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Document 62010CC0214
Opinion of Advocate General Trstenjak delivered on 7 July 2011. # KHS AG v Winfried Schulte. # Reference for a preliminary ruling: Landesarbeitsgericht Hamm - Germany. # Organisation of working time - Directive 2003/88/EC - Right to paid annual leave - Lapse of right to paid annual leave not taken because of illness on the expiry of a period laid down by national rules. # Case C-214/10.
Opinion of Advocate General Trstenjak delivered on 7 July 2011.
KHS AG v Winfried Schulte.
Reference for a preliminary ruling: Landesarbeitsgericht Hamm - Germany.
Organisation of working time - Directive 2003/88/EC - Right to paid annual leave - Lapse of right to paid annual leave not taken because of illness on the expiry of a period laid down by national rules.
Case C-214/10.
Opinion of Advocate General Trstenjak delivered on 7 July 2011.
KHS AG v Winfried Schulte.
Reference for a preliminary ruling: Landesarbeitsgericht Hamm - Germany.
Organisation of working time - Directive 2003/88/EC - Right to paid annual leave - Lapse of right to paid annual leave not taken because of illness on the expiry of a period laid down by national rules.
Case C-214/10.
European Court Reports 2011 -00000
ECLI identifier: ECLI:EU:C:2011:465
OPINION OF ADVOCATE GENERAL
TRSTENJAK
delivered on 7 July 2011 (1)
Case C‑214/10
KHS AG
v
Winfried Schulte
(Reference for a preliminary ruling from the Landesarbeitsgerichts Hamm (Germany))
(Working conditions – Organisation of working time – Article 7 of Directive 2003/88/EC – Entitlement to paid annual leave – Allowance in lieu of paid annual leave not taken at the time of termination of the employment relationship – Loss of entitlement to paid annual leave not taken because of illness after expiry of a time-limit set under national legislation)
Table of contents
I – Introduction
II – Legal framework
A – EU law
B – National law
III – Facts, main proceedings and questions referred
IV – Proceedings before the Court
V – Main arguments of the parties
VI – Legal assessment
A – General
B – The questions referred in detail
1. The key points of the case-law stemming from the judgment in Schultz-Hoff and Others
2. The question whether the meaning and purpose of Article 7 of Directive 2003/88 requires the accumulation of entitlements to leave and allowances in lieu
a) Arguments in favour of an accumulation of entitlements
b) Arguments against an accumulation of entitlements
i) Need for entitlement to be exercised within a short period
ii) No obvious increase in the recuperative effect
iii) Disadvantages for the economic and social integration of the worker
– Risks to the integration of the worker in the work process
– Risk to the maintenance of the employment relationship
iv) Risk of placing organisational and financial burdens on small and medium‑sized undertakings
v) Risk of changing the nature of the entitlement to an allowance in lieu of annual leave
c) Preliminary conclusion
3. Compatibility of a time-limit on the carrying-over of entitlements to paid annual leave and allowances in lieu with EU law
a) The judgment in Schultz-Hoff and Others as the point of departure
b) The temporal limitation of the carry-over period
c) Discretion of the Member States in setting a time-limit
d) Preliminary conclusion
4. Final remarks
VII – Conclusion
I – Introduction
1. In this reference for a preliminary ruling under Article 267 TFEU the Landesarbeitsgericht Hamm (Higher Labour Court, Hamm (Germany), ‘the court of reference’) puts two questions to the Court of Justice on the interpretation of Article 7 of Directive 2003/88/EC of the European Parliament and of the Council of 4 November 2003 concerning certain aspects of the organisation of working time. (2)
2. These questions arise in a dispute between Mr Schulte, a former employee classified as completely unfit for work as a result of serious illness, and his former employer, the company KHS AG (‘KHS’), about the financial payment in lieu of leave that he had not taken because of his illness. By its reference for a preliminary ruling, the court of reference essentially asks whether European Union law, as interpreted by the Court of Justice in its case-law, allows workers to accumulate entitlement to allowances in lieu of leave over several years, even where a worker – as a result of long-term incapacity for work – was not in a position to avail himself of his right to paid annual leave.
3. The Court is now asked to elaborate on its case-law on the relationship between annual leave and sick leave that had its origins in the judgment in the Schultz-Hoff and Stringer cases (3) and, if necessary, to define the limits of the right to paid annual leave enshrined in EU law and its counterpart, the right to an allowance in lieu of leave where the employment relationship has been terminated, taking into account the way in which the interests of the employee and the employer are to be reconciled.
II – Legal framework
A – EU law (4)
4. Article 1 of Directive 2003/88 provides as follows:
‘Purpose and scope
1. This Directive lays down minimum safety and health requirements for the organisation of working time.
2. This Directive applies to:
(a) minimum periods of … annual leave …
…’
5. Article 7 of that directive reads as follows:
‘Annual leave
1. Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice.
2. The minimum period of paid annual leave may not be replaced by an allowance in lieu, except where the employment relationship is terminated.’
6. Article 17 of Directive 2003/88 allows Member States to derogate from certain provisions of the directive. No derogation is allowed with regard to Article 7 of the directive.
B – National law
7. The Bundesurlaubsgesetz (Federal Law on leave) (BUrlG) of 8 January 1963, in the version of 7 May 2002, provides as follows in Paragraph 1 (‘Entitlement to leave’):
‘Every worker shall be entitled to paid recuperative leave in each calendar year’.
8. Paragraph 3 of the BUrlG (‘Duration of leave’) provides as follows in subparagraph 1:
‘Leave shall amount to at least 24 working days each year’.
9. Paragraph 7 of the BUrlG (‘Timing, carrying-over and allowances in lieu of leave’) provides as follows in subparagraphs 3 and 4:
3. ‘Leave must be authorised and taken in the current year. Carrying-over of leave to the next calendar year shall be permitted only if justified on imperative operational grounds or reasons connected to the worker himself. If leave is carried over it must be authorised and taken during the first three months of the following calendar year.
4. If, because of the termination of the employment relationship, the leave cannot be authorised either wholly or in part, an allowance in lieu thereof shall be paid.’
10. Paragraph 13 of the BUrlG lays down that collective agreements may derogate from particular provisions of that law, including Paragraph 7(3), provided that this is not to the detriment of the employee.
11. The Einheitliche Manteltarifvertrag für die Metall- und Elektroindustrie Nordrhein-Westfalen of 18 December 2003 (Uniform General Collective Agreement of 18 December 2003 for the Metal and Electrical Industry in Nordrhein-Westfalen) (‘EMTV’) provides as follows in Paragraph 11 (‘The principles governing the granting of leave’):
‘1. Employees/apprentices have a right to paid leave in the course of each calendar year in accordance with the following provisions. The leave year shall be the calendar year.
Leave entitlement shall expire three months after the end of the calendar year, unless the worker unsuccessfully attempted to exercise that right or unless leave could not be taken for operational reasons.
If leave could not be taken because of illness, entitlement to leave shall expire 12 months after the end of the period referred to in subparagraph 2.
…
3. Payment in lieu of unused leave shall be allowed only in the event of termination of the employment/apprenticeship relationship.’
III – Facts, main proceedings and questions referred
12. According to information provided by the court of reference, the dispute between the parties in the main proceedings hinges on whether, after termination of the employment relationship, KHS owes Mr Schulte an allowance in lieu of leave for the years from 2006 to 2008.
13. Mr Schulte had been employed as a locksmith at KHS and its legal predecessor since April 1964. The EMTV had applied to his contract of employment. The entitlement to paid annual leave under the EMTV amounted to 30 days per annum.
14. On 23 January 2002 Mr Schulte suffered a heart attack. From 26 February to 16 April 2002 he underwent rehabilitation from which he was discharged as unfit for work. He has been severely disabled since 2002. From 1 October 2003 onwards Mr Schulte received a pension on the ground of full reduction of earning capacity and a disability pension, each for a limited term.
15. On 25 August 2008 the parties agreed to terminate the employment relationship with effect from 31 August 2008.
16. On 18 March 2009 Mr Schulte lodged a claim with the Arbeitsgericht (Labour Court), Dortmund, for payment in lieu of leave for the years 2006 to 2008 in respect of 35 days’ leave for each year, amounting to EUR 9 162.30 in total. In its judgment of 20 August 2009 the Arbeitsgericht awarded him a gross amount of EUR 6 544.50 and dismissed the remainder of the claim. The compensatory payment awarded by that decision is equivalent to the minimum statutory leave entitlement of 20 working days, in addition to entitlement to 5 working days on grounds of severe handicap for the years 2006 to 2008.
17. KHS appealed against that judgment to the court of reference. It argues that in any case the leave entitlements for 2006 and 2007 were extinguished under Paragraph 11(1)(3) of the EMTV owing to expiry of the carry-over period. It claims that it would be disproportionate if an employee who has fallen ill were to be granted all of his leave entitlement without account being taken of carry-over or limitation periods – of up to three years in the present case.
18. The court of reference finds that in the present case Mr Schulte’s leave entitlement for 2006 was extinguished on 3 March 2008 under Paragraph 11(1)(3) of the EMTV. Moreover, it points out that in Joined Cases C‑350/06 and C‑520/06 Schultz-Hoff and Others the Court of Justice ruled that the loss of entitlement to paid annual leave at the end of a leave year or of a carry-over period is consistent with Article 7(1) of Directive 2003/88, but only provided that the worker concerned has actually had the opportunity to exercise the right conferred on him by the directive. According to the judgment, that option is not available to a worker who is on sick leave for the whole leave year and beyond the carry-over period laid down by national law.
