Holiday entitlement and its expiry or limitation: what about it again?

Earlier, we informed you that employers should be proactive about taking holidays. With the summer holidays approaching and following recent case law on the subject, we would like to bring this to your attention again.

Statutory holidays lapse and are time-barred

Under the law, the entitlement to the minimum number of holiday days lapses six months after the last day of the calendar year, in which the entitlement was acquired. However, this lapse does not occur if the employee was not reasonably able to take holidays. The latter is particularly the case in cases of complete incapacity for work, with no possibilities of reintegration. The intention of the law is, on the one hand, to encourage employees to actually take the minimum number of holidays in the year in which they were accrued and, on the other, to prevent leave accumulation.

Statutory holidays not taken within six months of the end of the calendar year thus expire, except when the employee could not take them. On this exception, the European Court ruled in Max Planck v Shimizu that while it is the employee’s responsibility to take his holidays on time, the employer must ensure concretely and transparently that the employee actually has the possibility to take his paid annual leave. If necessary, the employer must formally encourage the employee to do so. The employer must also inform the employee of the lapse of days in a clear and timely manner. The employer bears the burden of proving that it has fulfilled that obligation. If the employer has not complied with that obligation, it is not entitled to invoke the expiry period and the holidays therefore remain part of the total balance of holidays.

The difference between expiry and limitation of holidays is that an employee can interrupt a limitation period (the limitation period then starts running again). This is not possible with an expiry period. The law provides that holidays that have not (because of the exception), expired, are time-barred five years after the last day of the calendar year in which the entitlement arose. Questions have arisen in the literature and case law as to whether this is consistent with European law. The outcome is that the provision on holidays and their prescription are two aspects of the same right (right to holidays and right to payment during holidays), which rights derive from the European directive in this area. This means that the employee is entitled to continued payment of salary during the holidays taken and that any action by the employer, which could prevent an employee from taking holidays, is incompatible with the purpose of the right to paid annual leave. Based on the MaxPlanck v Shimizu judgment (see above), a limitation period can only be applied if the employer actually gave the employee the opportunity to take paid leave and informed the employee in a timely and clear manner about the possible forfeiture of days.

With regard to the limitation period, it was deduced from the King judgment of the European Court that a limitation period, where the limitation period already starts during the employment, is not allowed. In the King judgment, the European Court stressed the importance of the right to paid leave as a particularly important principle of Union social law. In this wording, no limitation can be read as regards the limitation period. This means that prescription of statutory holiday days can only start after termination of employment and our national regulation is thus contrary to the European directive, the European Court ruled.

Invoking the limitation period

Based on the European Court’s Willmeroth judgment, it must be assumed that an employee can invoke the European directive through the Charter, even if his claim is directed to a private employer. The consequence of disapplying the national provision on limitation, is that an employer’s reliance on the limitation period for statutory holidays can be rejected. The limitation period then only starts to run after the termination of employment, so an employee can claim payment of statutory holiday days within five years of the end of employment.

Tips for practice:

Ensure that employees actually have the opportunity to take paid annual leave.
If necessary, formally commit employees to take holidays. For example, by agreeing on a holiday plan.
Point out the expiry of holidays to employees in good time (e.g. every January).
Although the above European Court case law relates to statutory holidays and member states may treat supervisory holiday entitlements differently from statutory ones, we recommend doing the same in respect of supervisory holidays.