Case C-311/12, Kassner – does EU law stop the social partners eroding paid annual leave?

Does Article 31 of the EU Charter of Fundamental Rights and Article 7(1) of the working time Directive 2003/88/EC combine to preclude national legislation that allows the social partners in specific industrial sectors to reduce the length of paid annual leave? And what effect does the EU Charter and the Directive have on the situation where a worker who is off work sick has their contract of employment terminated? Can he claim financial compensation in lieu of the perceived right to annual leave accrued but unused during the period of illness?

Facts
Mr Kassner began working for the defendant company Mittelweser-Tiefbau in 1977. At the end of December 2009, the claimant went off work sick and remained so until the employer ended his employment contract in December 2011.

The dispute turns on Mr Kassner’s claim to financial compensation for the 30 days of holiday mentioned in the collective agreement and which he believes he had accrued during each of the years 2010 and 2011, and which he was unable to take because of his illness. In the alternative, he claims 20 days which is the statutory minimum period of paid annual leave in Germany.

The defendant employer refuses to pay and submits that Mr Kassner’s claim has no basis in law: the applicable collective agreement does not allow him to claim financial compensation in lieu of the unused days annual leave; and neither the applicable German statute nor the provisions of the collective agreement can be interpreted in a way that accords with either Article 31 of the EU Charter, or EC Directive 2003/88/EC concerning certain aspects of the organisation of working time.

The Arbeitsgericht Nienburg explains that under the German Annual Leave Act, the social partners can agree to deviate from the Act where this is ‘necessary’ to guarantee a coherent annual holiday for every employee.

Accordingly, the social partners could agree not to grant paid annual leave, and could agree that, in some cases, employees would only have the right to less than 24 days of annual leave. Indeed, in this case, the social partners in the building sector had reduced the amount of annual leave to which a sick employee would be entitled in circumstances where: the employer was not obliged to pay wages, and where employees could not make a claim on a sickness insurance policy. Thus, the Arbeitsgericht Nienburg indicated that whether the claim was based on the German Act or the provisions of the collective agreement the claimant only had the right to 15.23 days of annual leave in 2011.

This legal result prompted the Nienburg Labour Court to ask the CJEU no less than 7 Questions. The first was whether the German Annual Leave Act was incompatible with Article 7(1) of the Directive and Article 31(2) of the EU Charter. The referring court noted that in Case C-282/10, Domínguez, the CJEU had already interpreted Article 7(1) Directive in such a way as to prevent national provisions or practices which link paid annual leave to a minimum reference period of having worked between 10 days, or a month. The Nienburg Labour Court added that it took the view that limiting an employee’s right to paid annual leave for 4 weeks was not ‘necessary’ in order to guarantee a coherent annual leave for all employees.

Question 2 flows from the fact that because the employee had not received a gross wage in 2011 he had no right to financial compensation in lieu of the unused days of annual leave under either the German statute or the collective agreement. Again, the referring court disagreed with this interpretation of the law when reading the national provisions together with Article 31(2) of the EU Charter, Article 7(1) of the Directive, and the CJEU’s judgmnent in Case C-282/10, Domínguez. The referring court pointed out that the law of the social partners, whereby an employee who has suffered a loss of income during the reference period and yet still cannot claim pay that is related to annual leave, or claim financial compensation for unused annual leave, did not correspond to German statutory law which grants an employee the right to four weeks of paid annual leave.

Question 3 relates to the CJEU’s judgments in Case C-155/10, Williams and Case C-282/10, Domínguez and the concept of annual paid leave. Is it is possible for a collective agreement to reduce holiday pay for employees who are off work for a long period of time owing to sickness? If the situation in Kassner is not automatically incompatible with EU law, then what percentage of reduction would it consider acceptable  – particularly when the right to paid annual leave is an important principle of social law of the EU, and national measures need to be interpreted in a way that conforms with EU law.

