Landmark ruling of the German federal Labor Court: No Automatic Start Of The Limitation Periods For Paid Statutory Annual Leave Days and No Automatic Forfeiture

After the European Court of Justice (ECJ) ruled on the issue of the limitation period for paid leave entitlements by way of a preliminary ruling in September (we reported), the German Federal Labor Court has now also ruled on this matter (ruling of December 20, 2022 – 9 AZR 266/20).

It is now clear that the limitation periods do not start automatically for annual paid leave. According to this new decision of the Federal Labor Court, the statute of limitations is now subject to the additional condition that employers must have informed their employees about their individual paid leave entitlement and its forfeiture, but the employees have nevertheless chosen not taken the paid leave. If, however, employers do not comply with their notification obligations, the limitation period does not begin to run and employees can still assert corresponding paid leave claims years later. This even applies to claims that date back to times before the employer’s notification obligations were clearly defined by case law.

In a parallel decision (judgment of December 20, 2022 – 9 AZR 245/19), the German Federal Labor Court dealt with the forfeiture of paid leave entitlements that employees were unable to take due to illness. The ECJ had also ruled on this in September (we reported). The Federal Labor Court also followed the ECJ’s line here and ruled: The statutory paid leave of employees who were unable to take their days off from the beginning of the year until March 31 of the following year due to a long ongoing illness is forfeited after 15 months. The employer’s notification obligation is irrelevant in this respect. This does not apply, however, to paid leave entitlements from the year in which employees who have been ill for a long time performed their work (at least partially) for the last time. These are only forfeited after 15 months if the employer has fulfilled their notification obligation and thus enabled the employees to take the leave in good time.

Example:

An employee works until August 31, 2014, falls ill on September 1, 2014, and is then sick continuously until and including April 1, 2020.

According to the new case law of the Federal Labor Court, the statutory paid leave entitlement for the calendar year 2014 are only forfeited after 15 months if the employer notified the employee in the calendar year 2014 about the amount of his statutory paid leave entitlement and the limitation periods. The statutory paid leave entitlement for the years 2015 to 2019, on the other hand, is forfeited after 15 months in each case due to the continuous illness. For those years, the employer does not have notification obligations.

In the above example case, should the employee come to work after the onset of their illness on May 1, 2016, work for some time and then fall ill again on December 1, 2016, the following should apply according to the new case law: The statutory paid leave entitlement for the calendar year 2016 can only be forfeited if the employer has notified the employee about the amount of their paid leave entitlement in the course of the calendar year 2016.

The decisions of the Federal Labor Court have potentially far-reaching implications for practice.

The position of employees is significantly strengthened with regard to paid leave law. Particularly in the event of (legal) disputes regarding the termination of an employment relationship, employees may in future have significantly more negotiating leverage in the form of paid leave compensation claims on their side. Employers may therefore immediately want to introduce a system by which each employee is regularly and specifically informed in good time of existing paid leave entitlements and of the consequences of failure to claim them. This applies in particular to employees on long-term sick leave.