Supreme Court of Latvia Issues Decision on Entitlement to Payment for Unused Annual Leave Upon Termination of Employment

There has been a conflict within Latvian law on the extent of an employee’s entitlement to be paid out upon termination of employment for unused annual leave (known in other countries as PTO, vacation leave or holiday leave)that has been clarified by a decision of the Supreme Court of the Republic of Latvia.

EU Directive 2003/88/EC of the European Parliament requires paid leave be taken and cannot be replaced by a payment in lieu. This is because taking paid leave is seen as important to avoid burnout and stress-related illness. There is an exception to this principle that permits payment for any unused leave at the time of termination of the employment relationship. This applies to any unused leave from the year in which the termination occurs.

But what if the employee did not take his or her full entitlement in previous years. Can that be paid out too? Under an old version of the Latvian Labor Law, an employer was obligated to pay an employee for up to two weeks of unused leave from the previous year if the employee had not used his or her full allotment, in addition to any unused leave from the current year.

However, the current regulation of the Latvian Labor Law (in effect since January 1, 2015) states that an employer is required to pay for all unused leave over the entire period of employment. This seems to allow employees to avoid taking leave and instead “save up” the entitlement for a lump-sum payment upon termination of employment, contrary to the health and safety objective of avoiding burnout.

Therefore, in recent case law, the Supreme Court balanced the previous and new Latvian Labor Law regulations in accordance with Directive 2003/88/EC of the European Parliament (Article 7) and the case law of the European Court of Justice.

Recent case law prescribes that if an employee had a chance to use annual leave and the employer has proof that it had encouraged the employee to use the annual leave and informed him or her that part of the annual leave may be lost if not used, the employer has a right not to pay out the unused annual leave in full after termination of employment. The Supreme Court has therefore held that in these cases, an employer would be obligated to pay out annual leave for previous years if it had authorized it to be transferred to the subsequent year.

Comment

This decision balances the rights between the parties, allowing employers not to pay out unused annual leave from previous years in cases where it is the employee’s “fault” that for not taking the leave at the time, because the employee had been given the chance to take the leave and told he or she may forfeit any leave not taken and had still failed to do so.

Written by Toms Tidemanis of TGS Baltic and Roger James of Ogletree Deakins

© 2019 TGS Baltic and Ogletree, Deakins, Nash, Smoak & Stewart, P.C.