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Germany: Carrying over holiday days during sick leave – A turnaround in Germany?

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Germany: Carrying over holiday days during sick leave – A turnaround in Germany?

International Employment Bulletin contents

  • International: Cross-border tele-working
  • France: Redundancies in absence of economic reasons 
  • Germany: holiday days during sick leave
  • Italy: Employment law reform
  • UK: Post termination restrictions in cross border employment

 

Over the past few years, judgments from the European Court of Justice (ECJ) have changed the legal landscape regarding holiday entitlement and sickness absence. The ECJ recently handed down a new judgment in a dispute relating to carrying over annual leave in the case of sickness absence (3 May 2012 - C-337/10 - Neidel v Stadt Frankfurt am Main).

In this case, the Court ruled that national laws providing for the expiry of unused annual leave entitlement nine months after the end of the holiday year would breach European law if the employee had been prevented from working due to sickness and had therefore been unable to take the leave. 

Background

It has been clear for some time, since the ECJ's decision in Schultz-Hoff (20 January 2009 - C-350/06 and C-520/06) that national laws, such as §7(3) German Federal Leave Act (Bundesurlaubsgesetz) (BUrlG), infringe European law if their effect is the expiry of an employee's annual leave entitlement following a period in which the employee has been unable to work due to sickness. 

However, under this interpretation, all workers on long-term sick leave were in theory capable of accruing unlimited holiday entitlement. 

As a result of this, the ECJ (22 November 2011 - C-214/10 - KHS AG v Schulte) restricted employees' rights by ruling that limiting the carry-over period for unused annual leave entitlement to 15 months would, in principle, be compatible with the European Working Time Directive (the Directive).

Neidel v Stadt Frankfurt am Main

The ECJ confirmed that an accumulation of sick leave entitlement could be restricted by an employer if the carry-over period was "substantially longer" than the reference period in respect of which it is granted.  This is typically a reference to the holiday year and means a period of 12 months.

Consequently, the Court ruled that the application of a carry-over period of just nine months did not meet these requirements and would not be permitted under the Directive.

Although the Court did not determine a clear carry-over period to apply in all cases, the new judgment has been interpreted by some scholars and by German trade unions as setting a minimum carry-over period.  Following this decision, it appears likely that any carry-over period which is shorter than 15 months (commencing from the end of the holiday year) will be considered unenforceable by German courts.  A number of German courts had already applied a strict 15 month limit for carry-over of annual leave, following the ECJ's decision in KHS AG v Schulte (Higher Labour Court Baden-Württemberg, 21 December 2011 – 10 Sa 19/11).

The ECJ also emphasised that any carry-over period should take into account the specific circumstances of workers who are unfit for work for several consecutive reference periods.

The latest decision of the ECJ has clarified that the Directive also applies to civil servants and grants them, on retirement, an allowance in lieu of paid annual leave not taken because they were prevented from working by sickness.

Entitlement to accrued holiday days in excess of the legal minimum

It remains unclear, however, whether any entitlement to payment in lieu of accrued but untaken holiday will also apply to holiday days which exceed the four-week minimum paid leave ordered by the Directive.

In this respect, the ECJ ruled that the entitlement to carry holiday forward relates only to the minimum of four weeks’ paid leave provided by the Directive.  The ECJ stated that it is the responsibility of respective Member States to lay down the conditions for that entitlement.

As a consequence, the German national court (in this case the Administrative Court in Frankfurt) will have to decide separately whether the entitlement to payment in lieu of accrued but untaken holiday also applies to holiday days beyond the legal minimum period of paid leave.

In our view, employers should retain their discretion as to how to treat any excess holiday days.  This  means that an employer, in accordance with §7(3) BUrlG, can prescribe that holiday entitlement beyond that which is required by law may expire after as little as three months.

In any event, employers may wish to review and amend their standard employment contracts to provide for a period of 15 months for the carry-over of annual leave entitlement in the event of sickness.

Contribution by Swen Schöne Fieldfisher Deutschland LLP (Hamburg), Employment and Benefits Group

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