The Fate of Residual Leave Time – Current ECJ Case Law
Previous legal situation
The Federal Leave Act (Bundesurlaubsgesetz, BUrlG) stipulates that leave time needs to be taken during the ongoing calendar year as a rule. Leave time will expire no later than the first three months of the calendar year following the year of leave time if not taken during the statutory carryover period (Section 7 (3) BUrlG). Previously, this meant that leave time would automatically expire if no request for leave was made during the year of leave time or the statutory carry-over period. In contrast, if employees have made a leave request during the year of leave time or the statutory carry-over period, but the employer declined to grant this leave time even though it was possible to do so, the case law of the Federal Labour Court establishes a compensation claim in the form of replacement leave entitlement after the end of the year of leave time or the statutory carry-over period. If leave time can no longer be granted, or can only partially be granted, due to termination of the employment relationship, an exceptional claim to payment in lieu of leave time is established (Section 7 (4) BUrlG). So far so good.
Current ECJ case law
In its rulings from November of last year (Case numbers: C-619/16 and C-684/16), the European Court of Justice (ECJ) did not invalidate the German regulations regarding the expiry of leave time, but it did set additional requirements for the expiry of leave time. According to the ECJ, failure to request leave time alone should not result in the expiry of residual leave entitlements. Instead, the ECJ requires that employers place their employee in a position such that they are able to take actual leave time, that is, by asking them to take leave time during the leave year and promptly and clearly notifying them that their leave time will otherwise expire at the end of the year of leave time or the statutory carry-over period. The employer bears the burden of proof for clarification in this regard. The ECJ based its ruling on the imbalance of power inherent in the employment relationship. Without a corresponding invitation from the employer, employees might shy away from (fully) taking advantage of their leave entitlements, fearing negative impacts to their employment relationship. However, if the employer places an employee in a position such that he or she is able to take actual leave time, and the employee voluntarily waives the right to leave time, this leave time should expire according to the case law of the ECJ as well.
Relevance for practice
With its judgment on 19 February 2019 (Reference: 9 AZR 541/15), the Federal Labour Court has now implemented the decision of the ECJ. In the future, employers should inform their employees promptly and in writing (burden of proof!) regarding outstanding residual leave entitlements, and request them to take advantage of this leave, making reference to the fact that it will otherwise expire. Otherwise, employers run the risk of potentially facing considerable claims to payment in lieu of leave upon termination of the employment relationship.
Additionally, this new case law regarding residual leave entitlements should be taken as an occasion for reviewing the leave arrangements in employment contracts. It is recommended to always differentiate between legal leave entitlements and additional contractually agreed leave entitlements, since it is generally acknowledged that regulations deviating from the statutory leave provisions can be arranged with respect to additional contractual leave entitlements. For this reason, it is possible to arrange for automatic expiry of additional contractual leave entitlements due to failure to request leave during the leave year. However, if the contractual leave arrangement fails to differentiate between legal leave entitlements and additional contractually agreed leave entitlements, it can be assumed that the legal leave entitlements and additional contractually agreed leave entitlements will be treated in the same manner. Along with the statutory leave provisions, the new case law regarding residual leave entitlements must therefore be applied accordingly.