EELC Academic Board Insight: Annual leave

Annual leave issues, and the interpretation of Article 7 of Directive 2003/88/EC (the Working Time Directive), continue to come before the CJEU which, on 22 September 2022, delivered two decisions: Case C-518/20, XP – v – Fraport AG and Case C-120/21, TO – v – LB ECLI:EU:C:2022:718. In this Insight, attention will be paid to the latter decision given its impact upon national procedural rules providing time limits for the bringing of proceedings.

Here, the worker, upon termination of her employment in July 2017, sought payment of an allowance in lieu of untaken annual leave that had accumulated since 2013. The employer refused, contending that the claim was time-barred, and proceedings came before the Arbeitsgericht. This resulted in an award of three days’ pay for leave not taken in 2017, with the remainder of the worker’s claim being dismissed.

On appeal, the Landesarbeitsgericht ordered the employer to pay an allowance in lieu of 76 days of leave not taken in the years 2013 to 2016; an award amounting to €17,376.64. The court did not accept the employer’s submission that it could not have been aware of, and therefore could not have complied with, obligations “to provide information and encouragement” because the case law of the Bundesarbeitsgericht had only changed in February 2019. The court held that, in light of the requirements of EU law, the worker’s leave entitlement could neither have expired nor been time-barred because the employer had not given the worker the opportunity to take her leave.

The employer brought an appeal on a point of law before the Bundesarbeitsgericht. Two “limitation periods” were involved: first, that contained in para. 7(3) of the Bundesurlaubsgesetz (BUrlG), namely that leave must be taken during the calendar year or in the first three months of the following year; and, secondly, that contained in para. 195 of the Buergerliches Gesetzbuch (BGB), namely three years.

The Bundesarbeitsgericht were satisfied, on the basis of the CJEU decisions in Case C-619/16, Kreuziger and Case C-684/16, Max-Planck, that the worker’s entitlement to paid annual leave for the years 2013 to 2016 had not expired under the BUrlG because the employer had failed to encourage the worker to take her leave and had failed to inform her, accurately and in good time, that, if she did not take it, that leave would be lost at the end of the year or the carry-over period.

Whether the claim was time-barred under the BGB was less straightforward because the court recognised that the CJEU has accepted, in accordance with the principle of procedural autonomy, the application of limitation periods provided that the principles of equivalence and effectiveness were respected: see Joined Cases C-776/19 to C-782/19, BNP Paribas. Accordingly, the court decided to stay the proceedings and, on 29 September 2020, referred to the CJEU the question of whether Article 7 of the Working Time Directive precluded the application of national legislation under which the entitlement to paid annual leave is subject to a limitation period of three years “if the employer has not actually enabled a worker to exercise his or her leave entitlement by accordingly informing him or her of the leave and inviting him or her to take that leave”.

The hearing took place on 24 March 2022. Neither party appeared before or made submissions to the CJEU, although observations were made by the German Government and by the European Commission. Germany submitted that there were fundamental differences between the two limitation periods in that the one imposed by the BGB was “a requirement of the rule of law in that it contributes to the maintenance of order and legal certainty”.

It is the case, as Lord Macauley recognised two centuries ago, that the principle of legal certainty has been found in every part of the world and in every civilised age:

“Go to countries which never heard of Justinian and into which no translation of the Pandects has ever found its way and there you will find the principle recognised and established.”

Consequently, in general terms, it must be considered compatible with EU law for Member States, in the interests of legal certainty, to lay down reasonable time limits for bringing proceedings provided, of course, that the principles of equivalence and effectiveness are respected.

The Advocate General, however and notwithstanding that a three-year limitation period appeared to be reasonable, was of the opinion that the principle of effectiveness was not respected. A limitation period was only compatible with that principle if the worker has had the opportunity to become aware of his or her rights before the period begins to run or expires. It followed that the application of a limitation period “must be subject to prior verification that the employer has in fact given the worker the opportunity to exercise his or her right to paid annual leave”. The Advocate General emphasised that an employer’s obligations to provide “encouragement and information” were justified by the fact that “the worker must be regarded as the weaker party in the employment relationship and that he or she may therefore be dissuaded from explicitly claiming his or her rights vis-à-vis his or her employer”. See the Opinion of Advocate General de la Tour delivered 5 May 2022 (ECLI:EU:C:2022:367).

The CJEU (Sixth Chamber) agreed and confirmed that the loss of the right to paid annual leave could only occur if the worker had actually had the opportunity to exercise that right in good time. The CJEU could not accept that, “under the pretext of ensuring legal certainty”, an employer might rely on its own non-compliance in pleading that the right was time-barred. To accept that an employer might rely on the limitation period in respect of a worker’s entitlement without actually having put that worker in a position to exercise it “would amount to validating conduct by which an employer was unjustly enriched, to the detriment of the very purpose of having due regard for workers’ health”.

Consequently, the CJEU ruled that, where an employer has not actually put a worker in a position to exercise his or her right to paid annual leave acquired in respect of a given reference period, the application of the limitation period in the BGB to the exercise of that right went beyond what was necessary to attain the objective of legal certainty.

The reasoning of the Bundesarbeitsgericht that the limitation period in the BUrlG did not apply is replicated in the subsequent decision of the English Court of Appeal in Pimlico Plumbers Ltd – v – Smith (No. 2) [2022] EWCA Civ 70. In this case, the court held that, although domestic legislation could provide for the loss of the right to paid annual leave at the end of each leave year, to lose it the worker must actually have had the opportunity to exercise that right. The court added that, in light of CJEU case law (such as Max-Planck and Kreuziger), a worker could only lose the right if the employer could meet the burden of showing that it had “specifically and transparently” given the worker the opportunity to take paid annual leave, encouraged the worker to take that leave and informed the worker that the right would be lost at the end of the leave year. If the employer could not meet that burden, the right did not lapse but carried over and accumulated until termination of the employment relationship.

Anthony Kerr
UCD Sutherland School of Law