The decision of the European Court of Justice (ECJ) in Lock has not had much impact on holiday pay in Germany as German employment law already contains a provision that includes sales commissions.
In Germany, the Federal Vacation Act (Bundesurlaubsgesetz - BUrlG) provides for a statutory minimum of four weeks of vacation per year (20 working days based on a five-day working week and 24 working days if the employee is working six days per week). It is common, however, for companies to grant their employees additional vacation of up to a further two weeks. Employees acquire a full vacation claim once the employment relationship has existed for six months. If the employment relationship ends before the six months have elapsed; or if it ends within the first half of a calendar year; or if the employment relationship commences in the second half of a calendar year, an employee will be entitled to one twelfth of the annual vacation entitlement only.
In general, the vacation entitlement must be taken and granted within a calendar year. The vacation lapses at the end of a year, unless a carryover to the following year is justified either by urgent business reasons (such as high workload) or by reasons inherent to the employee concerned (such as illness). In the case of a carryover, the vacation must generally be taken within the first three months of the following year.
According to recent decisions of the ECJ and the German Federal Labour Court (Bundesarbeitsgericht – BAG), an exception applies if the employee was unable to take his vacation at the appropriate time due to a long-lasting illness. In this case the vacation entitlement will lapse no earlier than 15 months following the year for which the vacation was to be granted.
To effectively limit potential claims of employees resulting from these decisions, employers should expressly stipulate this limitation period in their employment agreements. Moreover, it is worth noting that the exception only applies to the statutory minimum vacation and employers may, therefore, stipulate that vacation granted in addition to the statutory minimum will still lapse after three months. However, this requires a clear distinction in the employment contract between the employee's statutory vacation entitlement and additional vacation granted on top of the statutory minimum.
Payment in lieu of vacation can be inherited
Following a very recent decision of the ECJ, there is even more reason to make a clear distinction between statutory and additional entitlement. It is worth noting that employees are entitled to a payment in lieu of vacation if they cannot take their vacation as a result of the termination of their employment. Up until now, German courts have held that this entitlement lapses on the employee's death since the vacation entitlement and payments in lieu belong to the employee only and consequently, cannot be granted to a deceased person. In contrast to this, however, the ECJ held that the heirs of a deceased employee may indeed claim payments in lieu of vacation (ECJ decision of 12 June 2014 in Bollacke). The ECJ argued that the entitlement to paid holiday is a highly valued principle of social law. With payment in lieu of holiday being a compensatory payment in cases where the period until the end of an employment relationship is too short for the employee to take his remaining vacation, the imponderable risk of the employee's death must not lead to a complete loss of the entitlement to paid vacation.
In future, employers must therefore be aware that an employee's heirs may claim for payments in lieu of vacation. These claims may be surprisingly high if the employee had been ill for some time prior to his death. As it is not feasible to exclude such claims from the outset, employers should seek to mitigate their financial exposure in this respect by limiting the employee's potential vacation claims in the event of long-term sickness, as outlined above.