Can annual leave (or payment claims in lieu thereof) expire on termination of the employment relationship?
Ever since the 2019 ruling by the Federal Labour Court (Bundesarbeitsgericht, BAG), at the very latest, it has been clear that leave entitlement can only expire at the end of the year if the employer complies with their duty to inform. Whether or not this is also applicable to a claim for payment in lieu of leave is explained in the article that follows.
Background
Section 7(3) sentence 1 of the Federal Annual Leave Act (Bundesurlaubsgesetz, BurlG) states that statutory leave must be taken and granted in the current calendar year. Annual leave may only be carried over to the next calendar year if urgent operational grounds or reasons in respect of the person of the employee justify this. In 2018, the European Court of Justice (ECJ) gave its view on the possible expiry of leave entitlement and ruled that, taking account of Article 7 of the European Directive 2003/88/EC, leave entitlement can only expire at the end of each year if the employer informs their employees about this in good time.
Entitlement to payment in lieu of leave
If an employee leaves the employment relationship and it is not possible to take all or some of the leave because of the termination of the employment relationship, then the leave must be compensated.
With the termination of the employment relationship, the entitlement to be released from duties then changes into a payment claim (according to 7(4) BurlG). This payment claim can only be asserted in the case of a termination of the employment relationship, by contrast, a claim for payment during a current employment relationship would be precluded.
Expiry of and the limitation period for payment claims in lieu of leave
Several rulings by the BAG and, in particular, one by the state labour court in Cologne (ruling of 12.12.2024, case reference: 3 SLa 356/24) clarified that payment claims in lieu of leave can also be subject to expiry and limitation periods (the latter when the limitation periods have been effectively agreed in the employment contract). The calculation of the limitation and expiry periods does not depend on the employer having previously complied with their obligations to inform and to cooperate.
In its 2023 ruling, the BAG assumed that there is no so-called unity of purpose between an entitlement to annual leave during the employment relationship and payment claims in lieu of leave. This is because, after the termination of an employment relationship, it is no longer possible to release an employee from their duties on full pay so that they can have a relaxing break. Upon the termination of an employment relationship, the employer is therefore no longer obliged to provide any information to motivate their employees to take their holidays. From this point in time, the obligations to inform and to cooperate cease to exist.
According to the legal requirements (Sections 195, 199 of the German Civil Code), the three year limitation period commences at the end of the year in which the claim arose and the obligee obtains knowledge of the circumstances giving rise to the claim.
Excursus
According to the ruling, something else should only apply if the case concerns claims upon the termination of an employment relationship up to 6.11.2018, thus before the ECJ ruling. In the case of such claims, the BAG assumes that prior to the delivery of the judgement and the related employer’s obligation to cooperate, it would not have been reasonable to also assert the claims earlier through the courts. Therefore, the limitation period could not have commenced prior to the end of 2018.