Question 4 deals with a further principle expressed in the collective agreement for the building sector. Namely, an employee must work a number of days work before they had the right to a holiday (after 12 days of work, there was the right to one day of holiday). The referring court pointed out that in this particular case, the rule in the collective agreement functions to prevent an employee who is sick for a long time and who no longer receives a insurance payment (and thus is no longer doing ‘working days’), from building up rights to annual leave. The referring court was of the view that this too was contrary to Article 31(2) of the EU Charter and Article 7(1) of the Directive – the collective agreement for the building sector should be read to conform with EU law. Thus, this particular provision of the collective agreement could only stipulate that the accrual of days of annual leave through performing ‘working days’ would only apply in so far as an employee wished to rely on the collective agreement in order to claim more holiday than the annual holiday of at least four weeks.

On Question 5, relates to whether EU law precludes a provision in a national collective agreement under which a paid annual leave entitlement – or after the employment relationship has ended an entitlement to an allowance in lieu of leave – does not accrue in years in which, as a result of loss of working hours or non-culpable absence from work, in particular due to sickness, no gross wage is earned.

Question 6 concerns the provision in the national collective agreement under which entitlements to leave and to an allowance in lieu of leave expire at the end of the calendar year following the year in which the leave entitlements accrued, thereby limiting the possibility for a worker who is unfit for work for several consecutive reference periods to accumulate entitlements to paid annual leave. The referring court flags up the CJEU’s case law in Case C-214/10, KHS; Case C- C-350/06 and C-520/06 Schultz-Hoff; and Case C-337/10, Neidel.

And Question 7 centres on a potential temporal limit being set on the consequences that may flow from the CJEU’s eventual judgment. That is to say, the referring court does not exclude the possibility that the case law of the Federal Labour Court has created the expectation that national judges would continue to recognise the legal validity of the annual leave provisions found in collective agreements even where those provisions may not be in complete conformity with EU law. An employer might make a submission that he decided not to terminate the contract of an employee who is off for long-term illness simply because of the case law of the Federal German Labour Court which he would understand as not allowing annual leave to be accrued – and that to do otherwise would be disadvantageous to the employer. The referring court therefore asks that if the CJEU should decide not to limit temporally the effect of its judgment, whether it would still be compatible with EU law for the national judge to protect the legal expectation generated by national law.

Questions Referred

According to the Curia website, the Arbeitsgericht Nienburg has asked:

1. Are Article 31 of the Charter of Fundamental Rights and Article 7(1) of Directive 2003/88/EC of 4 November 2003 concerning certain aspects of the organisation of working time to be interpreted as precluding national legislation under which, in certain sectors, the length of the period of annual leave of at least four weeks may be reduced by way of collective agreement?

2. Are Article 31 of the Charter of Fundamental Rights and Article 7(1) of Directive 2003/88/EC of 4 November 2003 concerning certain aspects of the organisation of working time to be interpreted as precluding national legislation under which it may be provided in collective agreements that reductions in earnings occurring in the period of calculation as a result of short-time work, loss of working hours or non-culpable absence from work affect the calculation of the payment for annual leave with the result that the worker does not receive any payment for annual leave for the duration of the period of annual leave of at least four weeks, or does not receive any allowance in lieu of leave after the employment relationship has ended?

3. If Question 2 is answered in the affirmative: Are Article 31 of the Charter of Fundamental Rights and Article 7(1) of Directive 2003/88/EC of 4 November 2003 concerning certain aspects of the organisation of working time to be interpreted as precluding national legislation under which it may be provided in collective agreements that reductions in earnings occurring in the period of calculation as a result of short-time work, loss of working hours or non-culpable absence from work affect the calculation of the payment for annual leave with the result that the worker receives a lower payment for annual leave for the duration of the period of annual leave of at least four weeks, or receives a lower allowance in lieu of leave after the employment relationship has ended, than he would receive if the calculation of the payment for annual leave were based on the average earnings which the worker would have received in the period of calculation without such reductions in earnings? If so, what is the maximum percentage, with reference to the worker’s full average earnings, that a collectively agreed reduction, permitted by national legislation, of the payment for annual leave as a result of short-time work, loss of working hours or non-culpable absence from work may have in the period of calculation in order for the interpretation of that national legislation to be regarded as in conformity with EU law?

