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No entitlement to paid leave during the release phase of partial retirement

Recently, the entitlement to paid leave and payment in lieu have frequently been the subject of supreme court rulings, which in some cases proved to be surprising outcomes and were not welcomed by employers. However, according to a recent ruling from the Federal Labour Court (Bundesarbeitsgericht, BAG), the all-clear can be sounded on the issue of whether or not entitlement to paid leave also arises during the release phase of an agreed partial retirement scheme (ruling from: 9 AZR 481/18).

The case in question – Partial retirement based on the so-called block model

The legal action was brought by an employee who had agreed to partial retirement based on the so-called block model. First of all, he continued to be employed for 16 months on a full-time basis (working phase) and, subsequently, released for 16 months (release phase). Over the entire period, he continuously drew a salary that had been calculated on the basis of the reduction in working hours. After the end of the release phase, he claimed payment in lieu for a total number of 52 days of leave to which he would have been entitled for the period of his “paid” release. The BGH has now clearly rejected this.

The duration of leave is based on patterns of work ...

The court clarified that the number of days of leave should basically be determined by the relevant patterns of work. In this way it is possible to ensure periods of leave of equal value for all employees. If, instead of the usual five days, somebody only works on two days of the week then s/he would likewise only be entitled to 2/5 of the normal period of leave. Accordingly, for employees who are in the release phase of their partial retirement there would be “zero” working days included in the calculation of leave days, as these employees would have been discharged from the obligation to work during this phase. Therefore, for this period, they would not have any statutory entitlement to holiday leave. If the switch from the working phase to the release phase takes place during the course of the year then the entitlement to leave has to be calculated on a pro rata basis.

... and this also applies to any additional contractual leave

The BAG likewise clarified that these principles apply not only to statutory minimum leave but also to any additional leave that has been contractually agreed, unless the parties have expressly agreed something else.

Please note: With this decision the court’s rulings continue to be consistent with the principle according to which, generally, no entitlement to leave can arise during periods where there is no obligation to work. This will also apply even if, during the period, (previously earned) remuneration is drawn, something that, for example, is normal in the case of a so-called sabbatical (cf. BAG ruling from 18.9.2018, case reference: 9 AZR 159/18).

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