Vacation: The Current Legal Situation

The topic of vacation is covered extensively in labor law. In recent years, there have been a number of significant rulings with practical implications. This topic is and remains important for both parties to the employment relationship. Your tax advisor in Düsseldorf and Oberhausen provides a brief overview of the most important decisions by the Federal Labor Court (BAG) regarding vacation law over the past three years.

Vacation and Its Expiration

It is important that employees actually take their vacation time. However, employers often handle this matter carelessly. Since a change in case law in 2019, however, greater caution is required in this regard. Until then, the rule was: Anyone who did not request their vacation risked having it expire at the end of the year or, at the latest, upon the expiration of the carryover period under the Federal Vacation Act. The burden of initiative lay with the employee. With the change in case law, however, the division of roles has shifted. The entitlement to the statutory minimum vacation remains in effect for employees until employers have enabled them to take their vacation entitlement. If employees nevertheless choose not to take their vacation of their own accord, the entitlement to vacation expires at the end of the calendar year or the carryover period. Case law requires employers to fulfill so-called obligations to cooperate in enabling employees to exercise their vacation entitlement. If these obligations are not met, it can lead to a continuous accumulation of vacation entitlements. This must be avoided; therefore, employers are required to urge employees to take their vacation. In addition, they must clearly and in a timely manner inform their employees that the vacation entitlement expires at the end of the calendar year or the carryover period.

The employer’s duty to request and inform also applies if and as long as the employee is unable to work. It is up to employers to determine how they fulfill this obligation. However, employees must be enabled to decide freely, with full knowledge of all relevant circumstances, whether to take their vacation. The burden of proof for fulfilling these obligations of cooperation rests with the employer. Case law, with the exception of a few individual decisions, has not yet clarified how the employer can specifically fulfill this obligation. It has, however, already been established that abstract statements in the employment contract or in works agreements are insufficient. Furthermore, one should not rely on the vacation information in the pay stub.

A separate, specific, and self-contained written notice to employees is legally sound. In the past, many companies likely failed to meet these new obligations to cooperate, and since there is no protection of legitimate expectations under the old case law, the question arises: Are existing cases of unused vacation subject to the statute of limitations? According to the Federal Labor Court (BAG), the answer to this question would depend on the interpretation of EU law.

When do claims for vacation pay expire?

The claim for vacation pay is a purely monetary claim. Due to the termination of the employment relationship, the employees could no longer take the vacation days during the course of the employment relationship. The claim for vacation pay, i.e., the monetary payment for vacation days, is directed at this. As such, it may be subject to statutes of limitations like any other monetary claim arising from the employment relationship. However, the statutes of limitations must themselves be valid.

Claims and Their Inheritability

Another decision was made in 2019 regarding the forfeiture of vacation days. This relates to the inheritable nature of vacation entitlements. Vacation pay can be inherited if the employment relationship ends upon the employee’s death. In this case, the heirs are entitled to compensation for unused vacation. The compensation for vacation is contingent solely on the employment relationship having ended, regardless of the reason. If the employee has not taken their annual vacation in full by that point, they are entitled to compensation. The financial component of the entitlement to paid annual leave may not be retroactively revoked due to the employee’s death. This must always be taken into account when settling the employment relationships of deceased employees.

Special Leave

A significant change in case law concerns unpaid special leave. The question often arises as to whether an employee retains a leave entitlement even when not working. In many cases, a sabbatical is agreed upon with employees. In such cases, the employment relationship is suspended. In 2014, the Federal Labor Court (BAG) ruled that employees continue to have vacation entitlements in the event of a sabbatical. This entitlement could not be restricted even by a collective bargaining agreement. This has changed with the new case law from 2019. Now, as with a regular part-time employment relationship, it is assumed that the vacation entitlement will be adjusted compared to a full-time employment relationship. In this context, the period of special leave must be treated as zero working days when calculating the vacation entitlement, meaning that a vacation entitlement for the duration of the special leave generally does not exist.

Partial Retirement

No vacation entitlement arises under the block model of partial retirement either. This confirms the ruling on special leave and extends it. Since employees are not subject to any obligation to work during the leave phase of partial retirement, they have no statutory vacation entitlement. If the transition from the work phase to the leave phase occurs during the course of the calendar year, the statutory vacation entitlement must be calculated pro rata based on time periods, with the leave phase again being treated as zero working days in the calculation.

Parental Leave

In contrast to the preceding cases, vacation entitlements do arise here. Although the employment relationship is suspended during parental leave and the primary obligations of the employment relationship are waived, However, according to the Parental Allowance and Parental Leave Act, employers have the option to reduce the vacation entitlement to which employees are entitled for the vacation year by one-twelfth for each full calendar month of parental leave. Since the employment relationship is suspended during parental leave, employers have the right to reduce the entitlement. The right to annual leave is enshrined in EU law. It is based on the premise that employees have actually worked. The statutory authority to reduce leave therefore prevents the accumulation of leave against the employer’s will for periods during which the obligation to work is suspended due to parental leave.

Short-time work

For periods during which employees are not subject to a duty to work due to cyclical short-time work, the annual vacation entitlement is reduced on a pro-rata basis. Short-time work is understood as a temporary reduction in the normal working hours customary for the business. Since no work is performed during the agreed suspension of the obligation to work, the annual entitlement is adjusted accordingly.

Your Experts for Tax Matters – and Labor Law

Dealing with personnel in a legally correct manner is often an additional burden for business owners. As tax and legal experts, we are happy to assist you with advice and support. We are tax consultants based in Düsseldorf and Oberhausen, but we also collaborate with lawyers who specialize in labor law. Please feel free to contact us to schedule an initial consultation.