The current position under German law is that every employee has the right to a minimum of 24 days' paid holiday each year (although agreements can be made to enhance this statutory minimum). If an employee is not able to take all the holiday to which he is entitled, within the calendar year, due to operational reasons or special personal circumstances (e.g. absence due to illness), the rest of the holiday may be transferred to the following calendar year. The days carried forward must be taken before the end of March of that year or they will be forfeited. It does not matter if an employee was unable to take holiday during the 3 month period due to illness: the additional days are still lost.
Recent case-law in this area looks to change the position. In this case, the Düsseldorf District Labour Court was ruling in respect of payments in lieu of holiday to an employee who was not able to exercise his right to paid holiday due to disability.
The case was presented to the European Court of Justice (ECJ) which was required to determine the interpretation of Art. 7 of the Directive concerning labour time (2003/88/EG) and advise: (a) whether the employer is obligated to give paid holiday after a base period or a transitional period if the employee had no opportunity to take the paid holiday within the base period due to illness; and (b) whether the employer is obligated to pay a compensatory payment, and if so how should such a payment be assessed, if the employment is terminated and the employee was on sick leave during the whole or part of the base period?
a) The ECJ stated that, in respect of the right to paid holiday, each Member State can determine how they will execute the right to paid holiday and may indicate the conditions under which employees can make use of the right. The right to paid holiday under the Directive does not make express reference to the entitlement to paid holiday during a period of sickness absence, so it is unclear whether it is permitted or opposed.
The right to paid holiday is regulated individually by each Member State, but the rules concerning holiday days not taken are subject to certain limits which apply to Member States generally.
One of these limits provides that a Member State can stipulate that the right to paid holiday after the end of a base period or a transitional period will be forfeited, only if the employee concerned has had the opportunity to take his right to paid holiday within the holiday year. The grant of minimum holiday under the Directive does not differ according to whether the employee was at work or absent due to illness, i.e. holiday entitlement accrues during periods of sickness absence. This means that the entitlement to take holiday cannot be forfeited in cases where an employee could not take the paid holiday due to sickness absence. Untaken holiday must therefore be compensated if, due to reasons of sickness absence, the holiday could not be taken before the termination of the employment.
b) When paying outstanding holiday pay upon termination of employment to an employee who was on sickness absence during the holiday year, the employee should be treated as though he could have executed the right to take annual leave during the period concerned, even though he was absent.
Therefore, at the termination of the employment relationship, the employee must be compensated, according to the rate of their usual remuneration, for the number of untaken holidays.
Effect on employers
This decision weakens the position of employers and increases their financial burden. According to the German Act on continued Remuneration, employers are required to continue the payment of salary during periods of an employee’s sickness for up to 6 weeks, irrespective of the employee’s absence. According to this decision, an employer can now effectively be financially burdened twice for the same period when making payments to an employee upon termination for untaken holidays due to illness.
European Court of Justice decision, 20 January 2009 (C-350/06 and C-520/06)