In recent years, the courts have made far-reaching decisions regarding the expiry and limitation of employees’ holiday entitlements. In particular, case law has imposed obligations on employers to provide information, without which leave will no longer expire or become time-barred. Lawyer and labour law specialist Nils Wigger from the law firm Wittig Ünalp explains when holiday entitlements expire and what employers need to bear in mind.
Section 3(1) of the German Federal Leave Act (BUrlG) stipulates that employees have an annual leave entitlement of at least 24 working days. As the regulation refers to a 6-day week, the entitlement for a 5-day week is 20 days’ holiday on a pro rata basis.
In the first six months of employment per year, holiday is accrued pro rata temporis at a rate of 1/12 per month. From 1 July of the respective year, the employee is entitled to their entire annual leave.
However, what happens if the employee does not or cannot take the holiday to which they are entitled in the respective calendar year due to a very high workload or if the employee is unable to work due to illness?
When does the statutory minimum holiday expire?
According to Section 7 (3) BUrlG, employees must generally take their annual leave in the current calendar year, otherwise it expires on 31 December of the respective year.
Under certain conditions, carryover to the following year is permitted if this is justified by urgent operational reasons or reasons relating to the employee. Urgent operational reasons exist, for example, if the company has orders with deadlines or seasonal orders that need to be processed. Urgent personal reasons include, in particular, the employee’s inability to work or the illness of close relatives who need to be cared for by the employee. If the leave is carried over, it expires on 31 March of the following year.
In principle, employees and employers can also voluntarily arrange for holiday to be carried over to the following year.
However, the European Court of Justice and subsequently also the Federal Labour Court have considerably restricted the above statutory regulations in recent years.
Employer’s obligation to provide information on holiday forfeiture
After the European Court of Justice ruled that it is contrary to fundamental rights for employees to lose their holiday entitlement if they have not submitted a holiday application, the Federal Labour Court also decided this in its ruling of 19 February 2019 (case no. 9 AZR 541/15).
In this respect, the Federal Labour Court found that the employer must inform the employee of the existing leave days and the impending expiry so that the employee is able to take their leave entitlement. Only if the employee does not take their holiday can the holiday be forfeited.
This applies to both the statutory holiday entitlement and the additional holiday for severely disabled employees. However, if the employer is not aware of the severe disability, the leave expires even if the employer is not informed.
Forfeiture of holiday in the event of incapacity for work
If employees are unable to take their holiday entitlement within the holiday year or by the carry-over period on 31 March of the following year for health reasons, the Federal Labour Court has ruled that the statutory annual holiday entitlement expires 15 months after the end of the holiday year if the employee remains uninterruptedly unable to work (BAG, ruling of 7 August 2012 – 9 AZR 353/10).
A distinction must be made here with regard to the duty to co-operate:
If the employee was continuously ill for the entire year, the holiday entitlement lapses after 15 months even if the employer did not fulfil their obligation to cooperate. In this respect, the employee would not have been able to take the leave – even if the obligation to cooperate had been fulfilled.
However, the situation is different if the employee actually worked in the holiday year before falling ill long-term and was unable to take their holiday. In this case, the employer must have fulfilled their obligation to cooperate in order for the leave to lapse after 15 months.
When do employers have to point out holiday?
Ideally, employers should inform employees twice a year about existing holiday entitlements and the impending expiry. The first notification should be made within the first six days of the year and the second notification in the second third of the year.
The holiday notice so early in the year is necessary to ensure that employees’ holiday is also forfeited if they fall ill long-term during the current employment relationship. The Federal Labour Court (ruling of 31.01.2024 – 9 AZR 107/20) has stated that employers must comply with their duty to cooperate with regard to leave immediately at the beginning of the year if they wish to invoke the forfeiture of leave after 15 months in the event of a subsequent long-term illness of the employee. In the opinion of the court, a period of one (holiday) week is deemed to be immediate. If an employee falls ill during this period, the holiday is forfeited even without the employer’s involvement.
The second notice in the second third of the year should be given to inform employees of their remaining holiday entitlements so that they can still take their holiday days.
Form and content of the duty to inform
The reference to the respective leave days should be made in a verifiable and individualised form. In this respect, blanket notifications to all employees to please take their leave days are not sufficient. It would therefore be advisable to send an individual letter to each employee, acknowledging receipt.
When does holiday expire after termination of employment?
In its ruling of 31 January 2023 (case no. 9 AZR 456/20), the Federal Labour Court ruled that the claim to holiday pay in lieu of leave is subject to the statute of limitations as a purely monetary claim. The limitation period begins at the end of the year in which the employee leaves the company.
In this case, the employer’s obligation to cooperate is not relevant, as the employee can no longer take holiday for recreational purposes after the employment relationship has ended. The entitlement to holiday compensation is therefore time-barred even without a corresponding notice from the employer. This should also apply to any forfeiture clauses in the employment contract and collective agreement, according to which holiday pay compensation claims expire if they are not asserted by the employee in good time.
Limitation period for holiday entitlements
If the holiday entitlement does not expire, it could in any case expire within the three-year limitation period. In its ruling of 20 December 2022 (case no. 9 AZR 266/20), the Federal Labour Court ruled that although annual leave may expire, the three-year limitation period only begins at the end of the calendar year in which the employer has fulfilled its duty to cooperate with regard to leave.
The situation is different for non-statutory leave
The obligations to co-operate and the expiry and limitation of holiday entitlements only apply to the statutory minimum holiday entitlement. Deviating regulations are still possible for additional leave days under collective agreements or employment contracts. In such cases, early forfeiture can be effectively agreed – even without the obligation to give notice. However, an effective agreement and a clear distinction between statutory and non-statutory leave days are important here.
Conclusion
According to the latest case law of the Federal Labour Court, employers should take great care to inform employees individually and, if possible, in a verifiable form about existing holiday entitlements and the impending expiry. Only in these cases does the employee’s holiday entitlement expire and become time-barred.
About the author: Nils Wigger advises and represents employers as a specialist lawyer for labour law at the law firm Wittig Ünalp on all individual and collective law issues.
