We look at yet another recent European Court of Justice (ECJ) decision on holiday pay. This one may seem the strangest yet. When considering what was admittedly an unusual set of facts in Bollacke v K + K Klaas & Kock BV & Co KG C-118/13, the European Court of Justice concluded that the estate of an employee who had died whilst in an employer's service had the right to be paid for all unused holiday the employee had accrued up to the date of his death.
Employees in the European Union are entitled to a minimum of four weeks' annual leave per year under the Working Time Directive (the Directive), which is implemented in the UK by the Working Time Regulations 1998 (WTR).
As regular readers of our briefings will be aware, the European courts have developed employees' rights to annual leave in a number of ways. These include giving employees a right to take and be paid for annual leave whilst absent on long-term sick leave, the right to re-arrange annual leave if they fall ill before or during annual leave and ruling on what elements of normal pay should be included in holiday pay.
In the UK, the WTR state that an employee will receive a payment in lieu of unused annual leave on termination of employment. However, it is not clear whether 'termination of employment' in this context covers a situation where an employee dies whilst employed so it is helpful that this has now been considered by the ECJ.
The Bollacke case related to German law and the equivalent German law provision was as follows: "If, because of the termination of the employment relationship, the leave can no longer be authorised in full or in part, an allowance in lieu thereof shall be paid". This is therefore similar to the position under the WTR and both refer to 'termination' of the employment relationship.
Mr Bollacke worked for K + K Klaas & Kock BV & Co KG (K + K) from 1 August 1998 to 19 November 2010. From 2009 onwards he was seriously ill and during that year he was off sick for over eight months. He was then unfit for work again from 11 October 2010 until his death on 1 November 2010. As at the date of his death, he had 140.5 days' accrued but untaken annual leave.
His widow, Mrs Bollacke, was his sole beneficiary and on 31 January 2011 she wrote to K + K requesting payment in lieu of holiday on termination. K + K rejected the application because it doubted whether this was something she could inherit. Mrs Bollacke therefore presented a claim in the German Federal Labour Court, which ruled that, under its case law, the entitlement to a payment in lieu of annual leave did not arise where the reason for termination of the employment relationship was the death of the employee. On appeal, the case was referred to the ECJ for a ruling on whether the German law stating that a payment in lieu did not apply on death was contrary to the Directive. The ECJ was also asked to consider whether an employee had to have made an application for leave in order for it to be owed in this situation.
The ECJ made its usual point that the entitlement of every worker to paid annual leave has to be regarded as a particularly important principle of European law. Additionally it reminded itself of its case law, that the Directive prevented any national law having the effect that someone would not receive a payment in lieu of holiday on termination of employment where he had been unable to use it due to sick leave.
The question was therefore whether, in the unusual situation of a worker's employment terminating due to death, this precluded the right to take annual leave from turning into a right to payment in lieu. The general principle is that a worker has to take annual leave or to have applied for it and been denied it in order to be paid for it, although that does not necessarily apply on termination of employment. The ECJ noted that the Directive did not place any conditions on a worker's right to receive a payment in lieu of unused annual leave on termination, except that the employment relationship must have ended and that the worker must have leave outstanding.
The ECJ also noted (although it is not clear why) that receipt of financial compensation in the event of an employee's employment ceasing due to death was essential to ensure the effectiveness of the right to paid annual leave under the Directive. This reasoning is unsatisfactory and quite difficult to follow because the right of a living worker to take holiday would not in any way be affected by a ruling that he would not be entitled to a payment in lieu on death. It is therefore difficult to see how such a payment is essential to the effectiveness of the right to paid annual leave, particularly when the core of that right is making sure employees are paid when they actually take leave.
Nevertheless, the ECJ concluded that a worker whose employment has ended due to death must still be entitled to a payment in lieu of unused holiday pay. Additionally, there was no need for the worker to have made an application in order for the pay to be owed.
The case will now return to the German courts, presumably to determine whether under German inheritance laws the right to receive the payment will pass to Mr Bollacke's widow.
This is quite an unusual case. However, it does provide helpful confirmation of the approach an employer should take to accrued but unused holiday in the event that an employee dies in service and the employee's estate requests a payment in lieu of holiday. The only real issue for UK employers in this situation is likely to be establishing who the payment will need to be made to and this will depend on the impact of UK probate laws.
The ECJ decision unfortunately leaves two questions unanswered: (1) whether the obligation to pay accrued holiday pay on death is limited to the 20 days' holiday per year under the Directive or whether it extends to the 28 days under the WTR; and (2) whether the carry forward of holiday can be limited in some way, which would prevent a large amount of holiday accruing in such a case. (The ECJ judgment does not explain how Mr Bollacke had managed to amass over 140 days' holiday when he was only off sick during two holiday years and we assume he had carried some forward from previous holiday years.)
This decision is a further demonstration of how the European courts are willing to develop and stretch the concept of annual leave and holiday pay. Interestingly, much of the previous case law has focussed on the importance of holiday being granted to employees for health and safety reasons and to provide a period of relaxation. In attaching such importance to holiday pay (rather than simply the chance to take holiday) the ECJ is therefore potentially going beyond the core principle behind the purpose of annual leave.