19. In the view of the court of reference, Mr Schulte not only had a full reduction of earning capacity but was also unfit for work on health grounds after the carry-over period and until the end of his employment relationship. He could therefore not exercise his right to paid annual leave until the end of his employment relationship, as the Court of Justice had held in Schultz-Hoff and Others.
20. The court of reference nevertheless doubts whether in a case such as the present one it must disregard the national legislation on the grounds of infringement of Article 7(1) of Directive 2003/88. Indeed, it considers that it is not bound by the fact that in the judgment in Schultz-Hoff and Others the Court also ruled on whether Article 7(1) of Directive 2003/88 grants workers on prolonged sick leave the possibility of accumulating leave entitlements without a time-limit. It points out that if that were so, the applicant in the main proceedings would be entitled to allowances in lieu of 60 days of leave; if he claimed leave for the entire period of his unfitness for work he would have been entitled to allowances in lieu of 140 days of leave.
21. The Landesarbeitsgericht Hamm decided to stay the proceedings pending a ruling from the Court of Justice on the following questions:
Is Article 7(1) of Directive 2003/88 to be interpreted as precluding national legislation and/or practices under which entitlement to minimum paid annual leave expires at the end of the reference period and/or carry-over period even in the case where the worker has been unfit for work over a prolonged period (and that prolonged period of unfitness for work has the result that that worker could have accumulated entitlement to minimum leave for several years if the possibility of carrying over such entitlement had not been limited in time)?
If that question is answered in the negative, must the possibility of carrying over leave entitlement exist for a period of at least 18 months?
IV – Proceedings before the Court
22. The order for reference dated 15 April 2010 was lodged with the Court Registry on 4 May 2010.
23. Written observations were submitted by KHS, the German and Danish Governments and the European Commission within the period laid down in Article 23 of the Statute of the Court of Justice.
24. In the exercise of its jurisdiction to order measures of organisation, the Court asked Mr Schulte and KHS to provide written answers to a number of questions on the facts, to which they responded within the period allotted.
25. At the hearing on 3 May 2011, oral argument was presented by the representatives of KHS, Mr Schulte, the German and Danish Governments and the Commission.
V – Main arguments of the parties
26. The submissions of the parties in the proceedings have much in common, as regards both the arguments and the forms of order sought.
27. All of the parties in the proceedings agree that the first question referred for a preliminary ruling should be answered in the negative. In essence, they suggest that the answer to the first question should be that Article 7 of Directive 2003/88 does not preclude national legislation and/or practices under which entitlement to paid annual leave or an allowance in lieu of leave that an employee has been unable to take because of prolonged illness lasting until termination of the employment relationship expires after a given period of time.
28. Both KHS and the German Government advocate limiting the carry-over period during which a worker can take his annual leave to 18 months, as Directive 2003/88 does not require the unlimited accumulation of leave entitlement. They rely in this regard on Article 9(1) of Convention No 132 of the International Labour Office (ILO) of 24 June 1970 concerning Annual Holidays with Pay (Revised) (‘Convention No 132’), which sets a time-limit of that length. In their view, this time-limit provides the protection that is the objective of Directive 2003/88 and at the same time satisfies the interests of employees and employers. They consider that the setting of a time-limit avoids difficulties for employers in the organisation of working time and also prevents their having to dismiss employees who have been ill for a prolonged period.
29. The Danish Government also favours an appropriate time-limit in order to prevent an unlimited accumulation of leave. In its view, the purpose of Directive 2003/88 to protect the safety and health of workers does not require that the full leave entitlement for several consecutive years be granted. Along with KHS, the Danish Government points to the financial burden which would otherwise fall on undertakings if an unlimited entitlement to allowances in lieu under Article 7(2) were granted. In contrast to KHS and the German Government, the Danish Government does not state a specific time-limit but instead cites the freedom of Member States to introduce measures.
30. According to the Commission, there is no evidence that when it adopted Directive 2003/88 the EU legislature intended to align the maximum carry-over period in cases of prolonged illness with the period of 18 months from the end of the leave year laid down in Convention No 132, and to that extent to harmonise national legislation and practices. Rather, the Commission holds that the setting of a maximum carry-over period falls within the jurisdiction of the Member States, which must lay down the means of applying Article 7 of Directive 2003/88. This time-limit must, however, be such that the objectives of the directive are attained. An 18-month time-limit is, in the Commission’s view, compatible with the directive. The Commission points out that these remarks also apply to the allowance in lieu under Article 7(2), particularly as this is a secondary, ancillary compensation for the primary entitlement to annual leave and hence exists only to the extent that a leave entitlement can be derived from this provision.
31. In his remarks at the oral hearing, Mr Schulte stated that although he sought an allowance in lieu of the leave that he had been unable to take between 2006 and 2008 he wished to make it clear that according to his legal interpretation as well entitlement to annual leave, like any entitlement, could not be granted without limitation. In that regard he referred to German law, which provided for leave entitlement to expire after three years. Relying on this rule, he accepted the power of the national courts hearing the main proceedings to reduce the claimed entitlement to an allowance in lieu in certain circumstances. In its statement of defence KHS disputed these remarks on German law and contested the legal power of national courts to reduce the entitlements in question of their own motion.
32. Mr Schulte proposes that the answer to the questions referred should be that it is for the Member States to determine in their national legislation precisely when a worker’s annual leave entitlements should expire but that in any case a minimum carry-over period of eighteen months should be laid down.
VI – Legal assessment
A – General
33. By its questions referred for a preliminary ruling, which will be dealt with together below, the court of reference asks in essence whether the principles of case-law established by the Court in the judgment in Schultz-Hoff and Others on the interpretation of Article 7 of Directive 2003/88 are also applicable where a worker is on sick leave for several years until the termination of the employment relationship. Those questions are therefore intended essentially to clarify whether in the case of a worker suffering prolonged illness EU law requires the possibility of accumulating entitlements to annual leave or allowances in lieu or whether instead it permits the Member States to set a time-limit for the use of those entitlements.
34. In order to answer this question it is necessary to interpret Article 7 of Directive 2003/88 in the light of the case-law of the Court on the relationship between entitlement to annual leave granted under EU law on the one hand and sick leave on the other. The essential parameters of this case-law – and in particular the judgment mentioned above – must first be examined and its consequences for the question at issue here investigated.
35. First of all, a number of remarks to clarify the matter under examination are in order. According to their wording, the two questions relate to the entitlement to paid annual leave under Article 7(1) of Directive 2003/88, although it is clear from the order for reference that the court of reference actually seeks enlightenment about the scope of the entitlement to an allowance in lieu of paid annual leave under Article 7(2) of Directive 2003/88, particularly as the dispute in the main proceedings relates only to the allowance which Mr Schulte now claims after termination of the employment relationship. Despite this, I consider it appropriate to tackle the questions referred directly and to commence my examination with the entitlement to paid annual leave itself under Article 7(1). This approach is supported by the fact that the latter entitlement is deemed to be the primary right, whereas the right to an allowance in lieu of leave is to be regarded as a secondary right, as it is to be granted only if the paid annual leave to which the worker is entitled cannot be taken owing to the termination of the employment relationship. (5) In addition, the entitlement to an allowance in lieu is to some extent subordinate to the entitlement to paid annual leave, as can be seen, inter alia, from the fact that in the view of the Court the worker’s normal remuneration, which is that which must be maintained during the rest period corresponding to the paid annual leave, is also decisive as regards the calculation of the allowance in lieu of annual leave not taken by the end of the employment relationship. (6) The conclusions to be drawn from the interpretation of Article 7(1) of Directive 2003/88 will therefore necessarily have repercussions on the interpretation of Article 7(2).
B – The questions referred in detail
1. The key points of the case-law stemming from the judgment in Schultz-Hoff and Others
36. As I stated in my introduction, I shall first consider the conclusions to be drawn from the judgment in Schultz-Hoff and Others regarding limitation of the period for using acquired entitlements to paid annual leave or allowances in lieu.
37. At the outset, it is necessary to refer to paragraphs 22 to 25 of the judgment in Schultz-Hoff and Others, in which the Court emphasised the importance which the case law attributes to the entitlement to paid annual leave. It is settled case-law that it must be regarded as being a particularly important principle of EU social law from which there can be no derogations and the implementation of which by the competent national authorities must be confined within the limits expressly laid down by Directive 2003/88 itself. (7) By enshrining the right to paid annual leave in secondary legislation, the EU legislature sought to make certain that, in all Member States, a worker would actually enjoy periods of rest, ‘with a view to ensuring effective protection of his health and safety’. (8) As the Court has stated in its case-law, the purpose of the entitlement to paid annual leave is to enable the worker to rest and to enjoy a period of relaxation and leisure. (9)
38. In paragraph 43 of the judgment in Schultz-Hoff and Others the Court found, inter alia, that Article 7(1) of Directive 2003/88 does not, in principle, preclude national legislation which lays down conditions for the exercise of the right to paid annual leave expressly conferred by the directive, ‘including even the loss of that right at the end of a leave year or of a carry-over period’. In other words, in the view of the Court the Member States are, as a rule, free to provide in their legal orders that a worker’s entitlement to paid annual leave can be taken only within a set period and expires at the end of that period. The Court referred specifically to the power of the Member States to set a carry-over period within which a worker who has been prevented from taking his annual leave by the end of the leave year is to be given an additional opportunity to benefit from that leave. The Court justified its conclusions essentially on the ground that ‘the laying down of such a period forms part of the conditions for the exercise and implementation of the right to paid annual leave and therefore falls, as a rule, within the competence of the Member States. (10) Accordingly, Directive 2003/88 as a rule permits the extinction of the entitlement to paid annual leave.
