Hidden HR Risk: Why Unused Vacation May Not Expire – and What Employers Must Do

Recent case law from the European and German courts has significantly reshaped employers’ responsibilities regarding statutory annual leave. Our German member firm, Keller Menz, reviews what these developments mean for employers and HR professionals in Germany. 

The key points covered in this article are: 

• Employers must inform employees about their statutory annual leave entitlements 

• Employees should be encouraged to take leave to prevent unused leave claims from accumulating 

• Unused statutory leave generally will not expire unless the employer fulfils their notification and cooperation obligations 

• Proper leave management is critical to avoid financial risks, especially upon termination of employment 

• Distinctions between statutory leave and contractual leave above the minimum must be clearly defined in employment contracts 

Employer obligations on statutory leave: what you need to know 

Updated case law from the European and German courts has considerably reshaped statutory annual leave responsibilities for employers. 

In particular, decisions by the Court of Justice of the European Union (CJEU) dated 6 November 2018 and 22 September 2022 – C-684/16 and C-120/21 – and the German Federal Labour Court (BAG) dated 20 December 2022 – 9 AZR 266/20– highlight that employers must take an active role in ensuring employees actually take their annual leave. 

Legal framework and previous understanding 

Under the German Federal Leave Act (Bundesurlaubsgesetz – BUrlG), statutory annual leave must generally be taken in the current calendar year and may only be carried over to the next year under specific conditions and, if carried over, typically expires by 31 March of the following year. 

Until recently, it was widely assumed that unused leave claims were subject to the regular statutory limitation period and would therefore lapse three years after the end of the year in which the entitlement arose. 

The shift from passive to active employer duties 

Traditionally, taking annual leave was considered the employee’s responsibility since annual leave is generally granted only upon the employee’s request.

However, according to recent case law, employers are required to actively inform employees about their leave entitlements and encourage them to take time off in due course.

Clear information and timely notice

According to the principles established by the cited court decisions, employers are required to regularly and transparently  

• inform employees of their specific annual leave entitlement, 

• urge them to take their leave in good time and 

• inform them that the annual leave will otherwise expire. 

No automatic expiry without employer action

Unused statutory leave will generally not expire at the end of the year or the end of the carry-over period unless the employer has fulfilled its information and cooperation obligations.

Courts have underlined that this is not a mere formality but requires employers to implement practical processes that genuinely enable employees to take their leave in time.

Implications for HR

Failure to comply may expose employers to significant financial risks, especially upon termination of employment, when unused leave must be financially compensated.

For HR, this means that managing annual leave involves consistent monitoring and reliable documentation to ensure that entitlements are correctly handled.

Contractual leave above the statutory minimum

It is important to note that different rules may apply to contractual leave exceeding the statutory minimum entitlement. German employers often grant additional annual leave beyond the minimum required by law.

With respect to this contractual leave, deviating provisions may be agreed upon, particularly regarding expiry, provided these are clearly drafted and distinguishable from statutory annual leave.

How we can support you

We support employers in designing compliant annual leave regulations, implementing effective notification processes, and reviewing employment contracts to clearly distinguish between statutory and contractual leave entitlements. This helps ensure legal certainty while minimizing the risk of unintended leave accruals and potential financial exposure. 

For further information or to discuss any of the issues raised, please contact Jessica Civale (jessica.civale@keller-menz.de) on +49 (0) 89 2422300. 

How CELIA Alliance can help

We are dedicated to helping international businesses make the most of their people. As a non-exclusive alliance, CELIA members are also retained by other professional services firms (including some of the world’s 100 largest law firms) to deliver the expert services expected by their clients.

Please feel free to contact us or one of our member firms for more information.