07-30-2019  | Update Employment Law August 2019

Forfeiture of Vacation Entitlements - Part II




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In our newsletter article of March 2019, which was only based on press release No. 9/19 of the BAG [German Federal Labor Court] regarding the judgment of Feb. 19, 2019 - 9 AZR 541/15, we addressed the new case law of the BAG for informing the employer about existing vacation entitlements. In a similar case (also judgment of Feb. 19, 2019 - 9 AZR 423/16), the grounds for the decision of the BAG are now available; these give more detailed information on the requirements of proper instruction and the consequences of its absence. 

The BAG has ruled that the statutory minimum vacation entitlement only expires at the end of the calendar year (Sec. 7 para. 3 (1) BUrlG [German federal vacation act]) or a permissible transfer period (Sec. 7 para. 3 (3), (4) BUrlG) if the employer has previously enabled the employee to exercise his vacation entitlement, and the employee nevertheless does not take vacation at his own free will.

In accordance with the provisions of the ECJ (judgment of Nov. 6, 2008 - C-684/16), the BAG interprets Sec. 7 para. 1, 3 BUrlG to the effect that the employer has a duty to cooperate in the realization of vacation entitlements by its employees. Participation requires a reference to the vacation entitlement, a request to take the vacation and an instruction on the consequences of vacation not taken. The vacation entitlement is only subject to the deadline regulation of Sec. 7 para. 3 BUrlG if this duty of co-operation is observed, and expires at the end of the respective vacation year or the transfer period. The employer bears the burden of proof for the duty of cooperation duly fulfilled by him. 

How should the employee be instructed?

In order to fulfill its obligation to cooperate, the employer must refer to a specific vacation entitlement of a certain year and satisfy the requirements of complete transparency and sufficient clarity. The BAG regards these requirements as fulfilled if the employer informs the employee in text form of the following: 

  • Notification of how many days of vacation the employee is entitled to during the calendar year.
  • A request that the employee apply to take annual vacation early enough so that it is taken within the current vacation year. 
  • Instruction on the consequences of not applying for vacation as requested. Here, the notice should state that the vacation days expire at the end of the calendar year, if the employee was able to take their holiday within the calendar year, but did not request it.

Therefore, the BAG considers the individual notification of employees necessary. The option presented by us of using existing information channels - such as monthly payroll - should still be sufficient to meet this requirement. In this case, it remains decisive that the notice visually stands out clearly and is complete. 

A generalized cover letter to all employees, on the other hand, is not sufficient. Other abstract information does not fulfill the employer's obligation to cooperate. From the perspective of the BAG, this includes information in the employment contract, in a leaflet or in a collective agreement (e.g. company agreement). Such abstract notices are not specific and transparent information. 

When and how often should the employee be instructed?

The BAG states the beginning of the year as a possible point of instruction. Although this is not mandatory, it lends itself to simplifying the examination of the respective vacation entitlement. In addition, this is the safest way to ensure that every employee actually gets the opportunity to take their vacation in good time within the vacation year.

The BAG does not consider it necessary to constantly keep the notice up to date, for example whenever the scope of the vacation entitlement changes. As such, an annual one-off notification is generally sufficient. 

The employer can, however, "devalue" a co-operative act which has taken place and revive the obligation to cooperate, if it subsequently acts contrary to its statements. This is the case if the employer creates a situation which is likely to prevent the employee from taking their vacation. Such a situation would exist, for example, if the employer rejects a vacation request for reasons other than those mentioned in Sec. 7 para. 1 (1) BUrlG. In such a case, the employer must again carry out its act of cooperation in order to bring about the limitation of the vacation entitlement pursuant to Sec. 7 para. 3 BUrlG. 

If the employer has properly instructed the employee and bound the vacation entitlement to the vacation year, but the employee can not make use of their vacation due to urgent operational or personal reasons within the vacation year, the vacation will be "automatically" transferred to the first three months of the following year, cf. Sec. 7 para. 3 (3) (4) BUrlG. In the opinion of the BAG, if the employee does not take his vacation within the transfer period, those vacation days will only be forfeited if the employer requests that the employee to take their vacation within the transfer period and informs him that it will expire if not used.

Consequences of a lack of cooperation - no protection of legitimate expectations

If the vacation days do not expire because of a lack of cooperation from the employer, these will be added to the new vacation entitlement at the beginning of the following year. Sec. 7 BUrlG continues to apply for the vacation entitlement from the previous year. The act of cooperation could therefore be made up for with regard to the vacation from the previous year and therefore the time limit pursuant to Sec. 7 para. 3 BUrlG be brought about. This way, the employer can avoid the accumulation of vacation entitlements from several years. 

It should be noted that the BAG does not grant protection of legitimate expectations regarding the forfeiture of vacation entitlements from previous years. The legal principles established by the BAG apply to vacation entitlements from the entry into force of the provisions of EU law on the duty to cooperate in 2003. If employees have not taken vacation since 2003 in certain years and they were not instructed to do so accordingly, the vacation entitlement still exists today. This raises the question as to what extent vacation entitlements are subject to the regular limitation period of three years. This is not yet settled at the level of the highest courts. In practice, in this respect, the rule applies that vacation entitlements not yet taken from 2016 at least are not yet expired. 

Conclusion

Employers should review the vacation entitlements of their employees annually and firmly establish demonstrable and individualized employee instructions within their company. Practically, it makes sense to do this right at the beginning of the year. 

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