I. Previous legal situation pursuant to section 7 Federal Holiday Benefits Act

The employer satisfies the leave entitlements of the employee by exempting the employee from its duty to perform work and by granting the employee leave. The granting of leave by the employer initially requires the employee’s application for leave.
Section 7 Federal Holiday Benefict Act [Bundesurlaubsgesetz BUrlG] regulates the time, transferability and compensation of the leave under German law. The regulation under section 7 para. 3 sentence 1 BUrlG stipulates that the leave entitlement is limited in time to the calendar year concerned. The regulations under sentences 2 and 3 under section 7 para. 3 BUrlG determine that the transferability of the leave to the next calendar year is only justified in urgent operational reasons and by a good cause inherent in the person of the employee and that in such an event, the leave entitlement expires as of 31 March of the following year.
The BUrlG, however, is superimposed by the leave provisions under Union law under article 7 para. 1 of Directive 2003/88/EG of the European Parliament and of the Council of 4 November 2003 (“EU Leave Directive”). In addition, the European Court of Justice (“ECJ”) classified in consistent case-law that granting leave entitlement is a basic right for every EU citizen pursuant to article 31 para. 2 of the Charter of Fundamental Rights of the EU (“EU Charter of Fundamental Rights”).
In specific cases in the past years ECJ had already identified the incompatibility of the expiration regulation under section 7 para. 3 BUrlG with European legal standards in special cases (e.g. in the case of an employee with a long-term illness). However, the expiration without replacement of leave entitlements pursuant to section 7 para. 3 BUrlG, which the employee did not take in due time, was now critically assessed.

II. BAG judgment of 19 February 2019 on the basis of the ECJ’s preliminary judgment

In its judgment of 19 February 2019 the Federal Labor Court [Bundesarbeitsgericht – BAG] ruled that an employee’s entitlement to paid annual leave shall as a rule only expire at the end of a calendar year if the employer did not previously instruct the employee about the concrete leave entitlement and time limits and if the employee did not take the leave voluntarily. This judgment implements the requirements of the ECJ on the compatibility of section 7 BUrlG with the EU Leave Directive and the EU Charter of Fundamental Rights, which the BAG had previously requested from the ECJ in this matter in the course of a preliminary ruling.

1. Facts of the case

In the case decided by the BAG the accused employer, the company Max-Planck-Gesellschaft zur Förderung der Wissenschaft eV, employed the suing employee, Mr. Tetsuji Shimizu, as a scientist in the time period 1 August 2001 to 31 December 2013. By letter dated 23 October 2013 the employer asked the employee to take his leave before termination of his employment. However, the employer did not oblige the employee to take the leave by a date fixed by the employer. Subsequently, the employee took two days off. After termination of the employment, the employee demanded to be compensated for the leave not taken of 51 working days from 2012 and 2013 by being paid a gross salary amount totaling to around EUR 12,000.00. He had not applied for such leave during his employment. The Labor Court as well as the Regional Labor Court ruled in favor of the employee.

2. Reasons for the judgment

Currently, there is only the press release of the BAG concerning the judgment of 19 February 2019, while the publication of the judgment is yet to be submitted. As a reason for the judgment the press release indicates that the senate developed its jurisprudence with this decision and implemented the requirements by the ECJ within the framework of the preliminary judgment in this case which the BAG itself gathered (ECJ, judgment of 6 November 2018, file no. C-684/16).
In the course of the preliminary judgment the ECJ decided on the question submitted by the BAG in this case on the interpretation of European law that the expiration regulation pursuant to section 7 para. 3 BUrlG was incompatible with article 7 of the EU Leave Guideline and with article 31 para. 2 EU Charter of Fundamental Rights and that it can consequently not be applied in the present case.
Referring to its present case law, the ECJ found that the right to paid annual leave was affected in its very substance if acquired rights to paid annual leave of an employee or compensation for leave not taken correlating with the termination of the employment expired, without granting the employee the possibility to exercise such right. Without first examining if the employee was in fact put in the position to benefit from his right, the automatic expiration intended under section 7 para. 3 BUrlG of the right to paid annual leave ignored limitations under European law substantiated by ECJ case-law which have to be complied with by the member states when setting the terms for exercising the right to annual leave. As the weaker party of the employment contract, the employee must be protected from the restriction of his rights by the employer, according to the ECJ’s opinion. Even the creation of an incentive to refrain from taking a leave is incompatible with the objectives of the EU Leave Directive.
Against this background, according to the ECJ, a situation should be avoided in which the employee alone is responsible for ensuring that his entitlement to paid annual leave is actually exercised, while the employer is given the opportunity to escape its obligation to grant leave simply by invoking the employee’s failure to apply for leave.
The ECJ is convinced that the employer’s obligation to ensure that the employee is actually in a position to take his or her paid annual leave in a concrete and completely transparent manner follows from this. For this purpose, the employer should request the employee – if necessary formally – to apply for leave and inform the employee in a clear and timely manner that the leave would otherwise expire at the end of the period considered or at the end of a permitted extension period.
The ECJ adds restrictively that the employer would not have to force the employee to actually exercise his right to paid annual leave.
The burden of demonstration and proof that the respective employee had been informed in the manner required by the ECJ shall solely be borne by the employer. However, if the employer was not able to provide such evidence, an expiration of the right to annual leave would infringe the EU Leave Directive. But if the employer was able to provide the evidence for which it carries the burden of proof and if this resulted in the employee waiving his or her right to take leave voluntarily and fully aware of the resulting consequences, the EU Leave Guideline would not conflict with the application of section 7 para. 3 BUrlG.

3. Referral back from the BAG to the Regional Labor Court

Whether the employer complied with the duties set by the ECJ to sufficiently request its employee to take his annual leave and at the same time pointed out the consequences which would otherwise occur, is a factual issue which still has to be determined. This can only take place at the level of the last instance of facts (in this case the Regional Labor Court), so that the BAG referred back the case with the request that the Regional Labor Court should clarify if the employer did comply with its obligations.

III. Consequences for the practice

There are extensive consequences for the practice. According to the decision of the BAG, an expiry of leave pursuant to section 7 para. 3 BUrlG can only be considered as such if the employer has actually put the employee in a position to take his or her paid annual leave and informs the employee clearly and in good time that the leave, if it were not taken, would expire at the end of a reference period or a permitted extension period. This obligation of the employer does not extend to the point that the employer must force its employees to take leave, but it places high demands on the employers. In view of the burden on the employer, in the event of a dispute, to prove that the employer has complied with its obligation to inform each of its employees in sufficient form and in good time, it is essential that employees are formally informed.
It is therefore recommended that, as soon as possible for the calendar year 2019 and at the beginning of each subsequent calendar year, employees should be formally requested to apply for and take their annual leave and any leave carried over from the previous calendar year, and that employees should be expressly informed at the same time that the leave will otherwise expire. If employees fail to comply with this, the employee should be reminded of this fact once again in the course of the calendar year. We can gladly provide you with the corresponding drafts.