39. It is important to note, however, that the Court makes the power of the Member States to provide for the extinction of the entitlement to paid annual leave subject to an essential condition, namely that the worker who has lost his right to paid annual leave ‘has actually had the opportunity to exercise the right conferred on him by the directive’. (11)
40. The Court held that that condition was not met in the case that led to the judgment in Schultz-Hoff and Others. In that case there was a carry-over period of only six months. (12) In view of the circumstances of that case, the Court stated that ‘a worker, who is on sick leave for the whole leave year and beyond the carry‑over period laid down by national law, is denied any period giving the opportunity to benefit from his paid annual leave’. (13) The Court’s reasoning is clearly shaped by the notion that the widest possible practical effectiveness should be given to the right to paid annual leave enshrined in EU law, the implementation of which may not be obstructed by national law. It relies on two fundamental lines of argument, which I shall describe briefly below.
41. First, it relied on the fact that sick leave is granted solely to enable the worker to recover (14) .and that while he is ill he is usually unable to take his entitlement to paid annual leave. As the Court stated in paragraph 45 of the judgment, to accept that, in the specific circumstances of incapacity for work described in the previous paragraph, the relevant provisions of national law, and in particular those laying down the carry-over period, can provide for the loss of the worker’s right to paid annual leave guaranteed by Article 7(1) of Directive 2003/88, without the worker actually having the opportunity to exercise the right conferred on him by that directive, would mean that those provisions undermined the social right directly conferred by Article 7 of the directive on every worker.
42. Secondly, in paragraph 48 of that judgment the Court stated that just as the Member States cannot preclude the existence of the right to paid annual leave, they cannot provide for the loss of that right in a situation such as that of the applicant in the main proceedings, who was on sick leave for the whole leave year and carry-over period. This line of argument rests on the case-law of the Court pursuant to the BECTU judgment, (15) according to which, ‘although they are free to lay down, in their domestic legislation, conditions for the exercise and implementation of the right to paid annual leave, ... Member States are not entitled to make the existence of that right, which derives directly from Directive 93/104, subject to any preconditions whatsoever’.
43. The Court therefore regards the question of the transferability of leave entitlement over time as a condition of implementation, the legislation on which falls within the jurisdiction of the Member States. This jurisdiction is limited, however, where the chosen form of regulation impinges on the effectiveness of the entitlement to paid annual leave in that the attainment of the purpose of the leave entitlement is no longer guaranteed.
44. On the basis of the above considerations, the Court then concluded in paragraph 49 of the judgment that Article 7(1) of Directive 2003/88 must be interpreted as meaning that it precludes national legislation or practices which provide that the right to paid annual leave is extinguished at the end of the leave year and/or of a carry-over period laid down by national law even where the worker has been on sick leave for the whole leave year and where his incapacity for work persisted until the end of his employment relationship, which was the reason why he could not exercise his right to paid annual leave.
45. In paragraph 62 of the judgment the Court ruled that the same applies to the allowance in lieu provided for in Article 7(2) of Directive 2003/88. As justification, it pointed essentially to the functional identity of the entitlements governed by Article 7 of Directive 2003/88. The payment of an allowance in lieu upon termination of the worker’s employment relationship prevents the worker being deprived of enjoyment of his annual leave entitlement because he is unable to take it. In the view of the Court, the directive treats entitlement to annual leave and to a payment on that account as being ‘two aspects of a single right’. On that ground, it ruled that this provision of the directive must be interpreted as precluding national legislation or practices which provide that, on termination of the employment relationship, no allowance in lieu of paid annual leave not taken is to be paid to a worker in the circumstances described above.
46. It should be noted, however, that – in contrast to the present case – in the action in Schultz-Hoff and Others there was no need for the Court to express an opinion on the question whether limitation of the carry-over period to eighteen months as a condition for exercising the minimum entitlement to annual leave under Article 7(1) of Directive 2003/88 was consistent with EU law. It must be remembered in this connection that the subject of the main proceedings in that case was the worker’s leave entitlement for the years 2004 and 2005, the employment relationship having been terminated at the end of September 2005. Accordingly, the question could have arisen in that case whether the leave entitlement in question for 2004 could have expired within nine months. That was not, however, the subject of the reference for a preliminary ruling in that case. The starting point in the present case is quite different. Given that in the main proceedings Mr Schulte seeks an allowance in lieu of leave for the years from 2006 (beginning on 1 January 2006) (16) to 2008 (up to termination of the employment relationship on 31 August 2008) and that the exercise of these entitlements would require a carry-over period of more than eighteen months, the question posed by the court of reference in the present case as to the possibility of a time-limit needs to be clarified.
47. Consequently, it must be acknowledged that hitherto the Court has not expressly ruled on the question whether an unlimited accumulation of entitlements to leave and allowances in lieu as a result of the worker’s absence due to sickness is required in the present state of EU law, although the judgment in Schultz-Hoff and Others has been construed to that effect. The present case now offers the Court an opportunity to make its existing case-law more precise and to bring greater clarity to this disputed issue.
2. The question whether the meaning and purpose of Article 7 of Directive 2003/88 requires the accumulation of entitlements to leave and allowances in lieu
48. Given the particular circumstances of the dispute in the main proceedings, in particular the conflicting interests of the parties in the case, it is legitimate to ask whether an accumulation of entitlements to leave and allowances in lieu is really necessary by law in order to attain the objectives of the directive. In refining its case-law on entitlement to leave, the Court must ensure that it finds a solution that takes account of the interests of the employer and the employee alike. I consider that an interpretation which clarifies the scope of the rights granted to workers under Article 7 of Directive 2003/88 is appropriate in order to ensure that the statutory purpose of these rights is achieved.
49. I shall tackle this question below, setting out a series of arguments both for and against the requirement for an accumulation of leave entitlements. The validity of these arguments must be examined and, where appropriate, they must be weighed one against the other.
a) Arguments in favour of an accumulation of entitlements
50. The judgment in Schultz-Hoff and Others itself could provide a number of arguments to support the view that, at least in some situations where the worker is sick for prolonged periods, an unlimited accumulation of entitlements to leave and allowances in lieu over longer periods should be required.
51. First, the fact that this judgment largely left open the fundamental question of the expiry or exercise of these entitlements in the event of prolonged illness might militate in favour of accumulation. However, this would pay no account to the fact that in those cases there was no need to rule on this aspect. For that reason this argument would not be convincing.
52. A second argument could be the uncertainty typically associated with illness. While this is a factual aspect, it must nevertheless be taken into consideration in view of the legal consequences it entails. The Court also referred to this aspect in paragraph 51 of that judgment, where it rightly stated that ‘incapacity for work owing to sickness is not foreseeable’. The onset of illness is often just as unforeseeable as recovery from the illness. For that and other reasons, incapacity for work must be positively determined by means of medical examinations, as the court of reference points out in its order for reference. (17) Legal certainty must be established in the relationship between employee and employer. If, as in the main proceedings, it is uncertain whether the worker will ever be restored to health, it cannot be ruled out that entitlements to annual leave or allowances in lieu will be accumulated over a period of years without the worker successfully returning to active working life. However that may be, there should be no disputing the fact that just as the worker cannot be reproached for his absence from work on account of illness, the illness itself cannot be used as the pretext for depriving him of his right to annual leave guaranteed under EU law. According to this line of argument, it would be logical in a situation such as that in the main proceedings to demand an unlimited accumulation of entitlements to paid annual leave.
53. The view that an unlimited accumulation of entitlements to annual leave or allowances in lieu should be required cannot be rebutted with the argument that it is the illness itself that deprives the worker of the opportunity to exercise the entitlement granted to him under the directive. As the Court stated clearly in the judgment in Schultz-Hoff and Others, a worker has the entitlements stemming from Article 7 of the directive, whether or not he was ill during the leave year or during the carry-over period. This is clear from paragraph 40 of that judgment, in which the Court stated that Directive 2003/88 ‘does not make any distinction between workers who are absent from work on sick leave, whether short-term or long-term, during the leave year and those who have in fact worked in the course of that year’. As stated in paragraph 41 of the judgment, in the view of the Court it follows that, ‘with regard to workers on sick leave which has been duly granted, the right to paid annual leave conferred by Directive 2003/88 itself on all workers ... cannot be made subject by a Member State to a condition concerning the obligation actually to have worked during the leave year laid down by that State.’ (18) That case-law could therefore also be construed as meaning that prolonged illness, the duration of which is not foreseeable at the outset, is not a legitimate ground for prohibiting the unlimited accumulation of entitlements to annual leave and allowances in lieu.
