Since the decision of the Federal Labour Court (file no.: 9 AZR 844/11) on 14 May we finally have clarity around a longstanding question.  

If a settlement is agreed that contains a clause which stipulates that all claims resulting from the employment relationship are excluded, this also covers holiday pay claims, according to the most recent jurisprudence.  Up to now, a general compensation clause of this sort was not seen as sufficient.  Instead, the settlement required a separate provision recording that the employee’s holiday entitlement had been satisfied.  

The Federal Labour Court now holds a different opinion.  In this cae, against the background of a termination dispute, the employee and employer concluded a settlement on the termination of the employment relationship and agreed that “all reciprocal financial claims resulting from the employment contract, whether known or unknown and regardless of their legal basis, are settled.”  

Despite this settlement wording, the employee filed a separate claim for 70 days’ holiday pay, which he said he had been unable to take during his employment for reasons related to illness.  In the employee’s opinion, holiday pay did not fall under the compensation clause agreed in the settlement.  The employer took the opposite view and declined payment of holiday pay due to the breadth of the general compensation clause.   

The Labour Court in Chemnitz initially agreed with the employer and dismissed the employee’s lawsuit.  The Higher Labour Court of Saxony cancelled the decision of the Chemnitz Court and ordered the employer to pay the outstanding holiday claim.  The employer then filed an appeal to the Federal Labour Court and was successful.   

The Federal Labour Court will now generally consider outstanding holiday pay claims to fall under a broad general compensation clause so long as it is sufficiently widely and clearly drafted.  In support of its decision, the Court stated that the general compensation clause agreed in the settlement represented a “constitutive negative acknowledgement of debt” pursuant to Section 397 (2) German Civil Code (BGB).  The consequence of such an acknowledgement is that no further claims can be asserted and in this case the employee therefore had to reimburse the employer for the holiday pay.   

As an incidental point with regards to the forfeiture of holiday due to long-term incapacity for work, the Federal Labour Court repeated its new point of view i.e. that statutory holiday is not lost prior to the expiration of 15 months following the termination of the holiday year in which that holiday accrued.  In other words, if it has not been taken by then, it will be lost.