No waiver of statutory holiday entitlements

Settlements as a compromise in labour court proceedings

Many proceedings before the labour courts do not end with a judgment, but by way of a court settlement - i.e. an amicable agreement between the parties. As part of such a settlement, the employer and employee can generally decide to a large extent which conditions they would like to agree on in relation to various aspects of the employment relationship and its termination. This may, for example, relate to the amount of a severance payment or the specific date of termination of the employment relationship.

Higher Labour Court of Cologne sets clear limits to the content of a settlement (of facts) 

The Higher Labour Court (LAG) of Cologne has now decided where the limits of such a settlement are with regard to statutory holiday entitlements (judgment of 11 April 2024 – 7 Sa 516/23). The parties were in dispute concerning the settlement of holiday entitlements as part of court settlement negotiations. During the legal dispute, the plaintiff repeatedly argued that the statutory minimum holiday entitlement could not be effectively waived. Nevertheless, as part of the court settlement, the employer and employee agreed in particular that the employment relationship ends on 30 April 2023 for operational reasons and that the holiday entitlements had already been granted in kind. This settlement was finalised by the court on 31 March 2023. Until the termination date, the plaintiff was undisputedly no longer able to take his (remaining) holiday due to his continued inability to work. In addition, the parties agreed a settlement clause ("The parties agree that there are no further claims against each other arising from and in connection with the employment relationship, regardless of the legal basis, beyond the claims regulated here."). In July 2023, the employee then filed a claim for compensation of his remaining holiday entitlement.

A settlement of facts - as is often chosen in the context of labour law – presupposes that an existing uncertainty about the actual conditions of a claim is to be resolved by mutual concession. There must therefore be uncertainty as to whether a claim exists at all or in the respective amount. On the other hand, circumstances that are completely undisputed between the parties cannot become the effective content of a settlement of facts that grants less than the undisputed claim.

Holidays are for relaxation – one cannot do without this

In accordance with Section 13 (1) sentence 3 of the German Federal Leave Act (Bundesurlaubsgesetz – BurlG), the provisions of the BUrlG cannot be deviated from to the detriment of the employee by means of individual contractual provisions, with the exception of provisions on the consecutive granting of leave. Accordingly, every employee is entitled to a statutory minimum holiday, Sections 1, 3 BUrlG. A standard 5-day week results in a statutory holiday entitlement of 20 working days per year. Part-time work can lead to a corresponding reduction in the statutory holiday entitlement, provided that the reduction in working hours is also accompanied by a reduction in the number of weekly working days. The protective purpose of this statutory holiday entitlement is to release the employee from the obligation to work for a certain period of the year in order to give them the opportunity for self-determined recovery.

Eligibility for protection ends only at the end of the employment relationship

It is certainly questionable whether something else can apply if the end of the employment relationship has already been determined – along the lines that there is then no longer any need for recovery from work.

In cases in which holiday can no longer be taken in full or in part due to termination of the employment relationship, it must be compensated financially, Section 7 (4) BUrlG. This entitlement to compensation must be fulfilled as a purely monetary claim even if the employee is permanently incapacitated for work up to the time of termination and can therefore no longer be released from the obligation to work for recovery purposes with continued payment of wages. During an ongoing employment relationship, however, there can be no entitlement to holiday compensation, nor can it be effectively waived due to the protective purpose of the imperative nature of statutory holiday. In the opinion of the Higher Labour Court of Cologne, this also applies if the end of an employment relationship has already been bindingly determined due to a restrictive agreement.

A legal provision that runs counter to the statutory minimum holiday entitlement or its compensation before the termination of the employment relationship has occurred is therefore invalid pursuant to Section 13 (1) sentence 3 BUrlG in conjunction with Section 134 German Civil Code (Bürgerliches Gesetzbuch – BGB). This is in line with the case law of the European Court of Justice, which derives the employee's special need for protection when taking holiday from their structurally weaker position. Thus, the employee could be deterred from asserting his rights against his employer due to his weaker position, as he could otherwise expose himself to the risk of the employer taking measures that could have a detrimental effect on the employment relationship. This need for protection only ends with the termination of the employment relationship itself, but not if the end of the contractual relationship is only certain for the future. In the present case, the employer was also unable to claim that it would be contrary to good faith (Section 242 BGB) if the employee invoked the invalidity of the agreed settlement clause. The Higher Labour Court of Cologne made it clear that a party is only acting in breach of good faith if a situation of trust has arisen to this effect that the other party would later no longer assert the invalidity of its declarations. This was not the case in the present case, as the plaintiff's legal representative had made it clear during the settlement negotiations that the plaintiff was of the opinion – also with regard to the settlement – that the statutory holiday entitlement could not be effectively waived. Consequently, the employee is entitled to compensation for his remaining holiday.

Conclusion and practical advice

In summary, it should therefore be noted that the statutory minimum holiday entitlement is mandatory and cannot be waived, at least not during the ongoing employment relationship. In the event of a mutual agreement on the compensation of holiday, a distinction should therefore always be made between statutory and contractual holiday entitlements. In the context of a settlement, which at the same time is intended to regulate the end of the employment relationship for the future, undisputed minimum holiday entitlements cannot be waived.

Since the judgment is not legally binding, it remains to be seen how the Federal Labour Court (file no. 9 AZR 104/24) will position itself in this regard. Employers should already differentiate between statutory and non-statutory, contractual holiday entitlements in the employment contract. This is because regarding contractual additional leave, it can already be agreed in the employment contract that this is not to be compensated upon termination of the employment relationship. The same applies in this respect to out-of-court and court settlements.