54. Permit me at this juncture to make a remark of a different kind in order to clear up a misunderstanding that clearly underlies the arguments put forward by KHS. In the light of the Court’s unequivocal stance on the inviolability of the right to paid annual leave even in the event of prolonged illness, the assertion of KHS that the worker should be denied entitlement to annual leave because of his absence on health grounds must be rejected. Given the close link between the two entitlements that I have already described, (19) the same would have to apply to the entitlement to an allowance in lieu of untaken annual leave, in accordance with Article 7(2), which may not be refused on the ground that the entitlement to an allowance in lieu has been vitiated by prolonged illness. (20)
55. Depending of how it is read, the judgment in Schultz-Hoff and Others could therefore support the argument that in certain situations where the worker suffers prolonged periods of illness an unlimited accumulation of entitlements to paid annual leave and allowances in lieu should be required, even over extended periods. (21) Applying such an interpretation of the case-law to the dispute in the main proceedings would mean that Mr Schulte was entitled to an allowance in lieu of his untaken annual leave for the years from 2006 to 2008.
b) Arguments against an accumulation of entitlements
56. Anticipating the outcome of my assessment, I do not consider that an accumulation of annual leave entitlements is required by law in order to achieve the desired recuperative objective. To interpret Article 7 of Directive 2003/88 in that way would, in my opinion, ultimately be contrary to the interests of both the employee and the employer. I shall describe below a series of arguments that support my view.
i) Need for entitlement to be exercised within a short period
57. So that the positive effect which leave has for the safety and health of the worker is deployed fully, it must, as the Court found in the judgment in Federatie Nederlandse Vakbeweging, (22) as a rule be taken in the year prescribed for that purpose, namely the current year, although the significance of that rest period certainly remains if it is taken during a later period, for example during the carry-over period. As the German Government, (23) the Commission (24) and KHS (25) rightly remark, this case-law must be understood to mean that there must be a certain closeness in time between the leave year and the actual taking of the annual leave. (26) Although the case-law has confirmed that periods of illness are certainly not a legally permissible ground for the employer to refuse to grant annual leave, the entitlement to annual leave is undoubtedly tied to a specific purpose. This consists in the fact that there is both a temporal and a causal link between the work previously performed and the annual leave. Against this background, it is inconceivable that leave can serve its function if it is not taken until after an absence from work of several years. The purpose of annual leave – to recover from the exertions and stress of the work year and to draw new strength for the rest of the work year from the relaxation and free time – is not achieved by taking the leave years later.
ii) No obvious increase in the recuperative effect
58. Furthermore, it is not evident that an accumulation of leave entitlements over several years should be absolutely necessary to achieve the recuperative effect. As a rule, the rest which leave is intended to bring should still be ensured if the leave accruing in the next year is granted. The parties in the proceedings do not claim, nor is it objectively shown, that a doubling or even tripling of the minimum annual leave leads to an increase in the recuperative effect. (27) Rather, it appears proper and appropriate to set the amount of annual leave in a reasonable relationship to the actual need for rest. Such an appropriate relationship can be achieved by granting more than the minimum of four weeks’ annual leave laid down in Article 7(1) of Directive 2003/88, but without simply awarding a multiple thereof.
iii) Disadvantages for the economic and social integration of the worker
– Risks to the integration of the worker in the work process
59. Moreover, I consider it necessary, when examining whether there should be a legal requirement to permit an accumulation of leave entitlement, to consider a further aspect to which KHS has drawn attention, rightly in my opinion. Viewed in economic terms, the worker’s period of rest which annual leave is intended to provide serves the mutual interests of the employer and the worker. If human work, in the form of either physical labour or the application of knowledge (human capital), is viewed as a factor of production, the employer undoubtedly has a fundamental interest in the worker re-integrating into the work process after taking his annual leave and making his capabilities available to the firm. This interest should coincide precisely with that of the worker, particularly as it is reasonable to assume that after periods of absence on grounds of sickness the re-integration of the worker into working life will generally be paramount. One can agree with KHS that the worker returning from sick leave must be given a chance to integrate again into the work process. If he were again removed from work by long or continuing periods of leave in excess of his annual leave, the fear would be that this would have counterproductive effects on his professional career. (28)
60. It cannot, however, have been the intention of the EU legislature to grant workers a social right which, if exercised, has the indirect effect of exacerbating his economic and social exclusion. Suffice it to say in this connection that Directive 2003/88 was adopted on the basis of Article 137(2) EC to protect workers’ health and safety and that the regulatory activity of the EU legislature pursuant to Article 137(1) EC is intended to contribute to achieving the objectives listed in Article 136 EC. Admittedly, this provision of the Treaty is in the nature of a programme, but this does not mean that it is devoid of any legal effect. It is acknowledged to be of essential importance for the interpretation of other provisions of the Treaty and of secondary Community legislation in social matters. (29) This Treaty article lays down that the binding objectives shall be the ‘proper social protection’ of workers, but also the ‘promotion of employment’ and the ‘development of human resources with a view to lasting high employment and the combating of exclusion’. Consequently, an interpretation of Article 7 of Directive 2003/88 that impeded the integration of workers with long-term illness into the labour market must be rejected.
– Risk to the maintenance of the employment relationship
61. An interpretation of Article 7 of Directive 2003/88 that favours an unlimited accumulation of entitlements to leave or allowances in lieu might, at first sight, appear to promote worker protection but could ultimately have serious consequences which would call that character into question. As can already be deduced from my comments above, the employment relationship is and remains the key to the economic and social integration of the worker. In this connection it must be considered that the disadvantages of the worker’s long absence for the employer and the financial cost of accumulated entitlements to leave or allowances in lieu – which I shall discuss in my further comments – may, in certain circumstances, give the employer an incentive to part as early as possible with workers unfit for work over a long period in order to avoid these disadvantages. (30) To that extent, it is possible to agree with the assessment of KHS (31) that it is not improbable that smaller medium-sized undertakings, in particular, will dismiss workers on long-term sick leave. Such a development, which would be detrimental to the economic and social integration of the workers, would clearly run counter to the stated objectives of Article 136 EC.
iv) Risk of placing organisational and financial burdens on small and medium‑sized undertakings
62. As the Danish Government (32) rightly points out, the absence of workers on prolonged sick leave usually causes considerable difficulties for undertakings in the organisation of working time, particularly as it forces them to find an appropriate substitute for the sick worker. (33) If as soon as he returns from sick leave the worker takes his full entitlement to annual leave or even the entitlement for several leave years together, a situation which had originally been regarded as temporary will effectively be perpetuated. The smaller the undertaking, the worse these difficulties are likely to be. (34)
63. In addition, it is important not to ignore the financial costs that might fall on undertakings if they were obliged, after termination of the employment relationship with a worker on long-term sick leave, to pay an allowance in lieu for several consecutive years in which annual leave entitlements were accumulated. (35) As KHS (36) points out repeatedly in its written observations, these are likely to be substantial.
64. An examination of primary law on the social policy of the Union – especially Articles 136 EC and 137(2) EC – shows that economic aspects also play an important role in the implementation of social policy objectives. It is clear from both provisions that working conditions cannot be improved by harmonising legislation without at the same time taking account of the need to maintain the competitiveness of the economy. In addition, Article 137(2)(b) EC provides that directives based on this provision ‘shall avoid imposing administrative, financial and legal constraints in a way which hold back the creation and development of small and medium-sized undertakings’. That view is corroborated by the second recital in the preamble to Directive 2003/88. By means of that provision the EU legislature aims to protect small and medium-sized undertakings, (37) as it can be deduced implicitly that for a variety of reasons smaller undertakings bear comparatively heavier costs as a result of state labour requirements. (38) The provisions in question indicate that when directives in the field of social policy are adopted account must be taken of their economic effects. In my view, the Court is under the same obligation when exercising its jurisdiction to interpret both the content and the scope of a provision of EU law. Taking account of the precepts of primary law mentioned above, the Court is obliged to interpret Article 7 of Directive 2003/88 in such a way that an appropriate relationship is established between the interests of workers and employers.
65. In the light of the convincing observations of the Danish Government and KHS, it has to be considered that completely unlimited entitlement to the granting of full annual leave for several consecutive years would, depending on the individual case, be tantamount to a financial constraint within the meaning of Article 137(2)(b) EC, which would seriously impede the development of small and medium-sized undertakings. Given the disadvantages for the economic and social integration of workers that I have already mentioned and the indications that an accumulation of entitlements to paid annual leave or allowances in lieu would not necessarily promote recuperation, I see no reason why such a burden should be placed on undertakings.
v) Risk of changing the nature of the entitlement to an allowance in lieu of annual leave
66. The arguments against an accumulation of entitlements that I have described so far relate primarily to the entitlement to paid annual leave and, in so far as it is relevant, also the entitlement to a financial allowance in lieu of untaken annual leave under Article 7(2) of Directive 2003/88. The consequences of an accumulation of entitlements to allowances in lieu must be examined more closely, however, especially in the light of the objection raised by KHS that such an accumulation would ultimately lead to a ‘degradation of annual leave into a mere economic good’. (39) It is necessary to move away from an interpretation of this provision of the directive which in certain circumstances would fail to take account of the function of the allowance in lieu under that provision. The objection of KHS cannot be dismissed out of hand if one considers the purpose of this provision.
