Do employees “take” or “get given” annual leave?

Many companies allow their employees to transfer any outstanding annual leave and use it up by 31 March or 30 April of the following year. As this transfer period is drawing to a close, companies should take a look at a current reference for a preliminary ruling dated 13 December 2016 (9 AZR 541/15 (A)) made by the German Federal Labour Court to the European Court of Justice (ECJ), which could again mark the end of another key principle of the German law on annual leave.

Subject of the original proceedings

The fixed-term employment of the scientist bringing the action was planned to end on 31 December 2013 after 12 years. The plaintiff had accumulated a total of 53 days annual leave from 2012 and 2013. Although the employer had asked the plaintiff in October 2013 to use up his annual leave by the end of his employment, the plaintiff largely ignored this and only took two days annual leave. After leaving the company he demanded almost €12,000 gross as compensation for the unused 51 days annual leave.

Previous case law of the Federal Labour Court: no duty to force employee to take annual leave

According to the previous case law of the Federal Labour Court, the plaintiff’s annual leave would have expired as stipulated in sec. 7 ss. 3 sent. 1 of the German Federal Act on Annual Leave. The employee had sufficient opportunity to take his annual leave. The previous case law of the Federal Labour Court had maintained that the German Federal Act on Annual Leave could not be interpreted as meaning that the employer was obliged to force the employee to take annual leave. It held that employers were allowed to unilaterally order their employees to take annual leave but were not obliged to do so. If an employee did not apply for annual leave, it would expire without compensation at the end of the year (or the end of the transfer period, where applicable).

In the past, it also appeared that the ECJ viewed the expiry of annual leave critically only if the employee was not actually able to take their annual leave. However, it decided in two cases, most recently on 30 June 2016 (C-178/15), that European Directive 2003/88/EC does not prevent the application of a national rule providing for the loss of annual leave entitlement at the end of the reference period, “provided, however, that the worker whose right to paid annual leave is lost has actually had the opportunity to exercise that right."

Pending decision of the ECJ on whether employees have to be forced to take annual leave

In its order for reference, the German Federal Labour Court believes that the ECJ did not sufficiently answer the question of whether European law prevents the application of a national rule under which the employer is not obliged to unilaterally determine the timing of the annual leave within the reference period on the employee’s behalf. The German Federal Labour Court refers in particular to recent judgments by a range of regional labour courts (such as Munich, Berlin-Brandenburg and Cologne) and many critical voices among legal scholars who regard employers as having a duty to actively grant annual leave or otherwise pay for untaken leave.

These critical voices base their arguments on the wording and protective purpose of annual leave law. They say that under sec. 7 ss. 3 sent. 1 1 German Federal Act on Annual Leave, annual leave has to be “granted and taken”. They also say that the law on annual leave is part of industrial safety law because it aims to protect employees’ health, maintaining that under industrial safety law employers are obliged to also comply with their duties without requesting that the employee take annual leave beforehand.

Businesses should take a careful look at their rules on granting annual leave

In view of the above, there is a risk that the ECJ will pass judgment by the end of 2017 that the annual leave entitlement does not forfeit at the end of the transfer period if the employer has not actively instructed that it be taken. Employers can prevent this risk by making use of their right to unilaterally order employees to take their annual leave. Companies should organise their practices for granting annual leave to reflect this in order to avoid high costs for paying out untaken leave.

However, employers whose practices for granting annual leave are governed by a works agreement on granting of annual leave are often less able to react flexibly; most of the time such works agreements provide for a mechanism for applying for annual leave and do not recognise any unilateral opportunity for the employer to order employees to take annual leave. In this case, businesses should take preventative action and negotiate a change to their works agreements regarding annual leave with the works council in good time so that they are in a position to react promptly to a change of course in the ECJ’s legislation.