higher Labour Court had assumed that European law made it necessary for leave entitlements to be inheritable and that the Federal Labour Court's case law would therefore require correction. According to the Higher Labour Court, the reason for the termination of an employment relationship was irrelevant. Whether the relationship ended through termination, retirement, death of the employee or due to other reasons did not matter. In the court's view, existing leave entitlements would be converted into an inheritable entitlement to payment in lieu of leave irrespective of the reason why the employment relationship terminated.
The Federal Labour Court overturned the decision of the Hamm Higher Labour Court in its judgment of 20 September 2011 and made clear that it also intended to adhere to its own case law in the future. The court stated that there was no need for it to correct its case law on the basis of European law. In its view, an employment relationship terminates upon the death of an employee as do all of his leave entitlements. Moreover, since the heirs have no leave entitlement against the employer, they also have no entitlement to payment in lieu of leave.
The result of the Federal Labour Court's decision is to be welcomed. The leave entitlement acquired under an employment contract means simply that an employee is entitled to be released from work for recuperative purposes while continuing to receive his salary. If he dies in the course of the contract, no work duties can arise from which he can be released. Nor do any considerations under European law speak against allowing an employee's annual leave entitlements to extinguish upon his death. The European Court of Justice emphasized recently that leave is primarily designed to protect the employee's health. In this connection, it is irrelevant whether he takes the leave in the current leave year or not until a significantly later point in time. Against this background, the decision of the Federal Labour Court would appear correct: on the one hand, a dead employee can no longer be granted the outstanding leave at a later date. On the other hand, an entitlement on the part of the heirs to payment in lieu of leave would not in any way be connected with the purpose of leave entitlement, namely the protection of the employee's health.