Germany’s Federal Labor Court Rules on Loss of Annual Leave in Event of Long‑Term Illness

Quick Hits

• The German Federal Labor Court recently ruled that annual leave does not lapse during long-term illness if more favorable contractual arrangements are in place.
• Statutory minimum annual leave generally expires fifteen months after the end of the leave year in cases of uninterrupted incapacity for work, unless a more favorable provision applies.
• Employers may want to review employment contracts to ensure clarity on annual leave provisions and align them with collective agreements to avoid inconsistencies.

Established BAG Case Law on Annual Leave During Long‑Term Illness

The statutory minimum annual leave under the Federal Vacation Act (Bundesurlaubsgesetz – BUrlG) serves the purpose of rest and recuperation. Interpreting section 7(3) BUrlG in conformity with EU law, the BAG has held that, in cases of uninterrupted incapacity for work, statutory minimum leave generally expires fifteen months after the end of the leave year in which the employee first became continuously incapacitated. Specifically, leave that cannot be taken due to uninterrupted incapacity for work lapses fifteen months after the end of the leave year in which the incapacity arose. This fifteen‑month limit is intended to prevent the unlimited accumulation of leave during long-term illness without undermining the recuperative purpose of leave. The present decision reaffirms these guiding principles.

At the same time, the BAG ruling emphasizes that more favorable provisions for employees are permissible. Where such provisions apply, the case law on forfeiture for long-term ill employees does not govern.

Key Facts of the Case

The dispute concerned an employee’s claim to financial compensation in lieu of statutory annual leave for the years 2016 to 2021. The employee worked for a church employer and had been continuously unable to work due to illness since July 31, 2015, during which time she was unable to take 144 days of leave. The employment relationship ended on June 30, 2023. Following her dismissal, she claimed € 16,908.92 as compensation for untaken leave. She relied on an individual contractual clause governing leave in cases of long‑term illness and argued that it prevailed over the church employment guidelines (AVR‑DD) referenced in the employment agreement. The AVR‑DD provided for the lapse of leave in cases of long‑term incapacity. The Labor Court dismissed the action, but the Regional Labor Court allowed it. The employer’s appeal to the BAG was unsuccessful. The employer therefore owed compensation for the untaken leave.

The BAG’s Judgment

The employee’s continuous incapacity for work from July 31, 2015, until the termination of the employment relationship did not preclude the accrual of statutory minimum leave. The leave entitlements that had accrued did not forfeit. The parties had effectively agreed to exclude the lapse of leave in cases of long‑term illness. Also, the church employment guidelines referenced in the contract did not override this more favorable individual arrangement. In the event of conflict, the more favorable individualcontractual provision prevails. Accordingly, the BAG’s case law on forfeiture in cases of long-term illness did not apply. The court stated that European Union law does not mandate a time limit for the exercise of paid annual leave where the parties have agreed to more favorable terms. Therefore, individual or collective arrangements that grant employees a more advantageous position than the statutory baseline are permissible.

Key Takeaways

In cases of uninterrupted incapacity for work, the statutory minimum annual leave generally lapses fifteen months after the end of the relevant leave year, unless a more favorable contractual provision prevents forfeiture.

Employers may want to review their employment contracts for clauses on annual leave that may be more favorable to employees. Any doubts regarding the interpretation of a clause in pre-formulated employment contracts are construed in favor of employees.

Employers may also want to align employment contracts with works agreements and other collective arrangements to avoid inconsistencies. Where an individual contractual term is more favorable to the employee than a collective provision, the former takes precedence.

Lastly, employers may want to confirm whether their employment contracts clearly distinguish between statutory minimum leave and any additional contractual leave and expressly regulate the forfeiture of additional leave. The statutory forfeiture and carryover rules do not necessarily apply to additional leave granted by contract, so that different arrangements can be made in this case. If there is no clear differentiation between minimum and additional leave, additional leave is often treated in the same way as minimum leave. In case of doubt, unclear provisions are interpreted in favor of the employee.

Ogletree Deakins’ Berlin and Munich offices will continue to monitor developments and will post updates on the Cross-Border and Leaves of Absence blogs as additional information becomes available.

Daniela Schumann is a senior associate in the Berlin office of Ogletree Deakins.

Pauline von Stechow is a law clerk in the Berlin office of Ogletree Deakins.

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