Every employee is entitled to paid annual leave for at least four weeks (twenty working days). The pecuniary compensation of the unused annual paid leave is forbidden to the exception of cases of termination of the employment agreement.
These rules are provided in Directive 2003/88 of the European Parliament and Council and are adopted in the legislations of the Member States of the European Union.
The rules seem very clear when applied to cases of valid or lawfully terminated employment agreements.
The application of the same rules in cases of wrongful dismissal and subsequent reinstatement into previous job position however led to many problems. The following specific issues were controversially addressed:
- Are the employees entitled to paid annual leave for the period between the dismissal to the reinstatement into the previous job position no matter that the employees did not work for the employer in that period?
- Are the employees entitled to a compensation for unused annual paid leave upon subsequent termination of the employment agreement?
In its judgment dated 25.06.2020 the Court of the European Union (the “Court”) gave positive response to the both questions. The Court also determined whether, who (the previous or new employer) shall pay the compensation for the unused paid annual leave.
What are the facts that led to the questions to the Court
The Court replied in a common judgment to inquiries of the Regional Court of Haskovo from 2018 and the Supreme Court of Cassation of Italy from 2019 under two separate cases.
The case in Bulgaria briefly:
- A teacher in Plovdiv was dismissed, the dismissal was appealed and after four years the teacher was reinstated into her previous position further to a court decision. Later, the employment agreement was once again terminated which termination was not appealed by the employee.
- The teacher brought a claim against the school for receipt of compensation for unused annual paid leave for the period of four years. i.e. from the first dismissal till the reinstatement into the job position.
- The claim was refuted at two court instances. The Supreme Court of Cassation did not allow the cassation appeal of the teacher for consideration, referring to its long-standing practice that the right to use paid annual leave is related to the actual working for the employer.
- The teacher brought a claim to the Regional Court of Haskovo for compensation for damages against the Supreme Court of Cassation. The Regional Court of Haskovo stopped the proceedings and addressed the Court.
The case in Italy briefly:
- The employee was dismissed twice by the employer (a bank) and the two dismissals were declared wrongful and the employee was reinstated to her position. Later, the employment agreement was once again terminated.
- The employee brought claims against the employer for compensation for unused paid annual leaves and special leaves for two periods.
- Two court instances acknowledged the right to compensation for the unused leaves only for the period prior to the second dismissal. The right was denied regarding the other period with the argument that the employee did not work in that period for the employer.
- The employee appealed before the Supreme Court of Cassation of Italy. It stopped the proceedings and addressed the Court.
How did the Court answer?
The Court established the following regarding the right:
- The right to use annual paid leave is fundamental and irreversible human right, of significant importance.
- That right cannot be interpreted restrictively. The Member States shall not bind the existence of that right with whatever condition.
- That right has double purpose: to let the employee have rest from the performance of his duties under the employment agreement and have a period of free time. Therefore, the right to paid annual leave generally shall be determined by the periods of actual working.
- Despite the above, if the employee is unable to perform his duties the right to [aid annual leave shall not be bound by the Member State with the obligation for actual working. Non-working because of sickness for example is considered equal to actual working and does not restrict the right to use of annual paid leave.
- Non-working for the period from the wrongful dismissal to the reinstatement into position is like non-working because of sickness. These both cases are conditions which are unpredictable and do not depend on the employee’s will. In both cases the employee shall be entitled to use annual paid leave.
- The Member States can restrict the accumulation of periods of leave in cases of sickness but cannot restrict the accumulation in cases of wrongful dismissal.
- If the employee worked for another employer in the period from the date if wrongful dismissal to the date of the reinstatement into the first position, that employee is entitled to claim the right to paid annual leave before the second employer.
The Court established the following regarding the compensation:
- The right to annual leave also includes the right to financial compensation upon termination of the employment agreement for the non-using the leave.
- Conditions for compensation for unused leave are as follows: the employment agreement was terminated and the employee did not used all days of the annual leave.
- The employee, wrongfully dismissed and reinstated into his position, may require the annual paid leave in its entire amount for the period from the date of the wrongful dismissal to the date of his reinstatement into position.
- If in that period the respective employee worked for another employer, the employee shall claim the compensation before the second employer (and not the first one).
What is the meaning of the Court’s judgement for Bulgaria?
The Court’s judgment reverses the settled case law in Bulgaria that the right to use paid annual leave should be bound to the actual working for the employer.
From now on, an employee wrongfully dismissed and reinstated into position will be entitled to paid annual leave for the period where he did not work for the employer. If the employment agreement is terminated again, regardless of the grounds for that, the individual will be entitled to compensation for unused paid annual leave.