Accrual and settlement of vacation entitlements - Vacation entitlement in the case of dual employment relationships
Written By
Dr. Catharina Klumpp, LL.M.
Partner
Germany
As a partner in our International HR Services Practice Group, my ambition is to provide pragmatic advice that solves our clients' issues and allows them to achieve their goals. My particular focus is on international technology-strong businesses. In addition to my daily practice I am a member of the German Management Team.
The case law of the Federal Leave Court and the European Court of Justice has not made it easy for employers in recent years, with stricter regulations on the expiry of leave entitlements or increased requirements due to employers' obligations to provide information. Fortunately, the Federal Labor Court has now confirmed some basic principles of vacation law in a new decision. We are taking this as an opportunity to take another look at some of the basic features of German vacation law:
The Federal Leave Act grants a statutory minimum leave entitlement of 20 days per calendar year (20 days based on a five-day week, 24 days based on a six-day week). Unlike in many other countries, this leave is not accrued on a month-by-month basis, but -after completion of an initial six months waiting period- the employee is entitled to the full annual vacation entitlement at the beginning of the respective calendar year. A pro rata vacation entitlement only exists in special cases, namely if the employment relationship has not yet existed for six months (ie during the said waiting period where entitlements will accrue by 1/12 for each month), if the employment relationship begins in the second half of a calendar year or if the employment relationship ends in the first half of a calendar year.
If an employment relationship ends after completion of the six months waiting period in the first half of a calendar year, the employee will have the full annual entitlement from the beginning of the calendar year. Particularly in the case of short notice periods, it is therefore possible that an employee first has the full annual entitlement at the beginning of the calendar year, then terminates the employment within the first half of the calendar year so that he has already taken more vacation days than he or she is entitled to under a pro-rata calculation. On the other hand, it is of course also possible that the employee has only taken less than the vacation days to which they are actually entitled on a pro rata basis. In the first case, reimbursement or financial compensation of the "too many" vacation days taken is excluded. Conversely, employees who leave the company in the first half of a calendar year and have taken less than the vacation days to which they are proportionately entitled to are not entitled to compensation for the "too few" vacation days.
In both cases, the law is based on the principle that the statutory vacation entitlement must be granted (and taken) in the calendar year, even across employers: According to Section 6 (1) German Federal Leave Act, an entitlement to vacation is excluded to the extent that vacation entitlements for the relevant calendar year have already been granted by a previous employer. In practice, this can be verified via a vacation certificate in which the employer certifies to the departing employee how many vacation days have already been granted to the employee in the respective calendar year. This certificate is also effective vis-à-vis a future employer so that any leave granted by the previous employer will be taken into account so that no more than the statutory annual leave entitlement is to be granted in total. There is no provision for financial compensation between employers.
The Federal Labor Court has now dealt with precisely this issue in the aforementioned decision for the special situation of a dual employment relationship:
The employment relationship of an employee was terminated without notice. The employee filed an unfair dismissal claim and established a new employment relationship with another employer. A court subsequently ruled that the termination was invalid, with the consequence that the employment relationship with the “old” employer had never been terminated but legally existed without interruption. The parties are now in dispute over claims for vacation compensation under the “old” employment relationship.
The established ineffectiveness of the termination initially has the consequence that the employee has acquired vacation entitlements in both employment relationships at the same time, regardless of the fact that the employee was unable to fulfill the obligations from both employment relationships at the same time. If the very fact that the employee has entered into a new employment relationship were to prevent the accrual of leave entitlements in the old employment relationship, the employee alone would bear the risk of non-fulfilment of the leave entitlement. This is not compatible with the values of the Federal Leave Act. However, such a double entitlement would put a dismissed employee in a better position with regard to vacation entitlements than an employee who has not been dismissed.
Even if, according to the court's findings, the cited provision under Section 6 German Federal Leave Act does not apply to the present case of a dual employment relationship, the court comes to a comparable conclusion with an analogous application of Section 11 KSchG and Section 615 sentence 2 BGB:
In order to avoid the duplication of vacation entitlements and the resulting better position of the terminated employee, the vacation granted by the new employer must be offset against the vacation entitlements against the original employer. However, as statutory leave is granted for the relevant calendar year, such offsetting can only take place for the relevant calendar year.
