What obligations do employers have with regards to employees taking their annual paid leave?

Due to the Covid 19 pandemic in particular, many employees have not yet taken all of their leave from 2020. The following article explains when residual paid leave is transferred into the next year, when it expires or becomes void, and what obligations employers have in this regard.

Pursuant to § 7 (3) sent. 1 BUrlG (German Federal Paid Leave Act), paid leave entitlements must be taken in the same calendar year for which they were granted, otherwise they are forfeited without replacement. A legal transfer of paid leave entitlements to the following year is only possible in exceptional cases, insofar as urgent personal reasons (such as illness) or operational reasons justify this. In such exceptional cases, the carried over paid leave entitlements will be added to the paid leave entitlement of the following calendar year, but the transferred leave can only be taken in the first 3 months (until March 31) of the following year. The transfer of the remaining paid leave takes place by operation of law. A special request is not necessary for this. If the transferred leave is not taken by March 31, it is generally forfeited.

However, according to case law, paid leave not taken by the end of the calendar year does not just automatically expire. Rather, the employer has an active duty to remind employees to use up any remaining paid leave days. However, the employer only has such a duty with regard to the statutory minimum leave. If additional leave has been contractually granted, it may be agreed that the employer has no duty to remind the employee to take their additional paid leave days. If no distinction is made between statutory minimum leave and additional contractual leave, it must be assumed that the employer’s duty to remind employees also extends to leave entitlements exceeding the statutory leave.

Within the framework of the duty to remind employees, the employer must specifically request the employees to take their vacation and point out the threat of forfeiture of any paid leave not taken. The employer bears the burden of proof for this. How exactly such a request by the employer is to be specifically structured is not regulated by law. The German Federal Labor Court requires clear and timely information about the paid leave entitlement and the expiration periods. This must be done “formally”. The scope of the existing paid leave entitlement and the specific deadlines for expiration must be stated. The obligation to provide information also applies to paid leave entitlements from previous years. A reminder can be assumed to have been timely if the request is made in such a way that the paid leave entitlement can actually be taken in full before the expiry date.

With regard to paid leave carried over to the following year, the employer must also inform the employee that the transferred leave must be taken by March 31 at the latest, otherwise it will be forfeited without compensation. If the employer fails to remind employees, it is questionable whether paid leave entitlements can be voided at all. The German Federal Labor Court has referred this question to the European Court of Justice for clarification (decision dated September 29, 2020 – 9 AZR 266/10). If paid leave entitlements were not void in such a case, employees would still be able to claim the transferred leave after the expiry of the limitation periods or, in the event of termination of the employment relationship, it would have to be compensated accordingly.

If employers refuse to grant the requested paid leave in good time without there being an urgent operational or personal reason, and if the leave cannot be taken sometime else in the calendar year, it will be carried over to the following year and shall not expire. The same applies to residual leave that employers do not grant during the carryover period up to the end of March. Instead, employees receive a claim for compensation, so-called substitute leave, under §§ 280 para.1, para.3, 283 p.1 BGB (German Civil Code), as the employer could not fulfill their duty to grant the required paid leave during the time period required. The claim for substitute leave is a claim for payment and is subject to the standard limitation period of 3 years according to § 195 BGB.

Practical tip

In order to meet the requirements of the employer’s duty to cooperate as decided by the German Federal Labor Court, employers should specifically inform employees in writing of their paid leave entitlements in the calendar year. If employees still have paid leave entitlements from previous years, these must also be specifically pointed out. Ultimately, companies are faced with the question of how to integrate such a paid leave reminder in the sense of the Federal Labor Court case law into their operational processes. For the practical implementation of the duty to remind, it is advisable, for example, to ask employees individually, e.g. by e-mail, to take (remaining) paid leave and to point out that in case it will not be taken, the paid leave entitlements will expire. The specific number of paid leave days remaining must also be stated. In this context, a link to a company-internal database or software that provides insight into the employee’s individual remaining paid leave entitlements should also be sufficient. When sending these e-mails to the employees, a read confirmation should be requested in order to be able to prove receipt of the notification in the event of a dispute. Merely sending a circular email to the entire workforce with the request to take paid leave and a general reference to the expiration periods does not meet the requirements of the Federal Labor Court.

A notice that untaken paid leave will go void should be issued as soon as possible at the beginning of the calendar year to provide an actual opportunity for employees to take their paid leave in full. In order to avoid that untaken paid leave from the previous year is converted into substitute leave and to meet their obligations to remind employees, employers should additionally request their employees to take any remaining vacation by March 31 and inform them of the forfeiture should they fail to do so.