67. The entitlement to an allowance into which the annual leave entitlement converts upon termination of the employment relationship is not a general entitlement to compensation or a pecuniary entitlement but a substitute for annual leave which can no longer be taken because of the termination of the employment relationship. (40) This legal classification of the entitlement to an allowance as a substitute is also supported by the wording of Article 7(2) of Directive 2003/88, as under that provision paid annual leave may be ‘replaced’ by an allowance in lieu, and not ‘compensated’. Its purpose is to put the worker in a financial position in which he is able to catch up with his paid annual leave entitlement on conditions comparable to those that would have applied had he continued to work and received paid annual leave in accordance with Article 7(1) of Directive 2003/88. (41) Hence, the normal remuneration, which must be maintained during the rest period corresponding to the paid annual leave, is also decisive as regards the calculation of this financial allowance in lieu of annual leave. The Court refers to this important financial aspect of the allowance in lieu of paid annual leave in paragraph 56 of the judgment in Schultz-Hoff and Others, in which it states that, since it is no longer possible for the worker to take paid annual leave once the employment relationship has been terminated, the purpose of the allowance in lieu provided for in Article 7(2) is to prevent the worker from being denied the enjoyment of that right, ‘even in pecuniary form’.
68. The prospect of an unlimited accumulation of entitlements to allowances in lieu could nevertheless lead a worker to whom this relationship is not immediately clear into interpreting the meaning of this provision differently, and perhaps cause him wrongly to expect that he is entitled to compensation upon termination of the employment relationship rather than a substitute for paid annual leave. Such a perception would accord the entitlement to an allowance in lieu of paid annual leave an importance which the law did not intend it to have. This false understanding of the legal nature of the allowance in lieu could, depending on the legal order and the situation at the outset, have adverse consequences for the employer, for example if, when negotiating severance agreements or court settlements for the termination of the employment relationship, the worker pressed for entitlements to allowances not to be listed expressly as allowances but paid as compensation in order to prevent these amounts being taxable or subject to social security contributions. If entitlements to allowances are not included expressly as such in the settlement, the workers would still be able to claim allowances in lieu again even after the settlement had been agreed. (42) The employer therefore has a legitimate interest in ensuring that no misunderstandings arise as to the legal nature of entitlements to allowances in lieu and that there is legal certainty after termination of the employment relationship.
69. These dangers must be averted by an interpretation of Article 7(2) of Directive 2003/88 that adheres strictly to the meaning and purpose of that provision. As can be deduced indirectly from the second recital and Article 1(1) of the directive, the allowance in lieu for which Article 7(2) provides may serve no function other than protection of the safety and health of the worker. This compulsory purpose of the allowance in lieu also explains why the EU legislature allows financial compensation for untaken paid annual leave only in the special case of termination of the employment relationship and permits no other derogations to this rule under Article 17(1) of the directive. (43) Hence, if it is considered, in view of the strict link to the purpose of the provision, that an accumulation of entitlements to paid annual leave does not multiply the recuperative effect of the leave, as I have already stated, I cannot see that an accumulation of entitlements to allowances in lieu is essential in order to achieve the stated objective. Rather, an accumulation of entitlements to allowances in lieu would have the consequence of favouring the worker or imposing a burden on the employer that cannot be justified by the statutory purpose of this provision.
70. Accordingly, an unlimited accumulation of entitlements to allowances in lieu over several years is not imperative in order to achieve the recuperative function ascribed to the entitlement to paid annual leave.
c) Preliminary conclusion
71. In the light of all these aspects, I conclude that an unlimited accumulation of entitlements to paid annual leave or to allowances in lieu is not required under EU law in order to ensure that the objectives of Article 7 of Directive 2003/88 are achieved.
3. Compatibility of a time-limit on the carrying-over of entitlements to paid annual leave and allowances in lieu with EU law
a) The judgment in Schultz-Hoff and Others as the point of departure
72. In the first part of my assessment I ascertained that the Court has yet to adopt a position on the question whether an unlimited accumulation of entitlements to annual leave and allowances in lieu as a result of a worker’s absence on grounds of ill health is required under EU law. In the second part I considered this question and, by way of a systematic and teleological interpretation of Article 7 of Directive 2003/88, concluded that such an accumulation was not required under EU law. I shall now turn to the questions from the court of reference and consider whether limitation of the carry-over period to eighteen months is compatible with EU law.
73. Recognition of the possibility of imposing a time-limit on the annual leave entitlements of workers on long-term sick leave will necessitate a further development of case-law. The point of departure for considerations must be the judgment in Schultz-Hoff and Others, which paves the way in this regard. This judgment is shaped by the fundamental notion that the worker must at the very least be given an opportunity to enjoy the entitlement to paid annual leave granted to him under the directive in order to ensure that this principle, which is regarded as a particularly important aspect of EU social law, is not infringed when it comes to actual implementation. The extent to which this principle is infringed cannot be assessed in general terms, but depends on the circumstances of the case. The state of health of the worker is undoubtedly an important factor that can impede the exercise of the entitlement to annual leave, but nothing in the judgment indicates that the state of health must be regarded as the only deciding factor. Rather, there are indications that it depends to a large extent on the national legislation and/or practices that are applicable to workers and whether they permit the actual exercise of the entitlement to annual leave.
74. The findings of the Court in Schultz-Hoff and Others must therefore be assessed against the background of the national legislation applicable in the main proceedings in that case. The decisive factors for refusing the possibility of actually taking annual leave were the extremely short carry-over period of a few months and the expiry of annual leave under the collective agreement, which did not take sufficient account of cases of hardship, such as the worker’s unfitness to work.
75. Seen from this viewpoint, it cannot be precluded as a matter of principle that in other circumstances, which take appropriate account of the worker’s need for leave and do not negate his entitlement, the expiry of these entitlements after a set period will appear to be consistent with EU law in the light of the case-law of the Court. (44) Provided that the conditions are met in this respect, the default scenario regarded by the Court as a general case, and to which I referred in paragraph 38 of this Opinion, should obtain. The only question relates to the conditions on which this may occur. In seeking an answer to that question, it is necessary to probe the limits that Article 7 of the directive sets on the Member States’ discretion.
b) The temporal limitation of the carry-over period
76. From the point of view propounded here, the complete expiry of these entitlements would in any case have to be strictly rejected, as it would entail an irrecoverable loss for the worker. The judgment in Schultz-Hoff and Others must be understood to mean that the entitlement to paid annual leave may not be undermined by imposing conditions that are difficult to meet. Such a situation will occur regularly, however, especially in cases of prolonged illness, since the sick worker will not be able to prevent the automatic and complete expiry of leave entitlements because of the passage of time. As a rule, the date of his recovery will determine whether he will be able to use his entitlement to leave. To that extent, particular measures by the Member States are appropriate. In order to prevent the objectives of the directive from being frustrated, it therefore appears necessary to grant the worker at least a residual entitlement to leave, which he could exercise if he recovered and returned to work. The German Government has also rightly referred to this need in its written observations. (45) Hence, only a partial expiry of the entitlement to annual leave might be envisaged.
77. The above-mentioned considerations raise questions about both the length of the time-limit after which the leave entitlement may expire and the length of the residual leave. On closer inspection, these two aspects can be seen to be closely inter-related, as the setting of a limitation period of, for example, more than twelve months over a given period in which the carry-over period for the first year and the reference period for the following year overlap would have the effect of combining the leave entitlements for at least two years. Only after the expiry of the time-limit for leave from the first year would the length of the leave entitlement be reduced to the number of days corresponding to the minimum annual leave.
78. The parties to the proceedings, with the exception of Mr Schulte, agree on the need for a time-limit for exercising leave entitlements. A possible solution, as both the court of reference and some of the parties to the proceedings have suggested, lies in the application of the rules set out in Convention No 132 of the ILO. This convention, the relevance of which for the interpretation of Directive 2003/88 was expressly confirmed by the Court most recently in the judgment in Schultz-Hoff and Others, (46) states in Article 9(1) that paid annual leave shall be granted and taken ‘no later than eighteen months ... from the end of the year in respect of which the holiday entitlement has arisen’. This is to be interpreted as a maximum time-limit, (47) which leads to the expiry of existing leave entitlements when the set limit is reached.
79. Since the setting of a time-limit for the carrying-over of annual leave entitlements to the following year falls within the competence of the Member States to lay down the conditions on which the worker may exercise his right to annual leave, the jurisdiction of the Court is limited to determining whether a time-limit complies with EU law, ensuring in particular that the objectives of the directive are achieved. (48)
80. A time-limit on the worker’s leave entitlements, as provided for in Article 9(1) of Convention No 132, would not in principle be prohibited under EU law, particularly as Article 7 of Directive 2003/88 does not expressly stipulate the granting of an unlimited entitlement to leave. As I have already stated, this corresponds to the interpretation adopted by the Court, which in paragraph 43 of the judgment in Schultz-Hoff and Others found that the Member States have competence to lay down conditions, including even the loss of the right to paid annual leave, provided, however, that the worker ‘has actually had the opportunity to exercise the right conferred on him by the directive’. The adoption in principle of the concept of a time-limit, which has long been part of this international convention, is also endorsed by the sixth recital of the directive, according to which account should be taken of the principles of the ILO with regard to the organisation of working time.
81. A time-limit such as that laid down in Article 9(1) of Convention No 132 would in any case be consistent with the protection intended under Article 7 of Directive 2003/88, since the worker would have a period of up to two and a half years (49) to take his minimum paid annual leave for a particular leave year. In objective terms, this time-limit appears to be long enough to ensure effective exercise of a worker’s right. In addition, the worker would always have the assurance that after prolonged illness he would have a fairly long period for recuperation. If he returned to work, he would still be entitled to at least eight weeks’ annual leave, (50) and if his return occurred in the first half of the third year he would be entitled to as much as twelve weeks’ leave. (51) A residual entitlement to annual leave would therefore be guaranteed in any event. In view of the advantages that the adoption of this rule would have for the worker, it must be held that the condition established by the Court, with which the national legislature must comply in order to legislate for the expiry of the entitlement to paid annual leave, would actually be met.
