Federal Labor Court (BAG) ruling: Vacation is only time-barred after notice from the employer

Whether and when vacation becomes time-barred is a question that can of course also be of burning interest to employers: After all, whether their own employees are still entitled to vacation or not can become relevant above all if an employee leaves the company and in this context asserts claims for vacation compensation.

In this respect, the question of whether and, if so, when vacation claims can become time-barred is a matter of legal certainty for employers, but also of hard cash. For this reason in particular, the landmark ruling of the Federal Labor Court ( (Bundesarbeitsgericht – BAG, ruling dated December 20, 2022, ref.: 9 AZR 266/20) was long awaited as a landmark ruling.

Do vacation entitlements expire? German law and European law

The fact that vacation entitlements can expire is in itself clearly regulated in German law. According to the Federal Vacation Act (BUrlG), vacation from a calendar year expires at the end of the calendar year for which it exists, but no later than March 31 of the following year.

However, the approach under European law is different: the right to paid annual leave is regulated in Art. 31 Par. 2 of the Charter of Fundamental Rights and is thus very high in terms of European law. The Working Time Directive RL 2003/88/EC also contains concrete provisions on this issue, and of course the ECJ has also dealt with the topic in numerous decisions. This case law could not be ignored by the Federal Labor Court (Bundesarbeitsgericht – BAG): as early as 2019, in a ruling, it created an obligation to inform and clarify with regard to the possibility of the statute of limitations for vacation claims against employees and thus drove a first stake into the ground on this topic.

Even then, the court ruled that vacation entitlements under the BUrlG can only expire if the employer points out this possibility.

Have employers in the past – even before the ruling of the BAG 2019! – not informed employees of the possibility of forfeiture, vacation entitlements do not expire. Employees can then claim “old vacation” – if they have left the company in the meantime, they can demand compensation for vacation in cash.

Limitation of compensation claims as a solution for employers?

But can employees really assert vacation entitlements for an unlimited period of time – and thus possibly also vacation compensation claims? Doesn’t the so-called regular statute of limitations help employers at least three years after the end of the respective vacation year, so that (former) employees can at least only assert claims for a maximum of three years?

However, this very question had not been clarified by the highest German labor court until now and has now been clarified in the case currently decided by the BAG following a corresponding decision under European law by the ECJ.

The case before the BAG

An assistant tax consultant left her employer’s office after more than 20 years. In the years from 2013 onwards, she had apparently accumulated a number of vacation days which she was unable to take. The employer had not informed the employee that vacation entitlements could expire if the vacation was not taken. When she left the employment relationship, she demanded compensation for the vacation she had not taken. The employer had compensated 14 days of vacation. However, it was not possible to agree on compensation for a further 101 days of vacation not taken.

So the labor courts had to decide. The labor court only recognized compensation claims for 2017 – i.e. for the year in which the employee left the company. The competent regional labor court was different: the older claims were not time-barred either – the employer also had to pay compensation for vacation days further back in time, after all 17,376.64 euros gross.

However, the ex-employer did not agree to this. Thus, the BAG had to decide.

BAG decision: Statute of limitations only or only if the employer gives notice.

In principle, a vacation entitlement can also become time-barred according to the BGB. However, vacation is only subject to the statute of limitations if companies have informed their employees that their vacation entitlement may expire if it is not taken (on time). If the employer does not point this out to employees, employers cannot invoke the regular three-year statute of limitations under the BGB, even for older vacation claims. If the notice was not given, employees still have a vacation entitlement years later, no matter how long ago the year from which the entitlement originated.

The court did not accept the employer’s argument that at that time – 2017 and earlier – a duty to notify had not yet been ruled on. In principle, therefore, the claims to vacation or, in this case, to vacation compensation existed.

The BAG had submitted this question to the ECJ for clarification, with the following result: It is true that a statute of limitations for vacation claims would lead to more legal certainty for employers. However, employers cannot rely on this if they do not allow their employees to actually take their vacation in advance. A statute of limitations under German law for vacation claims for employees who have not been informed would therefore be out of the question.

The consequence of this, according to the BAG, is now: The ordinary limitation period for vacation claims does not begin until the end of the calendar year in which the employer informs his employee(s) that he is entitled to vacation and that it expires if it is not taken and the person nevertheless voluntarily does not take the vacation.

Without such notice, employees’ vacation entitlements and also former employees’ vacation compensation entitlements are not subject to the statute of limitations.

BAG ruling: No legal certainty for employers

Unfortunately, the BAG ruling does not provide the desired legal certainty for employers with regard to financial obligations that may arise from claims to vacation and vacation compensation – in case of doubt from several years! – can arise.

In this context, employers must bear in mind that

• In the event of a dispute, they may have to prove that they gave the claimant notice of the statute of limitations or that they had already fulfilled the vacation entitlement. If this proof is not successful, employees are entitled to vacation or vacation compensation in case of doubt.
• Even if a company has done everything correctly since 2019 (ruling of the BAG on the duty to notify!) and can also prove this (including documentation of the notification), employees can claim compensation for older vacation entitlements that date from a time before the duty to notify was first confirmed by the BAG in 2018/2019.