Forfeiture of remaining leave – what employers need to know now

Why remaining vacation is important

What decision did the ECJ make on 20.09.2022 regarding vacation expiry?

On 22.09.2022, the European Court of Justice (ECJ) ruled in a judgment(C-120/21 LB) that a fundamental automatic expiry of unused vacation entitlements at the end of the year, as stipulated by the German Federal Leave Act (BUrlG) in Section 7 para. 2 is contrary to European law. According to the ECJ’s ruling, a national law is only applicable in accordance with European law if it only permits the forfeiture of vacation entitlements without compensation in cases where employers have requested their employees to take vacation in good time. This decision strengthens the rights of employees and makes it clear that employers must actively point out when and how remaining leave should be taken in order to avoid forfeiture. The ruling has significant practical implications for companies, as it ensures that employees can actually take their vacation entitlements.

What did the Federal Labor Court (BAG) decide on 20.12.2022?

In its ruling(9 AZR 266/20), the Federal Labor Court (BAG) determined that leave is only time-barred if employers have transparently and unambiguously informed employees in advance of their existing leave entitlement and the possibility of it expiring. Otherwise, the leave entitlement cannot simply expire. This decision emphasizes the responsibility of employers to ensure that employees can take their leave on time. The BAG thus takes into account the previous decisions of the European Court of Justice (ECJ) on this issue.

Exceptions and special cases of residual leave expiry

There are also exceptions and special cases that you should be aware of when it comes to remaining leave. For example, leave entitlement cannot simply expire if employees are ill and therefore unable to take their leave. In such situations, the remaining leave can be carried over to the following year. Remaining leave does not usually expire during parental leave either.

Another special case is when the employer has not sufficiently informed the employee of their rights. In this case, the vacation days cannot simply expire either. It is important that you as an employer :in clearly communicate by when the remaining leave must be taken in order to avoid misunderstandings and legal problems. Remember that the Federal Leave Act sets out clear regulations in this regard and inform yourself to be on the safe side legally.

How you can help your employees take their vacation

It is important to encourage your employees to take their vacation on time so that they do not forfeit their vacation entitlement.

• Planning: Remind your employees regularly to start their vacation planning early. A clear overview also helps to avoid staff shortages.
• Inform: Communicate to your employees in a transparent and timely manner that they can take their remaining leave. Timely means that employees must also have the opportunity to take their vacation. The information provided by employers to employees should include the following:
  • The number of vacation days to which the employee is entitled.
  • A request to apply for leave in good time so that it can be taken before the deadline expires.
  • The information that the leave will expire without replacement if it is not taken within the specified period (three years according to the ECJ).
  • For example, information can be provided digitally directly from the digital Time & Attendance system with integrated vacation planner by email or via an Employee Self Service (ESS) in the form of an employee portal or an app. This means that employers and employees always have the option of calling up current vacation entitlements, viewing vacation already taken and planned, and thus always having an up-to-date overview.

• Taxes: Use digital tools, such as the ZMI solutions, to keep track of the remaining vacation days yourself and make planning and approval as low-threshold and simple as possible.