A recent German employment decision challenges the long standing practice that any outstanding annual leave entitlements on termination have already been granted, highlighting the importance of timing when negotiating settlements involving leave entitlements, an expert has said.
In a landmark decision, the German Federal Labor Court ruled that settlements which waive unused statutory annual leave entitlements are invalid if the employment relationship is still ongoing.
Under German law, any leave that has not been granted by the end of the employment relationship must be compensated for financially. Therefore, it has been common practice to compensate any outstanding annual leave claims during the notice period by irrevocably releasing the employee until the termination date. Both parties would then agree that all annual leave has already been granted.
“However, the Federal Labor Court has now made it clear that this approach is no longer permissible while the employment relationship is still ongoing,” said Gamze Radovic, an employment law expert at Pinsent Masons.
The dispute here centred around compensation for seven days of statutory leave from 2023. The initial legal proceedings followed the employer’s decision to dismiss the employee. The employee had been unable to work due to illness since the start of 2023 and therefore could not take his statutory annual leave. In March 2023, the parties concluded a court settlement ending the employment relationship and agreeing...
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