Have you been informed by your employer that your vacation claim may expire?

No notice – no expiry!

Have you been informed by your employer that your vacation claim may expire? On December 20th, 2022, the Federal Labor Court (Bundesarbeitsgericht, BAG) issued a landmark ruling. An employee’s statutory entitlement to paid annual leave is still subject to the statute of limitations, but only if the employer has explicitly given the employee a notice: Namely, that the leave entitlement will expire if the employee does not take it. Only then does the statutory limitation period of 3 years begin at the end of the year.

Previous legal situation

Up to now, German vacation law has been less employee-friendly. According to the Federal Vacation Act (Bundesurlaubsgesetz, BUrlG), paid time off (PTO) that is not taken in the current year expires at the end of the year, at the latest by March 31st of the following year.

The 2018 ECJ ruling

In a 2018 ruling, the European Court of Justice (ECJ) then tied the forfeiture of the vacation entitlement to the condition that the employer had first actually put the employee in a position to also take the paid time off (PTO) entitlement by providing “adequate information.” This means that the employer must have given the employee the opportunity to take the leave – only when the employer has fulfilled its duty to inform the employee of the forfeited leave and to notify him of this, does the employee’s leave entitlement lapse. Otherwise, the entitlement would remain.

Obligation to cooperate – what does this mean and what effect does it have for you?

The BAG introduced this obligation to cooperate (not a duty, but an obligation) into national law and also extended it to vacation entitlements that had already arisen before the above-mentioned ECJ decision. The essence of an obligation is that its non-fulfilment can lead to disadvantages.

Do YOUR unexpired vacation claims become time-barred after three years?

Now a legal dispute before the Solingen Labor Court raised the question that formed the starting point for the landmark ruling discussed here: The plaintiff there was employed for many years in a law firm as a tax clerk and balance sheet accountant. Due to a considerable workload, she was never able to take all of her vacation time. When she left the employment relationship, the plaintiff demanded compensation for the paid time off (PTO) she had not taken, which amounted to 101 days.

Decision of the Solingen Labor Court

The Solingen Labor Court dismissed the employee’s claim in the first instance. The Regional Labor Court, on the other hand, found in favor of the plaintiff and awarded her vacation compensation in the amount of €17,376.64, which the employer considered to be incorrect and invoked the defence of limitation.

Vacation limitation without fulfilment of obligation to cooperate?
No notice – no expiry!

Because the employer had not fulfilled its duty to inform in the case of the tax clerk, the plaintiff’s vacation entitlement had not expired. The Federal Labor Court now had to clarify whether the general rule in Sections 195, 199 of the German Civil Code (BGB) that claims lapse after three years also applies to vacation claims. The plaintiff’s employer invoked precisely this limitation period, which made the employee’s vacation claim unenforceable without employer notice.

How much influence does the ECJ ruling have?

On December 20, 2022, the BAG ruled that the general limitation rules of German law, according to which claims become time-barred after 3 years at the end of the year, do not apply to vacation claims if there is no corresponding notice from the employer. Abbreviated: No notice – no expiry. This is how the ruling implements the ECJ’s mandatory requirements on vacation periods.

Legal certainty only after notice has been given

The legal certainty to which the employer refers in the proceedings is in his own hands by fulfilling his obligations or by making up for them. If he does not comply with this responsibility, the court held that the employee should not be punished for his employer’s failure to do so by his vacation entitlement being time-barred as an employee.

Is your vacation time barred or not?

The BAG’s decision was predictable. The court followed the ECJ’s decision that the entitlement to paid annual leave was subject to the three-year limitation period at the end of the year. However, the statute of limitations does not begin to run until the employer has instructed its employee about the specific vacation entitlement and the expiration periods and the employee has nevertheless voluntarily not taken his vacation. In this case, the answer is: Yes, the vacation is subject to the statute of limitations.

The answer is often: No!

If there is a lack of notice from the employer regarding the loss of any vacation entitlements, employees may still be able to assert claims from earlier years. In many cases, employers cannot rely on the three-year statute of limitations according to Sections 195, 199 BGB.

What are the practical consequences of the ruling?

Even though the decision was not surprising because the BAG implemented the ECJ’s requirements, the ruling nevertheless brings with it some explosiveness. This is primarily due to the scope that the ruling is likely to have for both employees and employers. While some employees may be able to look forward to residual vacation from previous years because the employer did not comply with its obligations to cooperate or because they can still hope for vacation compensation claims after termination of an employment relationship, employers fear that they will be overwhelmed by waves of lawsuits.

Our advice for you

In general, it is advisable for employers to check now whether possible duties to notify should be fulfilled or made good, in order to protect themselves from what could be high compensation sums in the worst case.
For employees, it is important to pay attention to whether their employer has fulfilled its obligation in order to recognize any running deadlines for the loss of claims due to the statute of limitations.
It may be advantageous if your employer has not informed you that your vacation claim may expire.