No Waiver of Statutory Vacation Entitlement by Judicial Settlement During an Ongoing Employment Relationship

The Federal Labor Court (Bundesarbeitsgericht – BAG) recently ruled (judgment of June 3, 2025, Ref.: 9 AZR 104/24) that statutory minimum vacation entitlements cannot be waived through a court settlement during an ongoing employment relationship.

Background

The parties involved were engaged in a legal dispute that was adjudicated by the labor court. In exchange for a severance payment, the plaintiff and defendant agreed to terminate the employment relationship. The agreement also included a clause stating that the vacation entitlements had “been granted in kind.” So far, nothing unusual.

In this case, however, the clause did not result in the loss of the vacation entitlements. Instead, the employee later successfully claimed payment in lieu of unused statutory vacation from 2023, arguing that it was not legally permissible to waive the statutory minimum vacation requirement. The Federal Labor Court agreed.

As is often the case, the most significant challenges arise from the specifics: In this case, the timing was crucial: The plaintiff had been continuously unable to work due to illness from the beginning of 2023 until the end of the employment relationship. In March 2023, while the employment relationship was still active, the parties reached a judicial settlement agreeing to terminate the employment at the end of April 2023 and confriming that the vacation had already been granted in kind. Therefore, the “waiver” of vacation occurred while the employment relationship was still legally in effect.

Decision

The BAG made it clear that waiving the statutory minimum vacation time during an ongoing employment relationship is not permissible. The court hast determined that the agreement stipulating that the vacation entitlement was granted in kind is invalid due to a statutory prohibition. This contradicts Section 13 (1) sentence 3 of the Federal Vacation Act (BUrlG), which states that the Act´s provisions cannot be altered in a manner that is disadvantageous to the employee.

The court has ruled that , such a waiver is invalid even if it is already certain at the time of the settlement that the employee will be unable to take vacation due to illness until the end of the employment. Additionally, financial compensation for unused vacation time during the ongoing employment relationship is ot permitted. Such a compensation claim arises upon termination of the employment relationship and cannot be waived beforehand.

The BAG also clarified that, in the specific circumstances of the case, the clause in the settlement did not constitute an exceptionally permissible “factual settlement” (Tatsachenvergleich). The decisive point was that, due to continuous incapacity for work, there was no uncertainty regarding the grounds for vacation entitlement. Since the employee was unfit for work the entire time, no vacation could have been taken. According to the BAG, a factual settlement can be reached when there is no uncertainty about the facts underlying the entitlement.

Key Takeaways

• Statutory minimum vacation cannot be waived during ongoing employment:
  This principle allows for exceptions only in the form of a factual settlement – and even then, only when there is no uncertainty, which is typically not the case with long-term sick leave. Caution is advised here.

• Risks Despite (Judicial) Settlement: An employee cannot simply waive their statutory minimum vacation entitlement during the course of an active employment relationship.

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