Limitation period for (payment in lieu of) leave entitlements despite employer’s failure to put the employee in a position to take their leave?

Judgment of the European Court of Justice of 22 September 2022 in case C-120/21

The calendar year is drawing to a close. For employers and employees, the focus moves to leave entitlements. How many days of leave are left? When do they have to be taken? What does the company have to do in this respect? The European Court of Justice (ECJ) has already clarified the legal situation in this area of law, e.g., in its judgment on the obligations of employers to enable employees to take their leave. The ECJ has now tightened its jurisprudence on this issue.

Facts of the case

After the termination of the employment relationship, the employee claimed payment in lieu of 101 days of leave that she had not taken during the five previous years. The employer refused to pay, claiming that the limitation period had expired. At first instance, the Labour Court held largely in favour of the employer. On appeal, the District Labour Court granted the employee payment in lieu of the leave because the employer had failed to fulfil its obligations and enable the employee to take her leave in each case. The Federal Labour Court stayed the proceedings and submitted the matter to the ECJ for a preliminary ruling on the question of whether the European rules on appropriate working conditions preclude the application of the German limitation periods where the employer fails to put the employee in a position to actually take their leave by informing them of their leave entitlements and inviting the employee to use them.

The judgment

The ECJ answered this question in the affirmative. The limitation periods established in the German Civil Code limit an employee’s right to paid annual leave under Article 7 of Directive 2003/88/EC and Article 31 (2) of the Charter of Fundamental Rights. The limitation periods pursue the employer’s legitimate objective of ensuring legal certainty. However, in the view of the Court, this interest will no longer be legitimate where the employer has failed to inform the employee of their leave entitlements and is therefore responsible for the fact that the employee has not taken their leave and is now making a retroactive request for (payment in lieu of) leave entitlements from such a long time ago. In such a situation, employers may not benefit from their reliance on the limitation periods. European law provisions, therefore, preclude reliance on the national limitation periods where they apply irrespective of whether the employer has actually put the employee in the position to take their leave by informing the employee about their leave entitlements.

Consequences for practice

The judgment again accentuates the effect of an employer’s failure to inform its workers of their leave entitlements. In such cases, employers cannot rely on limitation periods.

Practical tip

For many companies, the obligation imposed on employers by the ECJ case law to inform employees of their untaken leave entitlements is still a low priority. However, this judgment of the ECJ shows the wide-reaching (financial) consequences of the failure to comply with this obligation. Employers should therefore ensure without delay that they are complying with the obligations imposed by the ECJ with respect to informing employees of their leave entitlements and about the expiration of such entitlements. This obligation can be fulfilled, for example, by hanging a notice on a notice board about payroll processing or speaking to employees directly.

Regina Dietel