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Austria: ECJ and Austrian Supreme Court Strengthen Employee Rights for Annual Vacation

Austria: ECJ and Austrian Supreme Court Strengthen Employee Rights for Annual Vacation

Issue 10.9
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The statutory right to vacation originally arose from the employer’s duty of care for its employees. The Austrian Vacation Act of 1976 is a manifestation of this duty of care. It provides for five – with some seniority six – weeks of vacation for each working year. The law also expressly states that vacation should be used up, if possible, by the end of the year in which it was accrued. However, the employer and employee must agree on the specific leave days. In general, this means that neither the employee can take off for vacation unilaterally, nor can the employer impose it. Therefore, if there is no agreement on the actual use of vacation, this leads to an accumulation of vacation days.

Austrian law and precedence stipulated that employees may lose any accumulated vacation entitlement in two cases: (a) forfeiture because the employees’ vacation becomes time-barred, and (b) resignation by the employee without cause and without observing the notice period.

This, according to the European Court of Justice (EJC), is not in line with EU law. Austria thus had to adapt its laws and precedence on vacation.

Employer’s Duty to Provide for Vacation

Under Austrian law, an employee’s vacation becomes forfeited if it is not consumed by the employee within two years from the end of the vacation year in which the entitlement arose. This should prevent the “hoarding” of vacation and should motivate the employee to request vacation or accept offers to take vacation from the employer. However, if it is encompassed within the employer’s duty of care that the employee consumes vacation, where does that duty of care fall in the context of the statute of limitations on vacation entitlements?

Recently, the ECJ dealt with precisely this issue (ECJ C-120/21, TO). The ruling strengthens the rights of employees in connection with the forfeiture of vacation entitlements. In a very recent judgment, the Austrian Supreme Court made clear that the reasoning of this ECJ ruling also applies in Austria. The courts ruled that the vacation entitlement may be forfeited only if the employer has proactively enabled vacation and, for example, has pointed out that the vacation is about to expire. The bottom line is that the employer must be able to prove that employees could use the accumulated vacation days.

Compensation Rewards Unauthorized Resignation

The accumulation of vacation may entail a considerable financial expense for the employer. This is because, upon termination of the employment relationship, the Vacation Act requires that the unused vacation entitlement must be paid out in money. This includes the pro-rated entitlement for the ongoing working year but also any unused vacation days for previous years.

Until recently, the Austrian Vacation Act provided for a specific exception to the entitlement to vacation compensation: according to this provision, compensation for the current vacation year was not due “if the employee leaves the company prematurely without good cause.” As of November 1, 2022, this provision was amended to the effect that now “no compensation is due for the fifth and sixth week of the entitlement to vacation from the current vacation year.”

The reason for this change also came from the ECJ. It already repeatedly stated in the past that the only prerequisite for mandatory financial compensation for vacation was the termination of the employment relationship and the existence of remaining vacation. Hence, the motivation behind the termination as such is irrelevant. Consequently, the Austrian Supreme Court requested a preliminary ruling and the ECJ issued a decision in the job-medium case (ECJ C-233/20, job-medium). It ruled the Austrian legal situation to be contrary to EU law. In the subsequent proceedings, the Supreme Court therefore assumed that the employee is entitled to compensation for unused vacation even in case of resignation without cause. However, this only applies to the four-week minimum leave granted by EU law. The Austrian legislator followed suit with an amendment to the Vacation Act and has thus created the aforementioned, quite complex regulation to comply with union law. Accordingly, compensation for the national minimum leave, which exceeds the minimum leave of four weeks guaranteed under union law, is not required.

By Walter Poeschl, Partner, and Clemens Chwala, Associate, Taylor Wessing

This article was originally published in Issue 10.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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