Subdistrict Court of Amsterdam 29 June 2012, LJN: BX1486
Employees do not always take all their vacation days and therefore, when they leave the employment, they regularly have a positive balance of vacation days. Section 7:641 of the Dutch Civil Code stipulates that these outstanding vacation days must be paid out at the end of the employment contract. In practice, there is quite a lack of clarity about the ‘value’ of a vacation day. The law is not clear in this respect either. The statutory provision entails that a vacation day is equal to the value of one day's wages. The question is what the meaning of ‘wages’ is. Many employers simply pay the basic salary, plus fixed pay components such as holiday allowance and thirteenth month. However, it becomes complicated when the employee also has, for instance, variable pay elements. In its judgment of 29 June 2012 the Subdistrict Court of Amsterdam has provided clarity, basing itself on European case law.
In the case concerned, the employer had paid the employee at the end of his employment a compensation for 628,67 unused vacation hours. The employer had determined the amount of that payment on the basis of the fixed salary as well as the holiday allowance over this amount. The employee claimed that this was not correct. According to the employee, also the bonuses paid out to him as well as the employer's share of the pension contributions should have been taken into account.
The Subdistrict Court held first and foremost that the right to paid vacation days is a very important principle of social law of the European Union. Dutch law must therefore be interpreted in conformity with the directive, and, of course, European case law is of great importance in this regard. According to the Court of Justice of the European Union in the Robinson/Steele case (JAR 2006/84), during his annual leave the employee has to receive his normal wages. In other words: the wages that are paid out during the leave are decisive for the calculation of the value of the vacation days at the end of the employment contract. This argument is further elaborated in the Williams/British Airways case (JAR 2011/279). The Court of Justice of the European Union considered that this involves all components linked intrinsically to the performance of the tasks which the worker is required to carry out under his contract of employment and in respect of which a monetary amount is provided.
On the basis of this case law, the Subdistrict Court ruled as follows. During his employment the employee had systematically received substantial bonuses that depended both on his own performance and on the performance of his team. It is therefore certain that the bonuses constituted a payment for the performance of the tasks assigned to the employee and that there was an intrinsic link between the remuneration and the work assigned. Therefore, the bonuses had to be taken into account indeed. The Subdistrict Court took the last five fully-worked years as the representative period. The employer's pension contribution must also be counted in. After all, by being paid vacation days, the employee may not be put in a more disadvantageous position than by using vacation days. Since the employer's contribution had always been paid during holidays, it should also be counted in in the calculation of the value of vacation days at the end of the employment.
This ruling made a huge difference for this employee. His average gross bonus was €105,059 per year and the employer's pension contribution was a total of €9,578,64. All in all, the employee was therefore entitled to a supplementary payment of €34,514.27 gross (plus the statutory interest and €3,451.43 statutory increase).
Conclusion and Tip
When determining the value of vacation days at the end of an employment, the continued payment of the employee's wages when he is enjoying holidays must be followed one-on-one. This means that bonuses and other pay elements that are not included in the fixed basic salary are often also decisive to the determination of the value of the vacation days at the end of the employment contract. Employers should be aware of this, so that they are not confronted with unexpected claims afterwards. It may also be worthwhile not to make certain payments during the holidays of the employee, within the statutory limits, of course.