Very recently, the European Court of Justice (ECJ) held that an automatic forfeiture of vacation entitlements or vacation compensation entitlements without prior notification of the employee contravenes EU law. The German Federal Labor Court (Bundesarbeitsgericht, BAG) now has joined this case law in its decision of February 19, 2019. This requires employers to take action.

What Happened?

The German Federal Vacation Act (Bundesurlaubsgesetz, BUrlG) provides that vacation has to be approved and taken in the current calendar year. The employee is meant to actually take the vacation and enjoy a rest.

Case law accordingly held that any untaken vacation was generally forfeited at the end of the calendar year unless there were statutory reasons for a transfer to the next calendar year. If, in the event of such transfer reason, the vacation was not taken in the subsequent first three calendar months, it expired without any obligation on the part of the employer to pay compensation in lieu.

Federal Labor Court Joins ECJ Case Law

Very recently, the ECJ held that such automatic forfeiture of vacation entitlements or vacation compensation entitlements without prior notification of the employee contravenes EU law.

The German Federal Labor Court now has joined this case law. The court held in its decision of February 19, 2019 that a loss of the vacation entitlement was only justified if the employee has waived the right to take vacation voluntarily and in full knowledge of the consequences that may ensue. This will require employers to inform the employee of the outstanding vacation entitlement and the consequences of forfeiture.

To-Do’s for Employers

Including a provision on forfeiture in the employment contract will not do. An additional annual reminder to all employees and a corresponding note in the employee handbook or the vacation policy, if any, are good options. As so often, documentation is key because in case of a dispute the employer will have to prove that the reminder has been received by the employee.

Companies are well advised to remind employees no later than at the beginning of November of each vacation year to take their (remaining) vacation and to expressly point out that any outstanding vacation entitlement is forfeited otherwise. HR will need to implement a workflow to that end to make sure outstanding vacation is forfeited if not taken before April 1 of the following year.