Decision of the Federal Labour Court and legal basis
The BAG ruled that the employee’s statutory vacation entitlement had not lapsed due to the settlement and awarded the emplyoee compensation for seven vacation days.
In its press release published to date, the BAG referred to Sec. 13 para. 1 sent. 3 of the German Federal Vacation Act (so called Bundesurlaubsgesetz, BUrlG), which stipulates that the provisions of the Federal Vacation Act are largely mandatory. As a result, an employee's entitlement to statutory minimum vacation — or vacation compensation — may not be waived or restricted in advance.
However, the court acknowledged that a so-called settlement of facts (Tatsachenvergleich) may still be valid despite this rule, if there is uncertainty as to the existence or extent of the vacation entitlement, and the parties choose to settle based on that uncertainty (Sec. 779 of the German Civil Code, so called Bürgerliches Gesetzbuch, BGB).
In the present case, such uncertainty did not exist, as the employee had been continuously unable to work since the beginning of the year. As a result, the existence and the extent of the vacation entitlement was clear so that the clause in the settlement cannot be qualified as a settlement of facts. Accordingly, the clause was held to be invalid.
The employer’s argument — that the employee was acting inconsistently by now challenging a settlement he had agreed to — was also rejected by the BAG. The BAG emphasized that the employer could not rely on the validity of a clause that was obviously unlawful.
Implications for practice
In practice, clauses stating that “all vacation entitlements have been granted in natura” are common in termination agreements and judicial settlements. However, the BAG’s decision underlines the need for caution.
If there is no dispute between the employer and employee regarding the scope of vacation entitlement, and no exceptional case of legal uncertainty, a settlement of facts on the vacation entitlement is unlikely to withstand judicial review.
Therefore, when drafting and negotiating termination agreements or settlements, it is advisable to verify in advance whether any outstanding vacation entitlement remains — for example, due to prior illness — that cannot be offset through release from work during the notice period. If so, the employer could try to adjust any severance payment accordingly.
By contrast, after the employment relationship has ended, employees may validly waive any (potential) claim for vacation compensation — including by means of a general settlement clause (so called allgemeine Ausgleichsklausel). In this case, however, the settlement was reached prior to the termination of the employment relationship.
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Lucas Mühlenhoff und Dr. Kathrin Pietras
[2] Federal Labour Court (BAG), judgment of 14 May 2013 – 9 AZR 844/11, published in NZA 2013, p. 1098.
