Currently, the trend in working life increasingly favours ‘leisure before pay’. This means workers often want longer leave, for example to go on world trips or to fulfill other dreams that are not feasible during the working day. But when they do so, they also do without part of their salary. A sabbatical (contractually agreed special leave) makes this possible in principle. But employers are usually sceptical about it, not least because of the financial burdens caused by the temporary absence of a member of the workforce. Recent case law of the Federal Labour Court (‘BAG’) has now provided some assistance by at least relieving the employer of the burden of honouring ongoing leave entitlements.
What is it all about?
As with the ‘block model’ of early retirement (where employees reduce their salary in the years leading up to early retirement then receive the amount saved when they retire), sabbaticals raise the question of whether new entitlement to annual leave is generated during the sabbatical; whether ‘holidays during holidays’ need to be granted. There are further question marks over the actual payment date for the holiday pay the employee acquired by doing extra work in the so-called ‘saving phase’ before they take special leave. The BAG has finally decided both questions on 18 September 2018 and 19 March 2019, eliminating uncertainty for employers.
Saved holiday pay should only be paid out during the leave phase
The background to the 18 September 2018 BAG decision (9 AZR 159/18) was a sabbatical agreement according to which an employee was granted reduced compensation both ‘during the saving phase and during the sabbatical year’. Here the BAG considered this to be a deferral of the pay out date of the additional (work and holiday) remuneration acquired during the savings phase until the leave phase. Consequently, during the saving phase, the worker would only receive remuneration that corresponded to the part-time rate over the entire duration of the agreement. Since the agreement did not differentiate between pay and holiday pay received by the employee, this also applied to holiday pay entitlement.
In the same way as an employee who takes the block model of early retirement, an employee works full time at a part-time rate to make advance payments in anticipation of the subsequent leave phase and only receives the corresponding compensation during the leave.
No holiday entitlement during a sabbatical
In its judgment of 19 March 2019 (9 AZR 315/17), the ninth Senate of the BAG significantly shifted case law on the accrual of holiday entitlement during a suspended employment relationship.
Legally, the amount of the minimum holiday entitlement (within the meaning of section 3(1) of the Federal Vacation Act, Bundesurlaubgesetz ‘BUrlG’) is determined by the distribution of work over the week. For example, you are entitled to 24 days’ holiday for a six-day week and statutory minimum holiday of 20 days for a five-day week. Logically this means that no holiday entitlement should arise if a worker does not work at all because of agreed special leave in a calendar year. The BAG has now reached the same conclusion. From the current press release (the full judgment is not yet published), the BAG now takes into account the fact that the contracting parties temporarily suspend their main performance obligations when calculating the duration of leave. In short: without the duty to work there is no entitlement to holiday!
As recently as 2014, the ninth Senate ruled that holiday entitlement continued to accrue during a suspended employment relationship (BAG, judgment of 06.05.2014 – 9 AZR 678/12 ). The legally defined calculation to establish holiday entitlement (as described above) has not yet been implemented for cases of special leave. Since 19 March 2019, however, a reduction of holidays outside the legally regulated cases (such as the possibility of a reduction during parental leave, under section 17 (1) sentence 1 of the Federal Parental Allowance and Parental Leave Act , Bundeselterngeld und Elternzeitgesetz, ‘BEEG’) is possible if there is a temporary exemption from the obligation to work, and there is a separate agreement between the employee and the employer.
In addition to the agreement relating to sabbaticals, this should also include the block model of early retirement, so that during the ‘passive’ phase of early retirement, during which there is no obligation to work, no holiday entitlement can arise (LAG Dusseldorf, judgment of 13 July 2018 – 6 Sa 272/18 ; revision by the BAG pending under the reference: 9 AZR 481/18).
The new conclusions of the ninth Senate are convincing in every respect. The savings phase and the additional work and holiday pay received during this period serve to finance the leave phase. Consequently, the date for payment must be moved to the leave phase. This ensures that the employee receives holiday pay equal to the amount he or she would have received if work had been performed.
As a consequence, holiday entitlement cannot accrue and holiday pay claims can no longer arise in the leave phase, since these would be added to the holiday pay claims already incurred in the saving phase and later due. In this case, the remuneration received from work and holiday entitlements would no longer be equal to the pay the employee would have acquired without taking the leave. This would also mean other part-time workers would be treated unequally. With its change in practice, the BAG has revived the intention behind holiday: that is, to recuperate from work.