To-Do’s for Employers in Germany: No Limitation of Vacation Claims Without Prior Notice

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Today, the German Federal Labor Court (Bundesarbeitsgericht) ("FLC") made two important decisions on vacation which are of great importance for employers in Germany:

  • In the first decision (9 AZR 266/20), the FLC held that statutory vacation entitlements are subject to the three-year statute of limitations, however, the three-year period does not begin until the end of the calendar year in which the employer informs the employee of the employee’s specific vacation entitlement and the expiry periods and the employee nevertheless did not take the vacation.

    • The employer had not done that in this case. As a consequence, the plaintiff’s claims to compensation for unused vacation were not time-barred.
  • In the second ruling (9 AZR 245/19), the FLC decided that statutory vacation entitlements acquired before an employee becomes sick only lapse after expiry of a 15-month carryover period if the employer enabled the employee to take vacation in good time.

    • According to previous case law, statutory vacation entitlements in such a case – in the event of continued incapacity for work – expired without further ado at the end of March 31 of the second following year ("15-month period").
    • Implementing recent case law of the European Court of Justice, the FLC clarifies that where an employee – as in this case the plaintiff – actually worked in the vacation year before becoming fully disabled or incapacitated for work due to illness, the limitation of the vacation entitlement regularly requires that the employer has enabled the employee to actually take vacation in good time before the onset of the incapacity to work.

What Employers Should Do Now

  • Inform Your Employees

    • Employers should at least annually (1) inform the employees about outstanding vacation entitlements, (2) ask the employees to take their statutory vacation leave during the calendar year and (3) notify them that otherwise vacation will be forfeited. This should be documented. As so often, documentation is key here because in case of a dispute the employer will have to prove that the notice has been received by the employee.
    • Another option is to include a provision to that end in the employment contract, although this alone will not do. Including a corresponding note in the employee handbook or the vacation policy, if any, are good additional options to the annual notice.
  • Check Your Employment Contracts

    • A different arrangement can be made for voluntary additional vacation, i.e. vacation exceeding the statutory minimum. However, the employment contract must explicitly and clearly distinguish between the statutory minimum leave and the contractual additional leave.
    • The employment contracts should provide for valid expiry clauses, typically three months, which should cover compensation claims for any outstanding vacation claims once the employment ends. Once employment ends, claims to outstanding vacation convert into a cash entitlement which can generally be subject to such expiry clauses.