Commented decision: Expiration of paid leave entitlement at the end of the calendar year only after notification by the employer

Status quo for the expiration of leave entitlements:

Since the German Federal Leave Act entered into force, a basic principle has applied: annual paid leave is to be granted and taken within the current calendar year, otherwise it will expire at the end of the year. Only in exceptional cases stipulated by statutory law, i.e. if there are urgent operational reasons (e.g. peak orders) or important personal reasons of the employee (e.g. illness), non-taken leave is carried forward to the next calendar year. However, even if leave is carried forward to the next calendar year, it will still expire on March 31 of the following year at the latest. On November 6, 2018, the European Court of Justice already ruled that such a general automatic expiry of annual leave was contrary to European law.

Decision of the Federal Labor Court from February 19, 2019 (9 AZR 541/15):

In its recent decision, the Federal Labor Court further developed its case law regarding paid leave entitlements and has now considerably restricted the automatic expiry of paid leave at the end of the year.

It ruled that an employee’s entitlement to annual paid leave generally only expires at the end of the year if their employer previously notified them of their specific paid leave entitlement and the expiry periods, and despite all that, the employee still failed to take his/her annual leave.

Practical tip by Ogletree Deakins on the expiry of paid leave at the end of the year:

Once again, case law holds the employer responsible. By recourse to the European Working Time Directive, employers are obliged to take initiative for the realization of the paid leave entitlement of every employee working for the company. Employers should therefore by no means ignore the recent decision of the Federal Labor Court. Otherwise there is a risk that employees may save up paid leave days over a longer period or, if the employment relationship ends, request a financial compensation for non-taken leave from previous years.

What can employers do?

In view of the recent decision of the Federal Labor Court, the following should be done by employers in order to reduce the risk of a carry forward of non-taken leave entitlements beyond March 31 of the subsequent calendar year:

Employers should keep track of the number of untaken paid leave days for each employee. If an employee has not requested or taken their annual leave by the middle of the year, it is advisable to notify the employee’s attention of the number of remaining leave days and to ask them to request outstanding leave days for the current calendar year prior to its expiry.

If this request is unsuccessful and the employee has neither taken the outstanding leave days by the end of the third quarter at the latest nor has he/she requested to take the outstanding leave, we strongly recommend that you notify the employee again of the number of remaining leave days and at the same time formally request them to take their paid leave within the current calendar year. You should also inform the employee that otherwise their paid leave entitlement will automatically expire at the end of the year.

If the administrative effort for monitoring individual paid leave entitlements is too high, especially in larger companies, we recommend informing employees regularly (e.g. quarterly) that leave is to be taken in the current calendar year, that it is only transferred to the next calendar year if there are urgent operational or personal reasons, and that it must also be taken by March 31 of the following year to prevent expiry. Such a notification can be made by e-mail, on the leave request form or in an online tool provided for this purpose.

According to the ruling of the European Court of Justice, the employer bears the burden of proof that he has exercised all due care in notifying the employee. Therefore, the notification to the employee should be documented in writing or text form.

Important note:

Please note that for now, this ruling only applies to the statutory minimum paid leave entitlement. The above-mentioned case law, however, also applies to the additional contractual leave entitlement, unless the employment contract provides specific rules in this regard that allows an expiry of the contractual leave deviating from statutory rules.

Employers must also inform of additional leave for severely disabled persons!

The Lower Saxony State Labor Court (in a judgment of January 16, 2019 – 2 AZR 567/18) has gone one step further and ruled that employers are also obliged to inform severely disabled employees of their additional statutory paid leave entitlement in accordance with sec. 125 of the German Social Code IX (old version). If the employer fails to comply with this obligation, he shall be liable to the employee for damages in the form of the granting of compensatory paid leave days.

Practical tip by Ogletree Deakins:

Employers should notify all severely disabled employees in the company of their entitlement to additional statutory paid leave days in accordance with the German Social Code IX. Otherwise they could be held liable to grant compensatory paid leave days. In addition, employers should notify severely disabled employees that the additional statutory leave for disabled employees under German Social Code IX also expires at the end of the calendar year.