Heirs of Deceased Employees Are Entitled to Payment of Unused Annual Leave
Heirs of deceased employee are entitled to payment of unused annual leave
On 12 June 2014 the Court of Justice of the European Union held that an heir of a deceased employee is entitled to have unused annual leave paid by the employer or former employer.
Right to payment of unused annual leave upon termination of employment contract
Article 7 of the EC Directive 2003/88 concerning certain aspects of the organisation of working time (the “Directive”) determines that the Member States must implement measures to ensure that employees are entitled to (paid) annual leave of at least four weeks per year. This minimum period cannot be replaced with financial compensation, except in the case of the termination of the employment contract.
The Directive has been implemented in Dutch legislation; Article 7:641(1) Dutch Civil Code determines that an employee is entitled to payment of unused annual leave at the end of his or her employment contract.
Is this right inheritable? Are the heirs of the deceased employee, therefore, also entitled to claim payment of this unused annual leave, if the employment contract is terminated by virtue of the death of the employee? This was an issue that had not yet been determined in Dutch case law.
On the one hand, the opinion prevailed that the heirs of the deceased employee were not entitled to this payment. The attitude was that the right to reimbursement of annual leave – initially – was created as a result of the termination of the employment contract. In the event the employment contract is terminated due to the death of the employee, this right can no longer be created; after all, the employee is no longer alive. Accordingly, the right itself cannot be inherited. At least, this is the reasoning of the Sub-district Divisional Court in Assen, the Netherlands (Kantonrechter Assen) in 2009 (http://deeplink.rechtspraak.nl/uitspraak?id=ECLI:NL:RBASS:2009:BK3558, in Dutch).
On the other hand, the right to payment of annual leave exists regardless of the manner in which the employment contract is terminated. The starting point is after all that annual leave is not a favour, but instead a right that the employee has acquired by virtue of his or her work. This right would therefore also be inheritable in accordance with the rules of inheritance law. This was the reasoning of the Sub-district divisional court in Amersfoort, the Netherlands (Kantonrechter Amersfoort) in 2007 (http://deeplink.rechtspraak.nl/uitspraak?id=ECLI:NL:RBUTR:2007:BL5496, in Dutch), the Sub-district Divisional Court in Heerenveen, the Netherlands (Kantonrechter Heerenveen) in 2011 (http://deeplink.rechtspraak.nl/uitspraak?id=ECLI:NL:RBLEE:2011:BR0011, in Dutch), and the Sub-district Divisional Court in Assen, the Netherlands (Kantonrechter Assen) in 2012 (http://deeplink.rechtspraak.nl/uitspraak?id=ECLI:NL:RBASS:2012:BX3587, in Dutch).
Furthermore, a different conclusion would lead to the employer benefitting from the death of the employee, which cannot be the intention.
Judgment of Court of Justice of EU of 12 June 2014 brings clarity
Facts and legal procedure
In the first instance procedure, which formed the basis for the case at hand, a German widow claimed that she was entitled to reimbursement of the unused annual leave of her deceased spouse. The widow claimed that the former employer should pay 140.5 days of unpaid annual leave. The employer refused to pay the annual leave because there was no inheritable right.
The German first instance judge agreed with the employer and decided that no right existed to financial compensation for days of annual leave that had not be used prior to the termination of the employment contract, if the employment relationship ended as a result of the death of the employee.
The widow appealed the decision, and the judge referred preliminary questions to the Court of Justice of the European Union concerning Article 7 of the Directive. Does this article entail that Member States may not utilise national laws or customs that determine that a right to annual leave lapses without the right to financial compensation for unused days of annual leave, due to that fact the employment contract was terminated because of the death of the employee? If so, is the person concerned required to request that such compensation is received or is this unnecessary?
Court of Justice of the European Union
The Court of Justice answered the first question affirmatively. The right to annual leave and the right to payment of annual leave as mentioned in Article 7 of the Directive form two aspects of the essential principle of social rights of the Union. This right may not be interpreted restrictively, according to the Court. Article 7(2) of the Directive states that the creation of the right to financial compensation is not conditional on any other requirements than that the employment contract has been terminated and that the employee has not utilised all the annual leave to which he or she is entitled prior to the termination of the contract.
The Court continued that financial compensation upon the termination of the employment relationship by virtue of the death of the employee is furthermore necessary to ensure the useful effect of the right to annual paid leave:
“Indeed, if the obligation to pay annual leave were to cease with the end of the employment relationship because of the worker’s death, the consequence of that circumstance would be an unintended occurrence, beyond the control of both the worker and the employer, retroactively leading to a total loss of the entitlement to paid annual leave itself, as affirmed in Article 7 of Directive 2003/88. For all those reasons, that provision of Directive 2003/88 cannot therefore be interpreted as meaning that that entitlement may be lost because of the worker’s death.”
The question whether the heirs are required to request the employer of the deceased employee, the Court answered in the negative and reasons:
“[t]hat entitlement may be lost because of the worker’s death. Moreover, since Article 7(2) of Directive 2003/88 does not impose any condition for entitlement to an allowance in lieu other than that relating to the fact that the employment relationship has ended, it must be held that receipt of such an allowance should not be make subject to the existence of a prior application for that purpose.”
The Court held that the Directive ensures the right to repayment of unused annual leave does not cease upon the death of the employee. The right to compensation arises by operation of law and may not be dependent upon a prior request by the person concerned. Although the case law in the Netherlands previously displayed a mixed picture, it would appear that the decision will provide certainty in the future.
Click here for the decision of the Court of Justice of the European Union of 12 June 2014.