82. A time-limit of eighteen months on the carry-over of the worker’s leave entitlements would also take account of the interests of the employer and hence result in an appropriate compromise between the two. The worker would be guaranteed an appropriate period to recuperate and the employer would have certainty that it would not be faced with an infinite accumulation of leave entitlements and the associated difficulties in the organisation of working time. The same would apply to the financial cost stemming from entitlements to allowances in lieu accumulated over long periods of time. The predictability and calculability of these financial costs as a result of setting a time-limit for using leave entitlements would allow the employer to create reserves within financially acceptable bounds. Given the advantages of setting a time limit on the use of leave entitlements, there would no longer be any need for employers to abandon the ‘social restraint’ (52) that they have shown hitherto towards seriously ill employees in a difficult period of their lives and to resort to the instruments of dismissal or contract termination that are undesirable from the point of view of social and human resources policy.
c) Discretion of the Member States in setting a time-limit
83. Although nothing in the overall structure of EU law on the organisation of working time precludes the adoption of the general concept of a time-limit on exercising the right to paid annual leave – as laid down in Article 9(1) of Convention No 132 – it is doubtful whether the adoption of an eighteen-month limitation period for which that article also provides is legally binding. This is a highly specific rule which is not substantiated in detail. Rather, it reflects a degree of consensus among the states signatory to the convention. One argument against the adoption of this rule verbatim – meaning solely the 18-month time-limit – is not least the wording of the sixth recital of Directive 2003/88, which requires that ‘account ... be taken of the principles of the [ILO]’ with regard to the organisation of working time. As I shall demonstrate below, this formulation suggests that the EU legislature cannot have intended to incorporate each and every rule adopted at international level in the field of labour law, regardless of whether it took sufficient account of the particular features of EU law.
84. This view is justified, not least, by the fact that only ‘account should be taken’ of the principles of the ILO when transposing Directive 2003/88, which if viewed semantically implies some latitude in implementation. A further indication lies in the use of the term ‘principles’ in the directive. From the point of view of legal methodology, ‘principles’ are rules which oblige something to be done, and may consist in an obligation, an authorisation or a prohibition. (53) They require that something be realised to the greatest legal and practical extent possible. Principles are therefore optimisation requirements which may be fulfilled to differing degrees and the required extent to which they are fulfilled depends not only on the practical but also the legal possibilities. The sphere of legal possibilities is determined by contradictory principles and rules. (54)
85. In my opinion, an important restriction is imposed by the autonomy of the European Union legal order created by the Treaties, (55) respect for which must be assured by the Court of Justice. Despite long cooperation between the European Union and the ILO in the field of economic and social policy and the fact that many Member States are members, the European Union itself, as a supranational organisation, does not have the status of either a contracting party (56) or an observer at the ILO. Hence, the compatibility of EU legislation with ILO law can as a matter of principle be judged only according to the criterion of the binding effect determined by the Union itself.
86. Leaving that aspect aside, it must be pointed out that, as the Commission rightly notes, application of the 18-month time-limit by analogy would ultimately lead to partial harmonisation of national legislation and practices, despite the fact that nothing can be deduced from Article 7 of Directive 2003/88 as to the period for which entitlement to paid annual leave and, in the event of termination of the employment relationship, allowances in lieu for workers on prolonged sick leave must be granted. Nor can indications be found that for such a situation the EU legislature intended to adopt by analogy the maximum carry-over period of eighteen months after the end of the leave year laid down in Article 9(1) of Convention No 132. In the absence of a Union-wide rule in Article 7 of Directive 2003/88, this time-limit must be regarded as the subject of the conditions (57) for implementing these provisions and hence remain within the realm of national legislation and/or practices, which must be appropriate to achieve the objectives of the directive.
87. In the present state of EU law, it is necessary to examine on a case-by-case basis whether national legislation or practices permit the worker to exercise the entitlements granted to him under Directive 2003/88, with the extent of these entitlements being determined in the light of the objectives of Article 7(1) of the directive.
88. Limiting the carry-over period to eighteen months, as laid down in Article 9(1) of Convention No 132, at the end of which the worker’s entitlement to paid annual leave expires, appears at all events to be long enough and hence ultimately appropriate to enable the worker effectively to exercise the right to paid annual leave within the meaning of the judgment in Schultz-Hoff and Others. It must be emphasised in this connection that this period is a guideline with which the Member States should comply as far as possible when transposing the directive into national legislation. In my opinion, this is required by the above‑mentioned statement in the sixth recital to Directive 2003/88, which establishes a link between EU law and the law of the ILO.
89. For the reasons stated above, (58) however, this link is not sufficiently far‑reaching, and hence does not have the necessary legal effect, for solely the upper limit laid down in Article 9(1) of Convention No 132 to be binding under EU law. On the contrary, it appears that the Member States may derogate from this time-limit. Given that Article 1(1) of Directive 2003/88 merely lays down ‘minimum safety and health requirements for the organisation of working time’ and Article 15 of the directive does not affect Member States’ right ‘to apply or introduce laws, regulations or administrative provisions more favourable to the protection of the safety and health of workers or to facilitate or permit the application of [more favourable] collective agreements or agreements concluded between the two sides of industry’, it seems logical to grant the Member States power under EU law to adopt provisions that may lay down time-limits that are more favourable to workers. In any case, the Member States may not rely on the maximum time-limit laid down in Article 9(1) of Convention No 132 as grounds for refusing to set more favourable time-limits, particularly as ILO conventions merely lay down minimum international standards (59) which EU law itself may surpass. This is true of Directive 2003/88, which in some respects goes beyond the minimum requirements of Convention No 132, such as where it prescribes minimum paid annual leave of four weeks instead of the three working weeks laid down in Article 3(3) of the convention.
90. On the basis of the above, it follows for the purposes of the present reference for a preliminary ruling that the possibility of carrying over entitlements to paid annual leave may exist for a period of at least eighteen months, but that that period is not compulsory. The second question must therefore be answered in that manner.
d) Preliminary conclusion
91. To summarise, it must be stated that in a situation such as that in the main proceedings, in which the worker has suffered prolonged periods of illness, the interests of the worker and the employer can best be reconciled, while taking account of the objectives of the directive, if a time-limit is imposed on the carry‑over period so that the leave entitlements arising in a particular leave year expire after a set period, provided the purpose of the leave entitlement of workers with long-term illnesses is also preserved. This means that upon termination of the employment relationship any entitlement to allowances in lieu must also expire. However, any leave entitlement arising in the subsequent year would remain valid as a residual entitlement.
92. The setting of a time-limit, after which entitlements to leave or allowances in lieu expire, constitutes an implementing provision within the scope of national legislation and/or practices, although these must be appropriate to ensure achievement of the objectives of the directive. This must be ascertained on a case‑by-case basis in the light of the objectives of Article 7(1) of Directive 2003/88. A time-limit of eighteen months is in any case sufficient for the purposes of those objectives. A carry-over period of only six months, which was the subject-matter of the case in Schultz-Hoff and Others, does not, however, satisfy these requirements. (60)
4. Final remarks
93. Finally, with a view to the further development of case-law, the interpretation resulting from the above assessment must be set in the context of the findings of the Court in the judgment in Schultz-Hoff and Others.
94. In that judgment the Court stated as follows:
‘Article 7(1) of Directive 2003/88 must be interpreted as precluding national legislation or practices which provide that the right to paid annual leave is extinguished at the end of the leave year and/or of a carry-over period laid down by national law even where the worker has been on sick leave for the whole or part of the leave year and where his incapacity to work has persisted until the end of his employment relationship, which was the reason why he could not exercise his right to paid annual leave’.
95. In my opinion this finding of the Court must be complemented by the following findings in order to take account of the particular circumstances of the case in the main proceedings and to provide for the possibility of a time-limit on entitlements:
Article 7(1) and (2) of the directive must be interpreted as not precluding national legislation or practices which provide that the right to annual leave or an allowance in lieu is extinguished at the end of the leave year or of a carry-over period even where the worker has been unable to work for a prolonged period, provided that the carry-over period is sufficiently long to ensure that the purpose of the initial right to rest is guaranteed.
A carry-over period of at least eighteen months after the end of the leave year satisfies that requirement, but is not binding under EU law. Indeed, the Member States are free to adopt other rules, subject to compliance with the limits set by the directive.
96. The first finding in my proposed decision is general in nature and states that a limitation of the right to paid annual leave or an allowance in lieu is in principle possible under EU law, provided that it is still compatible with the recuperative objective of annual leave. It provides, inter alia, for a partial extinction of these entitlements after a period to be determined by the Member State. The second finding answers the second question from the court of reference by stating that limiting the carrying-over of leave entitlements to a period of eighteen months is compatible with EU law.
VII – Conclusion
97. In the light of the above considerations, I propose that the Court should answer the questions referred by the Landesarbeitsgericht Hamm as follows:
1. Article 7(1) of Directive 2003/88/EC of the European Parliament and of the Council of 4 November 2003 concerning certain aspects of the organisation of working time must be interpreted as precluding national legislation or practices which provide that the right to paid annual leave is extinguished at the end of the leave year and/or of a carry-over period laid down by national law even where the worker has been on sick leave for the whole or part of the leave year and where his incapacity to work has persisted until the end of his employment relationship, which was the reason why he could not exercise his right to paid annual leave.
