Parental leave and vacation entitlement – a complex matter for employers

The problem

Vacation entitlements – a matter that has undergone so many changes lately that the author can no longer even think of a suitable introduction. However this article focuses on a recent decision of the Federal Labour Court (19 March 2019, docket number: 9 AZR 495/17) in which the court explained the connections between holiday and parental leave.

The applicant was a former employee who was on parental leave for six years before terminating her employment at the end of her leave. Following her dismissal, she claimed compensation for leave over the last six years, since she had not been granted leave during that period.

The defendant, the plaintiff’s former employer, rejected this and argued that he had effectively reduced the plaintiff’s entitlement to leave during parental leave. In addition, in case of doubt, the leave entitlement expired at the end of each year.

The decision

The Federal Labour Court (BAG) defined a different aspect of this problem and in the end ruled in favour of the plaintiff.

First, the BAG made clear that vacation entitlements can in fact be reduced because of the employee being on parental leave. This was just recently accepted by the European Court of Justice (4 October 218, docket number: C-12/17). However, the holiday entitlement does not decrease automatically, rather the employer has to declare the reduction to the employee. If the employer does not do so, the employee will have normal vacation entitlement even though he or she is on parental leave all year.

The BAG had then to judge over the defendant’s argument that the claim would have expired at the end of each year. “Normal” vacation entitlements do in general expire at the end of the year, if no vacation has been taken (though there are many exceptions to this rule). Still the court decided that the rule which leads to the expiry of “normal” vacation (Sec. 7 para. 3 Vacation Act, § 7 Abs. 3 BUrlG) is not applicable to vacation entitlements during parental leave as there is a special regulation for those entitlements (Sec. 17 Act on Parental Allowance and Parental Leave, § 17 BEEG). Therefore the plaintiff could claim vacation entitlements even though they had already existed years ago.

The second objection of the defendant, that he had in fact declared the decrease of vacation entitlement, did not convince the court. The BAG made it clear that the employer’s declaration could only take effect in a certain period of time. Since the employer can decide whether to decrease the vacation entitlement, he also has the duty to check on a case-by-case basis whether he wants to declare a reduction. A general declaration prior to the employee’s application for parental leave is invalid. In addition, the right to declare a reduction ends when the employment relationship is terminated; the employer can then no longer declare the reduction, but must compensate for the entire vacation entitlement that has arisen during parental leave.

Last, the court pointed out that the information on the pay roll could not reduce the holiday entitlement. Although the payroll stated a holiday entitlement of 0 days, the plaintiff did not have to assume that the holiday had actually been reduced. Since the payroll is only used for information purposes to explain to the employee which deductions were made from the gross salary, this information must not affect the employee’s entitlements. Rather, the reduction should have been explained separately.

The impact

Many questions remain unanswered regarding vacation entitlements, but at least the BAG has established clear basic rules for holiday entitlement during parental leave. The employer should bear in mind that (i) he may reduce leave entitlement during parental leave by making an explicit declaration, (ii) he may not declare the reduction before the employee’s individual application for parental leave, (iii) he may not declare the reduction after termination of the employment relationship, (iv) the leave entitlement does not expire during parental leave.