Need for action for employers: The Federal Labour Court on the limitation and expiry of holiday entitlement

After years of uncertainty in holiday law, at least (for the time being) the question of the limitation and expiry of holiday entitlement has been answered by the Federal Labour Court in two decisions of 20 December 2022 (9 AZR 245/19 and 9 AZR 266/20). However, the preparatory work had already been done by the European Court of Justice in two decisions from September 2022; the BAG only had to “implement” these decisions. Now the following applies: Holiday entitlement is not subject to the statute of limitations and does not expire as long as the employer has not fulfilled its obligations to request and notify.

In two decisions dated 20 December 2022, the Federal Labour Court (Bundesarbeitsgericht – BAG) took a position on the limitation and expiry of holiday entitlements:

Limitation of holiday entitlement

The Federal Labour Court clarified in a decision of 20 December 2022 (case no. 9 AZR 266/20) that the three-year limitation period with regard to annual leave only starts at the end of the year in which the employer informed the employee about his specific leave entitlement and the expiry periods and the employee nevertheless did not take the leave of his own free will.

Previously, the European Court of Justice (ECJ) had ruled in its judgment of 22.09.2022 (C 120/21) that an employer could only invoke the statute of limitations for holiday entitlements if it had actually enabled the employee to take the holiday, i.e. had previously sufficiently informed him of his holiday entitlement and requested him to take it. We had already discussed this decision in our blog post of 27.09.2022.

In order for the limitation and expiry periods to start running, the Federal Labour Court now requires employers to

• specifically inform the employee of the remaining holiday entitlement,
• inform the employee about the expiry periods
• and request the employee to take the leave.

Otherwise, according to the BAG decision of 20.12.2022, there can be no forfeiture and also no limitation of the holiday entitlement.

Expiry of leave in case of continued incapacity for work

In another decision of 20 December 2022 (9 AZR 245/19), the Federal Labour Court ruled that the holiday entitlement does not expire after 15 months even in the case of continued incapacity for work if the employee actually worked in the respective holiday year before becoming incapacitated for work. In such a case constellation, the employer had to put the employee in a position to actually take his leave in good time before the incapacity to work occurred.

According to the previous case law of the BAG, the holiday entitlement expired without further ado after the expiry of 15 months in the case of continued incapacity to work. The period began with the end of the respective leave year.

However, in its decision of 22.09.2022 (C-518/20 and C-727/20 – [Fraport]), the European Court of Justice clarified that a differentiation was necessary in the case of continued incapacity for work. The 15-month period only applies if the employee has not worked during the entire leave year. If the employee actually worked during the leave year, the employer is again subject to the obligations to cooperate and provide information described above.

Accordingly, the BAG now requires employers to enable the employee to actually take the leave in good time before the incapacity to work occurs. Otherwise, there is no forfeiture and, according to the above-mentioned decision of the BAG (9 AZR 266/20), no limitation of the leave.

Conclusion/Recommendation

The BAG consistently implemented the decisions of the European Court of Justice in the two judgments, so that this development is by no means surprising.

In any case, the (partial) legal certainty that has now arisen in the area of leave law is to be welcomed, even if this will certainly not be the last relevant ruling on this issue.

For employers, these two rulings mean, especially due to the media echo, that the corresponding obligations to inform and cooperate must be observed.

From a practical point of view, however, the fulfilment of the obligations to inform and cooperate is unlikely to be realistic, especially in the case of unexpected long-term illnesses. Especially if the employee falls ill in the first half of the year, neither the employer nor the employee will have an interest in granting or taking the entire annual leave purely as a precaution.

The focus should therefore rather be on all other employees who, according to the case law of the BAG, could accumulate the remaining annual leave without limit.

It is therefore strongly recommended that employers comply with their duties to notify and cooperate on an annual basis and thus prevent the accumulation of holiday entitlements.

Moreover, in practice, employment contracts are still found that do not differentiate between the statutory minimum leave and the contractual additional leave. If the contractual additional leave is not regulated separately from the statutory leave, the above principles of the BAG would also apply in this regard. As an employer, it is therefore advisable to also have the contractual provisions on leave reviewed.

Our Labour Law Practice Group is available to answer your questions on holiday law and will be happy to assist you in adapting your standard employment contracts or in drafting letters to fulfil the obligations to notify and cooperate.