2. Article 7(1) and (2) of the directive must be interpreted as not precluding national legislation or practices which provide that the right to annual leave or an allowance in lieu is extinguished at the end of the leave year or of a carry-over period even where the worker has been unable to work for a prolonged period, provided that the carry-over period is sufficiently long to ensure that the purpose of the initial right to rest is guaranteed.
3. A carry-over period of at least eighteen months after the end of the leave year satisfies that requirement, but is not binding under EU law. Indeed, the Member States are free to adopt other rules, subject to compliance with the limits set by the directive.
1 – Original language: German.
Language of the case: German.
2 – OJ 2003 L 299, p. 9.
3 – Judgment in Joined Cases C‑350/06 and C‑520/06 Schultz-Hoff and Others [2009] ECR I‑179.
4 – In accordance with the usage in the TEU and TFEU, the term ‘EU law’ is used to encompass both Community law and EU law. Where reference is made in this Opinion to individual provisions of primary law, the law in force ratione temporis is cited.
5 – See Schultz-Hoff and Others, cited in footnote 3 above, paragraph 23; Case C‑173/99 BECTU [2001] ECR I‑4881, paragraph 44; and Case C‑342/01 Merino Gómez [2004] ECR I‑2605, paragraph 30.
6 – Schultz-Hoff and Others, cited in footnote 3 above, paragraph 61.
7 – See the judgments in BECTU (cited in footnote 5 above, paragraph 43); Merino Gómez (cited in footnote 5 above, paragraph 29); and Joined Cases C‑131/04 and C‑257/04 Robinson-Steele and Others [2006] ECR I‑2531, paragraph 48. With regard to Directive 2003/88, see Schultz-Hoff and Others (cited in footnote 3 above, paragraph 22), Case C‑277/08 Vicente Pereda [2009] ECR I‑8405, paragraph 18; and Case C‑486/08 Zentralbetriebsrat der Landeskrankenhäuser Tirols [2010] ECR I‑3527, paragraph 28.
8 – See the judgments in BECTU (cited in footnote 5 above, paragraph 44); Merino Gómez (cited in footnote 5 above, paragraph 30); Schultz-Hoff and Others (cited in footnote 3 above, paragraph 23); and Vicente Pereda (cited in footnote 7 above, paragraph 21).
9 – See the judgments in Schultz-Hoff and Others (cited in footnote 3 above, paragraph 25) and Zentralbetriebsrat der Landeskrankenhäuser Tirols (cited in footnote 7 above, paragraph 30).
10 – Schultz-Hoff and Others, cited in footnote 3 above, paragraph 42.
11 – Ibid., paragraph 43.
12 – Paragraph 7(3) of the German Bundesurlaubsgesetz (Federal Law on leave) (BUrlG) of 8 January 1963, in the version of 7 May 2002, provided that if leave was carried over it had to be authorised and taken during the first three months of the following calendar year. However, the collective agreement involved in that case was the framework collective agreement for employees of the Bundesversicherungsanstalt für Angestellte (Federal Insurance Office for Clerical Staff) (MTAng-BfA), Paragraph 47(7) of which provided that if leave could not be commenced by the end of the leave year, it had to be commenced before 30 April of the following leave year (in other words within four months). If the leave could not be commenced before 30 April for reasons of service or because of incapacity for work or periods of protection pursuant to the Mutterschutzgesetz (Law on the protection of working mothers), it had to be commenced before 30 June (in other words within six months).
13 – Schultz-Hoff and Others, cited in footnote 3 above, paragraph 44.
14 – Ibid., paragraph 25.
15 – BECTU, cited in footnote 5 above, paragraph 53.
16 – According to the answers given by the parties to the main proceedings to the questions posed by the Court.
17 – See p. 9 of the order for reference.
18 – This finding of the Court is consistent with international labour law, as I explained in detail in my Opinion in Schultz-Hoff and Others (judgment cited in footnote 3 above, paragraph 66 et seqq.). An argument against linking annual leave entitlement to the worker’s fitness to work is to be found in the fact that, according to the unequivocal wording of Article 5(4) of ILO Convention No 132, ‘absence from work for such reasons beyond the control of the employed person concerned as illness, injury or maternity shall be counted as part of the period of service’. In addition, Article 6(2) of that Convention expressly provides that ‘periods of incapacity for work resulting from sickness or injury may not be counted as part of the minimum annual holiday with pay’. To that effect, see also Leinemann, W., ‘Reformversuche und Reformbedarf im Urlaubsrecht’, Betriebs-Berater, 1995, p. 1958, according to whom the entitlement exists whether or not the worker has worked. Neither German law nor ILO Convention No 132 make the annual leave entitlement subject to the worker’s having worked nor regard annual leave as consideration for the worker’s activity.
19 – See paragraph 35 of this Opinion.
20 – See Dornbusch, G., and Ahner, L., ‘Urlaubsanspruch und Urlaubsabgeltung bei fortdauernder Arbeitsunfähigkeit des Arbeitnehmers’, Neue Zeitschrift für Arbeitsrecht, 4/2009, p. 182, who point out that the entitlement to allowances in lieu is subject to restrictions, to the effect that it must have been possible to take the annual leave to be replaced when the employment relationship was terminated. The authors take the view that if the entitlement to annual leave could not be exercised because of the worker’s continuing incapacity for work, the substitute for annual leave could ultimately not be exercised either.
21 – See Eppinger, C., ‘Zur Bilanzierung von Urlaubsrückstellungen im Lichte der aktuellen arbeitsrechtlichen Rechtsprechung’, Der Betrieb, 1/2010, p. 10, who construes the recent case‑law of the Court as meaning that days of leave which a worker has not taken and hence were also accumulated during periods of absence do not expire in the following year. Bauckhage-Hoffer, F., Buhr, M., and Roeder, J.‑J., ‘Aktuelle Entwicklungen im deutschen Urlaubsrecht unter europarechtlichem Einfluss’, Betriebs-Berater, 8/2011, p. 505, take the view that the Court’s recent case-law leads to an unlimited extension of the annual leave entitlement of sick workers. Gaul, B., Josten, D., and Strauf, H., ‘EuGH: Urlaubsanspruch trotz Dauerkrankheit’, Betriebs-Berater, 2009, p. 489, deduce that, since annual leave entitlements cannot expire because of the worker’s prolonged illness, at the end of the carry-over period these entitlements are rolled over to the following year.
22 – Case C‑124/05 Federatie Nederlandse Vakbeweging [2006] ECR I‑3423, paragraph 30, and Schultz-Hoff and Others, cited in footnote 3 above, paragraph 30.
23 – See paragraph 29 of the submission by the German Government.
24 – See paragraph 27 of the submission by the Commission.
25 – See pp. 11 and 12 of the submission by KHS.
26 – See also Dornbusch, G., and Ahner, L., op. cit. in footnote 20, p. 182.
27 – To that effect, see Gaul, B., Josten, D., and Strauf, H., op. cit. in footnote 21, p. 501, who point out that a multiplication of annual leave does not lead to a corresponding increase in the recovery of the worker; in any case, recovery is not even guaranteed, if one bears in mind the possibility of other activities during the period of leave.
28 – See pp. 11 and 12 of the submission by KHS.
29 – See the judgments in Joined Cases C‑72/91 and C‑73/91 Sloman Neptun [1993] ECR I‑887, paragraph 26, and Case 126/86 Giménez Zaera [1987] ECR 3697, paragraph 14. To this effect, see Krebber, S., EUV/EGV – Kommentar (edited by Christian Calliess and Matthias Ruffert), 3rd edition, Munich 2007, Article 136 EC, paragraphs 31 and 38, p. 1578 et seq., and Rebhahn, R., and Reiner, M., EU-Kommentar (edited by Jürgen Schwarze), 2nd edition, Article 136 EC, paragraph 6, p. 1328, who point out that the main purpose of Article 136 EC is to assist in the interpretation of secondary law and other provisions of primary law.
30 – Dornbusch, G., and Ahner, L., op. cit. in footnote 20, p. 183, explain that in future employers will in any case consider more carefully whether they uphold the employment relationship with a worker who is unfit for work for a prolonged period or would rather seek a separation if the worker continuously and without clear time-limits accumulates leave entitlements for which allowances in lieu will have to be paid upon the subsequent termination of the employment relationship. The authors consider that the judgment in Schultz-Hoff and Others does little for worker protection, as the workers affected must expect swifter dismissal on health grounds. In the view of Krieger, S., and Arnold, C., ‘Urlaub 1. + 2. Klasse – Das BAG folgt der Schultz-Hoff-Entscheidung des EuGH’, Neue Zeitschrift für Arbeitsrecht, 10/2009, p. 533, when dealing with workers with long-term illness undertakings would have to weigh up whether they seek an early termination of the employment relationship in order to avoid the future burden of allowances in lieu of leave and the creation of corresponding reserves. However, the authors do not exclude the possibility that there will be further cases in future in which on social grounds employers will refrain from terminating such employment relationships. Straube, G., and Hilgenstock, C., ‘Jeder Urlaub ist eine kleine Kündigung – Schultz-Hoff in der Praxis’, Arbeitrecht Aktuell, 2010, p. 333, consider that fears that employers will terminate employment relationships on health grounds as a precaution in order to counter the ‘accumulation of further entitlement’ are unfounded. Glaser, R., and Lüders, H., ‘§ 7 BUrlG auf dem Prüfstand des EuGH’, Betriebs-Berater, 2006, p. 2692, are of the opinion that in the case of workers fit for work the unlimited carry-over of leave could put pressure on employers to dismiss workers on long-term sick leave sooner. Otherwise, substantial leave entitlements would build up, which in certain circumstances would give rise to allowances in lieu upon termination of the employment relationship, which could seriously damage the firm’s interests.
