Employees’ rights to holiday are governed by the Federal Holiday with Pay Act (Bundesurlaubsgesetz) in Germany. Pursuant to this Act, employees who work six days per week are entitled to an annual minimum paid vacation of 24 working days. Employees with a five-day working week are entitled to a pro-rata vacation of 20 working days. Nevertheless, most companies grant a higher vacation entitlement, which normally varies between 25 and 30 days per year. Employees can claim their full vacation entitlement if the employment relationship has existed for a minimum of six months during the applicable vacation year. In case of a shorter employment term during the vacation year, the proportionate vacation entitlement is 1/12 for each full month of employment.

Generally, any untaken holiday entitlement is forfeited at the end of each vacation year. However, if any part of the statutory minimum holiday entitlement could not be claimed for business or sickness reasons, the employee is entitled to use this part during the first three months of the next calendar year (i.e. until 31 March). An exception applies for on-going sickness: According to the European Court of Justice, holiday entitlement  is not forfeited for a period 15 months after the respective vacation year if the employee was unable to take his holiday by the end of the vacation year and/or the subsequent three-months period due to on-going sickness.

If there is any remaining holiday entitlement at the end of the employment relationship, the employer has to compensate the employee in cash. German Courts have, however, consistently held that such compensation entitlement does not exist if the employment relationship was brought to an end due to the employee’s death. This case-law was very recently overturned by the European Court of Justice (Judgment of 2 June 2014, case C‑118/13), who considered that a forfeiture of holiday entitlement upon the employee’s death was a violation of the European directive on working time no. 2003/88. Accordingly, the employee’s legal successors can now claim financial compensation for any untaken holidays.

What can employers do to limit holiday entitlement? Nothing, as far as the statutory minimum holiday is concerned. However, an employer can include a provision for forfeiture of any untaken additional holiday entitlement at the end of the vacation year (even in the event of sickness) in an employment contract – this option, at least, allows for a reduction of holiday entitlement that could potentially be accrued in case of sickness.