4. Are Article 31 of the Charter of Fundamental Rights and Article 7(1) of Directive 2003/88/EC of 4 November 2003 concerning certain aspects of the organisation of working time to be interpreted as precluding a provision in a national collective agreement under which a leave entitlement does not accrue for periods of the year in which a worker who is unfit for work due to sickness has not received remuneration, sick pay or injury benefit, in so far as, consequently, the worker has an entitlement to less than four weeks’ annual leave?

5. Are Article 31 of the Charter of Fundamental Rights and Article 7(1) of Directive 2003/88/EC of 4 November 2003 concerning certain aspects of the organisation of working time to be interpreted as precluding a provision in a national collective agreement under which a paid annual leave entitlement – or after the employment relationship has ended an entitlement to an allowance in lieu of leave – does not accrue in years in which, as a result of loss of working hours or non-culpable absence from work, in particular due to sickness, no gross wage is earned?

6. Are Article 31 of the Charter of Fundamental Rights and Article 7(1) of Directive 2003/88/EC of 4 November 2003 concerning certain aspects of the organisation of working time to be interpreted as precluding a provision in a national collective agreement under which entitlements to leave and to an allowance in lieu of leave expire at the end of the calendar year following the year in which the leave entitlements accrued, thereby limiting the possibility for a worker who is unfit for work for several consecutive reference periods to accumulate entitlements to paid annual leave? If so, is EU law applied better and more effectively in national law if such a collectively agreed rule is disapplied entirely, or if the rule is developed in conformity with EU law in such a way that, rather than the annual period, a certain longer period applies?

7. If one or more of Questions 1 to 5 are answered in the affirmative: Do the general principle of legal certainty laid down by EU law and the principle of non-retroactivity allow the possibility of relying on the Court’s interpretation of Article 31 of the Charter of Fundamental Rights and Article 7(1) of Directive 2003/88/EC of 4 November 2003 concerning certain aspects of the organisation of working time in the preliminary ruling to be given in the present case to be limited in time, with effect for all parties, because the highest national courts have previously ruled that the relevant national legislation and collectively agreed rules are not amenable to an interpretation in conformity with EU law? If the Court answers this question in the negative: Is it compatible with EU law if, on the basis of national law, the national courts grant protection of legitimate expectations to employers, who have relied on the continued application of the case-law developed by the highest national courts, or is the grant of protection of legitimate expectations reserved for the Court of Justice of the European Union?

Comment
The CJEU’s judgments in C-131/04, Robinson-Steele, C-350/06 Shultz-Hoff, and C-486/08, Zentralbetriebsrat Landeskrankenhäuser Tirols also feature in another reference made from a Spanish court to the CJEU about whether, for the purposes of Article 7 of the working time Directive 2003/88/EC, a worker, who is on sick leave during a period of annual leave fixed by the company, has the right to take his annual leave at another period? See Case C-194/12, Maestre García – checking out where annual leave coincides with sick leave.

The CJEU’s judgment in Case C-486/08, Zentralbetriebsrat Landeskrankenhäuser Tirols is mentioned in another reference which has also been made by the Arbeitsgericht Nienburg. The reference concerns German workers who switch from full-time to part-time employment and their employers’ disadvantageous recalculation of the unused days of annual leave that have been accrued during the employee’s period of full-time work. See Case C-415/12, Brandes – from full-time to part-time work and a disadvantageous recalculation of unused accrued holiday.

Update – 16th October 2013
Case C-311/12, Kassner has been removed from the CJEU’s Register.