Allowance in lieu of annual leave not taken upon the termination of employment contract

In November 2018, the Court of Justice of the European Union (CJEU) issued judgments in cases C-619/16 and C-684/16, in which it ruled that the employee cannot lose automatically the acquired right to paid annual leave upon the termination of employment contract only because he did not apply for taking leave. The employee loses the right to paid annual leave and allowance only if he actually had the chance to take annual leave.

The decision of the CJEU is important, as it has a direct impact also on the rights of Slovenian employees to allowance in lieu of annual leave not taken upon the termination of employment relationship. As follows from the judgments in the cases mentioned, in accordance with EU law the right to paid annual shall be deemed as the fundamental social right of employees as laid down in Article 31(2) of the Charter of Fundamental Rights of the European Union. Moreover, the right to annual leave under Slovenian labour legislation shall be construed in accordance with the European legal regulation, whereby the same applies to the right to allowance in lieu of annual leave not taken.

The right to allowance in lieu of annual leave not taken is regulated in Article 164 of the Employment Relationship Act (ZDR‑1), which stipulates that the employee cannot waive the right to annual leave and that the agreement in which the employee and the employer would agree on allowance in lieu of annual leave not taken is invalid. The only exception concerns cases where the employment relationship was terminated, and thus such agreement is permitted exceptionally.

The existing case law of Slovenian courts has stressed that the employee is entitled to allowance in lieu of annual leave not taken only if by the expiry of the employment contract he was unable to take annual leave t for objective reasons. According to the case law of the Supreme Court of the Republic of Slovenia, it is crucial in this context whether the employee actually had the possibility to exercise his right to annual leave or he lost this possibility due to unpredictable events. It was thus requested that the employee could not have predicted the cause due to which he was not able to take annual leave before the termination of employment relationship. In accordance with the case law of Slovenian courts, the employee was entitled to allowance in lieu of annual leave not taken if prior to the termination of employment contract he was for instance absent from work due to sick leave.

However, in the judgments mentioned above, the CJEU was deciding on the question for preliminary ruling of the German courts, more precisely whether the EU law precludes national legislation which stipulates the loss of paid annual leave not taken and allowance in lieu of this leave if the employee fails to apply for leave prior to the termination of employment relationship.

Since the right to paid annual leave is a fundamental social right of the employee, as explained above, the CJEU ruled in relation thereto that EU law precludes the regulation pursuant to which the employee automatically loses the right to paid annual leave and thereby also the right to allowance in lieu of leave not taken only because he failed to apply for leave prior to the termination of employment relationship. In accordance with the position of the CJEU, these rights expire only if the employee was properly instructed by the employer in relation thereto and actually able to take annual leave timely. The burden of proof in relation thereto is borne by the employer.

In both judgments, the CJEU further stressed that the employee shall be deemed as the weaker party in the employment relationship, therefore it is necessary to prevent the employer from having the possibility to limit his rights. Namely, on account of that position of weakness, the employee could be dissuaded from explicitly claiming his rights vis-à-vis the employer, since doing so might have exposed him to measures taken by the employer likely to affect the employment relationship in a manner detrimental to that employee.

However, irrespective of the above, the CJEU stressed that the employee loses the right to paid annual leave and allowance if he actually had the chance to take annual leave. In practice, this means that the employee deliberately failed to exercise the right to paid annual leave in full knowledge of the consequences of such non-exercise, although the employer enabled him to exercise paid annual leave. Only in such case the EU law does not preclude the regulation under which the employee loses the right to paid annual leave and consequently also to allowance.

In accordance with the above, we advise employers to monitor the status of their employees’ annual leaves (not) taken and urge prior to the expiry of employment relationship in particular those who are employed at them based on fixed-term employment contracts to take the annual leave not taken during the term of employment contract. The same applies to those employees whose employment relationship will terminate after the expiry of the notice period pursuant to the termination of employment contract already given. In this context, it is crucial that the employer actually enables the employee to take annual leave otherwise it is obliged to pay him an allowance in lieu of annual leave not taken.