Ruling restricts paid leave for short-time workers

Two workers who went to the European Court of Justice over the non-payment of annual leave have lost their case. The pair had been employed by German firm Kaiser GmbH, but were made redundant during restructuring in 2009. The works council, however, agreed that the pair should be put on contracts as ‘zero hours short-time workers’ for a year, meaning they could still claim a salary. However, the workers said they should also receive compensation for unpaid annual leave.

About the ruling

The European Court of Justice (ECJ) has ruled on a case brought after two workers were dismissed, and then given extended employment contracts as ‘zero hours short-time workers’. This meant the employees did not have to work, but could receive a financial allowance from Germany’s Federal Employment Agency (BA).

The dispute came about at the end of the year, when the two workers claimed compensation for unpaid annual leave, which the employer, Kaiser GmbH, refused to pay.

After a hearing in November 2012, the ECJ ruled in favour of Bavarian firm Kaiser, a subcontracting company in the automobile industry.

Details of dispute

The ruling concerned joined cases Alexander Heimann (C-229/11) and C-230/11 and Konstantin Toltschin (C-230/11) v Kaiser GmbH. Mr Heimann and Mr Toltschin had been employed by Kaiser from 2003 and 1998, respectively. In 2009, Kaiser decided to reduce its staff and these two workers were among those made redundant – Heimann on 30 June 2009 and Toltschin on 31 August 2009.

In May 2009, Kaiser and its works council agreed to a social plan. This provided for the extension of the employment contracts of dismissed workers for one year, while suspending, by the application of ‘zero hours short-time working’ (Kurzarbeit Null), the worker’s obligation to work and the employer’s obligation to pay a salary. The purpose of this extension was to give the workers the opportunity of receiving, for the year following their dismissal, a financial allowance from the BA. This allowance, calculated and paid by the employer, replaced the salary of the two workers for the duration of the short-time working.

When Mr Heimann’s employment relationship came to an end, he claimed financial compensation for 15 and 10 days of paid annual leave not taken in 2009 and 2010 respectively. Mr Toltschin claimed financial compensation for 10 and 30 days of paid annual leave not taken in 2009 and 2010 respectively. However, Kaiser contended that, during the period of Kurzarbeit Null, the applicants did not acquire any rights to paid annual leave.

What the European Court of Justice had to consider

Germany’s Federal Labour Court (BAG) decided to refer the case to the ECJ, asking it two questions.

  • Should Article 31(2) of the Charter of Fundamental Rights of the European Union and Article 7 of the Working Time Directive (2003/88/EC) be interpreted as precluding national legislation or practice according to which, if there is a reduction in the days to be worked each week as a result of a lawful order specifying short-time working, the entitlement to paid annual leave of a worker on short-time working is adjusted pro rata and, as a result, during the period of short-time working, does the short-time worker accrue a correspondingly reduced entitlement to annual leave?
  • If so, must these legal instruments be interpreted as precluding national legislation and practice according to which, if the number of days to be worked each week is reduced to zero, the entitlement to paid annual leave of a worker on short-time working is adjusted pro rata to nothing and, as a result, during the period of ‘zero hours short-time working’, the short-time worker does not accrue any entitlement to annual leave?’

Court’s response

The ECJ considered relevant previous case law, noting that the entitlement of every worker to paid annual leave must be regarded as a particularly important principle of European Union social law and that the right to paid annual leave may not be interpreted restrictively. It referred to case law regarding paid leave and sick leave, which does preclude national legislation and practices.

Nevertheless, the ECJ reasoned that the situation of a worker unable to work as a result of an illness, and that of a worker on short-time working, were fundamentally different.

Firstly, in this case, the short-time working was based on an agreed social plan providing for the suspension, on the basis of the short-time working, of the reciprocal obligations of the employee and the employer as regards work and salary.

Secondly, the worker on short-time working was free to rest or undertake leisure activities. Accordingly, they were in a situation different from that resulting from an inability to work due to illness.

Thirdly, the ECJ reasoned that the aim of the social plan was to delay the workers’ dismissal for financial reasons and thus reduce the negative impact of the dismissal. The ruling stated:

Linking the benefit of that advantage granted to the worker by national law to the employer’s obligation to pay for paid annual leave during the period of the formal extension, for purely social reasons, of the employment contract, would be liable to make the employer reluctant to agree to such a social plan and, consequently, deprive the worker of its positive effects.

The ruling

The ECJ found that the situation of these workers was more akin to that of part-time workers, and for whom there is case law providing a right to pro-rata entitlements.

The ECJ therefore ruled on 8 November 2012 that Article 31(2) of the Charter of Fundamental Rights of the European Union and Article 7(1) of the Working Time Directive must be interpreted as meaning that they do not preclude national legislation or practice, such as a social plan agreed between an undertaking and its works council, under which the paid annual leave of a worker on short-time working is calculated according to the rule of pro rata temporis [in proportion to the length of time involved].

This judgement means that employers will be able to place employees on this type of zero-hours short-time working and not be liable to pay for holidays.

Employees who accept a zero-hours agreement essentially become part-time workers and are therefore subject to the EU pro rata temporis rules of determining annual leave.

Andrea Broughton, Institute for Employment Studies

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