In KHS AG v Schulte the European Court of Justice (“ECJ”) has held that the EU Working Time Directive does not require unlimited accumulation of annual leave by a worker on sick leave for several years. However, whether a ‘carry-over period’, after which untaken annual leave expires, complies with the Directive will depend on whether it can be reasonably described as a period beyond which annual leave ceases to constitute a rest period and is simply a period of relaxation and leisure.
Mr Schulte worked as a locksmith for KHS AG until, in 2002, he had a heart attack, which left him unable to work. He then received an invalidity pension until the end of the employment relationship in 2008. In 2009 he lodged a claim at the Dortmund Labour Court for payment in lieu of untaken annual leave for 2006, 2007 and 2008. The Court allowed his claim in respect of the 20 days per year he was entitled to under EU law and the five days he was entitled to under German law due to his disability. KHS appealed to the Higher Labour Court, which pointed out that annual leave for 2006 was lost due to the expiry of a 15 month carry-over period under national law. The Court made a reference to the ECJ asking whether a national rule setting down a carry-over period, which excluded entitlement to paid annual leave, was contrary to the Working Time Directive.
The ECJ noted that it had stated in two key previous cases that the decision whether to lay down a carry-over period falls within the competence of Member States – provided that a worker has the opportunity to exercise his right to paid annual leave. However, the ECJ considered that this conclusion must be qualified in circumstances such as the instant case to prevent unlimited accumulation of paid annual leave while on sick leave. A right to unlimited accumulation would no longer reflect the purposes of paid annual leave – to provide a worker with a period of rest from his or her usual work as well as a period of relaxation and leisure. Although previous cases stated that the positive health and safety effects of annual leave remain even if the leave is taken after the year in which it is accrued, annual leave only provides a rest from work up to a certain time limit. Beyond this, the annual leave ceases to provide a rest period and is simply a period of relaxation and leisure.
Whether a national carry-over period complies with the Directive will depend on whether it can be reasonably described as a period beyond which annual leave ceases to have the effect of a rest period. The ECJ stated that a carry-over period must be substantially longer than the reference period for the leave year, and must ensure that a worker can have rest periods that may be staggered, planned in advance, and available in the longer term. A carry-over period should also protect employers from the accumulation of very long periods of absence. In the instant case, the Court held that a carry-over period of 15 months was not contrary to the purpose of the right to paid annual leave, as it ensured that annual leave retained its positive effect as a rest period.
This case is good news for employers as it puts a limit on how long a worker can claim for holiday pay once they have left the employment of their employer. However, it does not bring certainty to the matter as the Court declined to state an exact limit, such as 18 months or two years.
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