Every Year This Time of Year...: When does the leave entitlement expire?
The year 2021 is slowly but surely drawing to a close. During this time of year, employers and employees alike often wonder what happens with vacation days which have not yet been taken.
Leave entitlement generally ends at the end of the year
The statutory leave entitlement generally ends at the end of the calendar year. This is based on Art. 7 (3) Sentence 1 BUrlG (German Federal Leave Act). According to such provision, leave must always be taken and granted in the current calendar year, i.e. the 2021 leave must be taken by December 31, 2021.
Exceptions
However, in exceptional cases, the leave entitlement is carried over to the following year, for example, if a collective agreement or a company agreement contains other provisions which are more favorable to the employee or if the employee was unable to take all or part of his leave due to urgent operational or personal reasons. In these cases, the leave may be carried over until March 31 of the following year, i.e. the 2021 leave can be carried over until March 31, 2022 (see Art. 7 (3) sentence 2 BUrlG).
Attention: Employer's duty to inform
According to the German Federal Labor Court’s case law (“BAG”, decision of February 19, 2019, 9 AZR 423/16), the employer must comply with its duties to cooperate in order to ensure that the employee's leave entitlement actually expires: the employer must request the employee to take his leave in the current calendar year and inform him that the leave entitlement will expire no later than at the end of March 31 of the following year. If the employer fails to do so, the leave entitlement generally remains valid after March 31 of the following year, which can lead to a significant increase in leave entitlements in individual cases.
How the employer fulfills his duty to inform is generally up to him. According to the BAG’s requirements, the employer must inform the employee about the number of vacation days to which the employee is entitled in a particular year. The Cologne Regional Labor Court (decision of April 9, 2019 - 4 Sa 242/18) has further specified this obligation to the effect that the employer must not only inform about the current calendar year’s individual leave, but also about any remaining leave from previous years. In addition, the employer must request the employee to apply for his annual leave in good time so that it can be taken in the current calendar year. Finally, the employer must inform the employee of the consequences: The leave expires at the end of the calendar year, at the latest after the end of the 3-month carryover period, if the employee was in a position to take leave but did not take it of his or her own free will.
In any case, the employer should provide the information in writing in order to be able to prove that it has fulfilled its duty to cooperate in the event of a dispute.
This can be done, for example, by printing the information on the payroll or by circular (email or letter) which can be sent together with the payroll.
The BAG generally assumes that the employee is informed at the beginning of the year. This is not mandatory but makes sense (inter alia in order to enable the employee to take any leave carried over from the previous calendar year by March 31). If the outstanding leave entitlement changes during the course of the year, the employer does not have to regularly update the information; the one-time information is usually sufficient.
If the information has not yet been provided, it can still be provided now. However, depending on the number of still existing vacation days, it will be difficult to reduce them by December 31.
The above regulations apply not only to statutory minimum leave but also to additional contractual leave unless other regulations have been agreed upon on the leave entitlement’s expiry.
If additional leave is granted under the employment contract, one should make sure to first take the statutory minimum leave and only then the contractual leave in order to avoid, as far as possible, a carryover of vacation days to the following year. Appropriate offsetting clauses should be agreed upon in the employment contract.
The duty to cooperate applies to the employer also during unfair dismissal proceedings. Therefore, during pending unfair dismissal proceedings, an employer should consider requesting the employer, as a precautionary measure, to take his (remaining) leave (subject to continued payment of remuneration) even after the end of the notice period. This applies in particular if, during the notice period, the employer has not effectively released the employee from his duties by taking into account possible leave entitlements. Otherwise, if the employee prevails in the unfair dismissal proceedings, the employer might have to grant extensive accrued vacation entitlements after resumption of employment.
Special case: illness
Please note, any vacation days the employer could not take during an applicable period (calendar year) or by the end of the carryover period in the following year due to sickness, will not lapse at the end of the carryover period but only 15 months from the end of the vacation year. This also applies if the employer has met his notification duty (s. above). The extended carryover period of 15 months is based upon ECJ (European Court of Justice) case law.
It has not yet been clarified whether leave entitlements – also in case of illness – become time-barred at the latest after the standard period of 3 years if they have not been fulfilled by then (i.e. for the year 2021 no later than at the end of December 31, 2024). In order to clarify this issue, the BAG submitted a request for a preliminary ruling to the ECJ in September 2020; the ECJ's decision is still pending.
Practical Tip
Every employer is well advised to inform his employees about their leave entitlements at the beginning of each year and to request them to take their annual leave by the end of the year as it otherwise expires. If this information has not been provided so far, it should be provided immediately and the employer should make sure to provide the information in good time in the coming year.
If the employee has a contractually agreed vacation entitlement exceeding the statutory minimum leave, one should ensure that the statutory leave is taken before the additional contractual leave. Corresponding offsetting clauses should be agreed upon in the employment contract.