Regional Labour Court of Schleswig-Holstein: Claims to payment in lieu of leave that has already accrued are covered by the financial settlement clause in courtled settlement

Judgment of the Regional Labour Court of Schleswig-Holstein of 9 June 2021 – Case No, 3 Sa 82/21

In its judgment of 9 June 2021 (Case No, 3 Sa 82/21), the Regional Labour Court of Schleswig-Holstein clarified that claims to payment in lieu of leave which already accrued at the time the settlement is reached will normally be covered by an agreed financial settlement clause.

Facts of the case

In the case in question, an employee, whose employment had been terminated, sought the payment in lieu of leave (the existence of which was undisputed) after an action for protection against unfair dismissal resulted in a court-led settlement agreement. The plaintiff’s employment was terminated at the end of May 2020, effective at the end of June 2020. During the settlement negotia-tions in July 2020, the Parties agreed that the employment relationship fin-ished at the end of June 2020 – per the termination date. At the same time, the Parties agreed that with the performance of the settlement, “all claims from one party against the other arising out of or in connection with the employ-ment relationship” will be settled (so-called financial settlement clause). In addition, the Parties agreed that the monthly gross salary for June 2020 had to be properly calculated and paid. No specific rules were agreed for leave. The Employee, therefore, argued that he was still owed payment in lieu of the leave days that were not taken because the payment of the leave days formed part of his salary. The Employer refused to pay based on the financial settlement clause.

The judgement

The Regional Court of Schleswig-Holstein followed the Employer’s arguments. With the effective end of the employment relationship, the right to leave transforms into a claim to payment in lieu, as the possibility to grant leave extinguishes at this point. As the claim for payment accrued before the settle-ment agreement was concluded, the claim for payment in lieu of leave would be covered by the broadly interpreted financial settlement clause.

Practical consequences

The judgment should be welcomed. It provides legal certainty for a situation that frequently arises: the parties agree that the employment relationship terminated at a time in the past and the Employee still has untaken leave entitlements. In line with the agreed final settlement, the employer should be able to trust that the financial settlement clause will also cover all claims to payment in lieu of leave – already accrued. The clarification provided by the Regional Court of Schleswig-Holstein is that the claim to payment in lieu of leave could not, by nature, be part of the gross salary. The obligation to properly calculate the final salary in line with payroll accounting principles, therefore, did not apply.

When concluding a settlement agreement, you should therefore pay close attention to whether the agreed end date is in the past or the future. Care should be taken, particularly in the latter case, as possible claims for payment in lieu of leave might still arise. Under the judgment, a financial settlement clause will generally not cover such claims (see judgment of the Regional Court of Rhineland Palatinate of 28 April 2015 in Case No 8 Sa 580/14). In such cases, the employer and the employee should agree on the underlying facts and that the employee took their leave in natura.

Jonas Türkis