European Court of Justice Finds That There Is Not an Automatic Start of the Limitation Periods for Paid Annual Leave Days

Paid annual leave days in Germany have been the subject of several recent decisions by the European Court of Justice (ECJ), with the Luxembourg-based judges regularly opposing previous case law of the Federal Labor Court regarding paid annual leave. The ECJ’s concerns have centered on the forfeiture provisions in Germany’s Federal Paid Leave Act, among other things. The ECJ—and subsequently the Federal Labor Court—consider an employer to be under an obligation to inform employees about existing paid annual leave entitlements, as well as their forfeiture, and to request that they be claimed (as we reported in March 2019). Only then is there any forfeiture at all. In three recent decisions, the ECJ has once again comprehensively dealt with an employer’s obligations in connection with paid annual leave entitlements.

No Automatic Start of the Limitation Period for Annual Paid Leave

The decision of the ECJ of September 22, 2022—C-120/21, in which the ECJ ruled on the limitation period for paid annual leave claims—is likely to be particularly explosive and momentous. Under the case law of the German labor courts, the start of the three-year limitation period for paid leave claims has thus far not depended on whether an employer has fulfilled its obligations to inform employees and cooperate with regard to annual paid leave requirements. The ECJ once again took a different view and ruled that the statute of limitations for the leave does not begin to run if an employer has not fulfilled its aforementioned obligations.

The decision was based on the following facts:

An employee sued for compensation for her paid annual leave from previous years, which she was unable to take in full due to the large volume of work. The employer had not fulfilled its obligations to inform and cooperate in connection with the leave. Nevertheless, the employer invoked the statute of limitations for the employee’s claims insofar as they arose more than three years ago. After the legal dispute reached the Federal Labor Court, the court referred the matter to the ECJ for a preliminary ruling.

The ECJ has now ruled that the German law regarding the statute of limitations for paid annual leave is not compatible with the European Working Time Directive. The ECJ held that employers must inform employees of their rights and of the consequences of not taking paid annual leave before the start of a limitation period for a paid annual leave entitlement. The ECJ found that the employer in the case could not invoke a statute of limitations defense if it had not complied with its obligations to inform and cooperate. On the other hand, the ECJ reasoned, the employer could prevent late claims by employees for untaken annual leave if the employer had complied with its aforementioned obligations.

In its decision, the ECJ once again left open the question of when, and in what manner, an employer must fulfill its obligations. How the decision on the limitation period applicable to paid annual leave claims will affect German practice now essentially depends on how the Federal Labor Court will implement the ECJ’s requirements.

No Automatic Forfeiture of Leave in the Event of Illness

In two other cases of September 22, 2022—C-518/20 and C-727/20, which were joined and decided together—the ECJ once again dealt with the regulations on the forfeiture of paid annual leave entitlements. In principle, the statutory paid annual leave of employees who cannot take such leave due to illness may lapse after fifteen months. According to the ECJ, this limitation applies only if an employer has complied with its obligations to notify an employee and cooperate with regard to statutory paid leave requirements in the year in which the employee fell ill, provided the employee was still working before falling ill and could have taken the paid leave then.

The aforementioned decisions make one thing even clearer: employers may want to introduce systems whereby every employee is made aware in good time of existing annual paid leave entitlements and of the consequences of not taking leave by the end of a calendar year.