31 – See page 11 of the submission by KHS.
32 – See paragraph 15 of the submission by the Danish Government.
33 – Advocate-General Kokott also refers to this in paragraph 32 of her Opinion in Federatie Nederlandse Vakbeweging, the judgment in which is cited in footnote 22 above. She states that excessive accumulation of leave entitlement may lead to practical problems when it comes to being used up. In particular, if long periods of leave are taken outside the normal holiday period, holiday cover can often be provided only with difficulty.
34 – See in this connection Durán López, F., ‘Notas sobre la incidencia de la situación de incapacidad temporal en el disfrute del derecho a vacaciones ‑ Comentario a las Sentencias del Tribunal de Justicia UE de 20 de enero de 2009 y de 10 de septiembre de 2009, y del Tribunal Supremo, Social, de 24 de junio de 2009’, Revista española de Derecho del Trabajo, 2010, p. 125, who points to the conflicting interests of workers and employers. In his view, the exercise of the entitlement to paid annual leave should always be consistent with the interests of the employer. Accordingly, when for example the leave period is determined, consideration should be given to the imperative grounds stemming from the interests of the undertaking.
35 – See Eppinger, C., op. cit. in footnote 21 above, p. 10, who indicates the costs that undertakings would have to expect as a result of future leave entitlement. Straube, G., and Hilgenstock, C., op. cit. in footnote 30 above, p. 333, also point out that the accumulation of substantial entitlements to annual leave over many years would create massive financial risks for the employer. Gaul, B., Josten, D., and Strauf, H., op. cit. in footnote 21 above, p. 500, take it as read that the carrying-over of entitlements to paid annual leave over several years and the resulting entitlement to allowances in lieu could impose a substantial economic burden.
36 – See pages 10 to 13 of the submission by KHS.
37 – See the BECTU judgment, cited in footnote 5 above, paragraph 60.
38 – See. Rebhahn, R., and Reiner, M., op. cit. in footnote 29 above, Art. 137 EC, paragraph 73, p. 1369.
39 – See page 14 of the submission by KHS.
40 – To that effect, see Dornbusch, G., and Ahner, L., op. cit. in footnote 20, p. 182, who reject a classification of the entitlement to an allowance in lieu as a general claim to compensation or a pecuniary entitlement. Gaul, B., Josten, D., and Strauf, H., op. cit. in footnote 21, p. 489, describe the entitlement to an allowance in lieu as a substitute for the leave entitlement. According to Glaser, R., and Lüders, H., op. cit. in footnote 30, p. 2693, the entitlement to an allowance in lieu of paid leave is a substitute for the natural leave entitlement. It is not an entitlement to compensation but an entitlement to payment of a sum of money linked to the conditions under the law on annual leave. The worker’s entitlement to release from the obligation to work that he can no longer exercise because of the termination of the employment relationship should be compensated. Leaving aside the release from the obligation to work that can no longer be exercised, the entitlement to an allowance in lieu is therefore subject to the same conditions as the leave entitlement it replaces.
41 – This conclusion is derived from the judgments in Schultz-Hoff and Others, cited in footnote 3 above, paragraph 60, and Robinson-Steele and Others, cited in paragraph 7 above, paragraph 58, in which the Court stated first that the purpose of the requirement of payment for annual leave is to put the worker, during such leave, in a position which is, as regards remuneration, comparable to periods of work and also, on the basis of the finding in paragraph 61 of the judgment in Schultz-Hoff and Others, that the allowance in lieu provided for in Article 7(2) of Directive 2003/88 must be calculated so that the worker is put in a position comparable to that he would have been in had he exercised that right during his employment relationship.
42 – Straube, G., and Hilgenstock, C., op. cit. in footnote 30, p. 333, point out with reference to German law that allowances in lieu of annual paid leave are subject to income tax and social security contributions.
43 – See Federatie Nederlandse Vakbeweging, cited in footnote 22 above, paragraph 29; Merino Gómez, cited in footnote 5 above, paragraph 30; and BECTU, cited in footnote 5 above, paragraph 44.
44 – See, to that effect, Mestre, B., ‘Evolution in continuity – the ECJ reinforces its protection of the right to annual leave’, European Law Reporter, No 2, 2009, p. 62, who points out that the expiry of the entitlement to paid annual leave after a set period does not necessarily conflict with EU law, provided that the worker had a genuine opportunity to take the entitlement granted to him by the directive.
45 – See paragraph 35 of the submission by the German Government.
46 – Judgment in Schultz-Hoff and Others, cited in footnote 3 above, paragraph 38. See the discussion in the literature on the importance of the ILO Convention in the legal order of the European Union. Korda, M., and Pennings, F., ‘The legal character of international social security standards’, European Journal of Social Security, Vol. 10 (2008), No 2, p. 132, hold that the European Union does not have the power to set legally binding social security standards. For that reason, they maintain that the agreements signed under the auspices of the ILO and the Council of Europe are of central importance to the development of international standards in the field of social security. Bercusson, B., ‘The European Court of Justice, Labour Law and ILO Standards’, 50 Jahre EU – 50 Jahre Rechtsprechung des Europäischen Gerichtshofs zum Arbeits- und Sozialrecht, Baden-Baden 2008, p. 58 et seq., advocates a more active role for the Court of Justice in establishing the constitutional framework for the European social model, and maintains that it should take account of ILO standards when interpreting the primary and secondary law of the Union. Murray, J., ‘The Working Time Directive and Future Prospects for ILO Rules on Working Time’, Transnational Labour Regulation – The ILO and EC compared, p. 175, believes that there is considerable convergence between the working time directive and ILO law as far as the subject-matter and purpose of the rules are concerned.
47 – See also Dornbusch, G., and Ahner, L., op. cit. in footnote 20, p. 182, Glaser, R., and Lüders, H., op. cit. in footnote 30, p. 2692, and Leinemann, W., op. cit. in footnote 18, p. 1959.
48 – See paragraph 43 of this Opinion.
49 – Composed of twelve months in the leave year (reference period) and eighteen months after the end of the leave year (carry-over period).
50 – Composed of the leave for the current and preceding leave years.
51 – Composed of the leave for the current and two preceding leave years.
52 – Term used by Gaul, B., Josten, D., and Strauf, H., op. cit. in footnote 21, p. 501.
53 – See Alexy, R., Theorie der Grundrechte, Baden-Baden 1985, p. 72.
54 – See Alexy, R., op. cit. in footnote 53, p. 75 et seq.; in the same vein, see Röthel, A., Europäische Methodenlehre (edited by Karl Riesenhuber), section 12, paragraph 37, p. 289, who points out that principles do not guarantee ‘fixed’ yardsticks and often interact with one another in the manner of a ‘mobile system’. Larenz, K., Methodenlehre der Rechtswissenschaft, 6th edition, Heidelberg 1991, p. 169, states that principles do not apply without exception and may be in conflict or contradiction with one another. They do not lay claim to exclusivity – in other words, they may not be framed on the basis of ‘only if ... then’. The author points out that the true meaning of principles unfolds only as they complement and limit one another. In order to be implemented they need to be made concrete by subordinate principles and individual assessments of autonomous situations. In the opinion of Frenz, W., Handbuch Europarecht, Vol. 4 (Europäische Grundrechte), Berlin 2009, section 11, p. 133, paragraph 438, one feature of principles is that their content need not be implemented in full. Instead, they aim at an optimum solution. Measures should be taken that promote the objective laid down in the principles.
55 – See the judgments in Case 26/62 Van Gend & Loos [1963] English special edition, p. 1, p. 3, and Case 6/64 Costa [1964] English special edition, p. 585, p. 594. See Opinion 1/91 of 14 December 1991 [1991] ECR I‑6079, paragraph 35, and Opinion 1/09 of 8 March 2011 [2011] ECR I‑0000, paragraph 67.
56 – See Böhmert, S., Das Recht der ILO und sein Einfluss auf das deutsche Arbeitsrecht im Zeichen der europäischen Integration, p. 211, who examines the possible accession of the European Community of that era to ILO membership.
57 – See paragraph 43 of this Opinion.
58 – See paragraphs 84 and 85 of this Opinion.
59 – See Korda, M., and Pennings, F., op. cit. in footnote 46, p. 134, who point out that the conventions concluded under the auspices of the ILO since the second world war only set minimum standards. Similarly, Böhmert, S., op. cit. in footnote 56, p. 211, regards it as the objective of the ILO to ensure a minimum of rights in all member states. This conclusion can be drawn from Article 19(8) of the Constitution of the ILO, according to which ‘in no case shall the adoption of any Convention or Recommendation by the Conference, or the ratification of any Convention by any Member, be deemed to affect any law, award, custom or agreement which ensures more favourable conditions to the workers concerned than those provided for in the Convention or Recommendation’. ILO members are therefore not prevented from maintaining or introducing higher standards. On the other hand, they may reduce national arrangements that go beyond the level of the ILO standard.
60 – See paragraphs 40 and 74 of this Opinion.