The annual nature of the vacation entitlement has already been confirmed by the BAG in previous decisions: The purpose of tying leave to the calendar year is to ensure that the purpose of the leave is fulfilled in every year. Just as it is not permissible to grant leave in anticipation of the next leave year, excess leave granted in the previous year cannot be offset against the leave entitlement for the following year. Accordingly, according to the Federal Labor Court, the leave received in the new employment relationship cannot be offset against the leave entitlements against the original employer by way of an overall calculation based on the period in which both employment relationships existed, but only in relation to the calendar year.
If an employment relationship ends after completion of the six months waiting period in the first half of a calendar year, the employee will have the full annual entitlement from the beginning of the calendar year. Particularly in the case of short notice periods, it is therefore possible that an employee first has the full annual entitlement at the beginning of the calendar year, then terminates the employment within the first half of the calendar year so that he has already taken more vacation days than he or she is entitled to under a pro-rata calculation. On the other hand, it is of course also possible that the employee has only taken less than the vacation days to which they are actually entitled on a pro rata basis. In the first case, reimbursement or financial compensation of the "too many" vacation days taken is excluded. Conversely, employees who leave the company in the first half of a calendar year and have taken less than the vacation days to which they are proportionately entitled to are not entitled to compensation for the "too few" vacation days.
In both cases, the law is based on the principle that the statutory vacation entitlement must be granted (and taken) in the calendar year, even across employers: According to Section 6 (1) German Federal Leave Act, an entitlement to vacation is excluded to the extent that vacation entitlements for the relevant calendar year have already been granted by a previous employer. In practice, this can be verified via a vacation certificate in which the employer certifies to the departing employee how many vacation days have already been granted to the employee in the respective calendar year. This certificate is also effective vis-à-vis a future employer so that any leave granted by the previous employer will be taken into account so that no more than the statutory annual leave entitlement is to be granted in total. There is no provision for financial compensation between employers.
The Federal Labor Court has now dealt with precisely this issue in the aforementioned decision for the special situation of a dual employment relationship:
The employment relationship of an employee was terminated without notice. The employee filed an unfair dismissal claim and established a new employment relationship with another employer. A court subsequently ruled that the termination was invalid, with the consequence that the employment relationship with the “old” employer had never been terminated but legally existed without interruption. The parties are now in dispute over claims for vacation compensation under the “old” employment relationship.
The established ineffectiveness of the termination initially has the consequence that the employee has acquired vacation entitlements in both employment relationships at the same time, regardless of the fact that the employee was unable to fulfill the obligations from both employment relationships at the same time. If the very fact that the employee has entered into a new employment relationship were to prevent the accrual of leave entitlements in the old employment relationship, the employee alone would bear the risk of non-fulfilment of the leave entitlement. This is not compatible with the values of the Federal Leave Act. However, such a double entitlement would put a dismissed employee in a better position with regard to vacation entitlements than an employee who has not been dismissed.
Even if, according to the court's findings, the cited provision under Section 6 German Federal Leave Act does not apply to the present case of a dual employment relationship, the court comes to a comparable conclusion with an analogous application of Section 11 KSchG and Section 615 sentence 2 BGB:
In order to avoid the duplication of vacation entitlements and the resulting better position of the terminated employee, the vacation granted by the new employer must be offset against the vacation entitlements against the original employer. However, as statutory leave is granted for the relevant calendar year, such offsetting can only take place for the relevant calendar year.
The annual nature of the vacation entitlement has already been confirmed by the BAG in previous decisions: The purpose of tying leave to the calendar year is to ensure that the purpose of the leave is fulfilled in every year. Just as it is not permissible to grant leave in anticipation of the next leave year, excess leave granted in the previous year cannot be offset against the leave entitlement for the following year. Accordingly, according to the Federal Labor Court, the leave received in the new employment relationship cannot be offset against the leave entitlements against the original employer by way of an overall calculation based on the period in which both employment relationships existed, but only in relation to the calendar year.
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