You can teach a new court Mangold tricks – the horizontal effect of the Charter right to paid annual leave

Filippo Fontanelli, Senior Lecturer in International Economic Law, University of Edinburgh

On 6 November 2018, the Court of Justice of the European Union (the Court) delivered three judgments relating to paid annual leave. Some of its remarks transcend the specific topic, and touch on constitutional matters: the impact of the EU Charter of Fundamental Rights on private parties, the allocation of competences between the EU and the Member States, and the application of EU secondary law.

These cases teach a couple of lessons, and raise a wider point. The lessons are useful: first, alongside the right to non-discrimination and effective judicial protection, the right to annual paid leave in the Charter has direct effect not only in vertical disputes (ie disputes between the individual and the State), but also in horizontal disputes (ie disputes between individuals), even though EU Directives dealing with the same issue still do not in themselves have such horizontal direct effect.  Second, the Charter sometimes binds State acts in a decisive manner. This occurs rarely and, curiously, so far exclusively in disputes between individuals, when the domestic law transposing a directive is not in good order.

The wider point concerns the Charter’s application to domestic measures. In these cases, EU secondary law could not displace domestic measures, because Germany had not transposed a directive correctly. The directive’s mere existence, however, warranted the Charter’s application, and in turn enabled domestic courts to disregard German law and enforce the right to annual paid leave.

The now familiar combo “unimplemented directive plus Charter right” seems a Munchhausen trick. To justify the practice, one should go back to the Mangold case (in which the CJEU ruled that, prior to the Charter having binding force, the general principles of EU law meant that the right to non-discrimination could apply between private parties even if a Member State had not implemented a Directive), and perhaps look deeper into the difference between direct applicability and direct effect, or between a norm’s application and its scope of application. After looking back and looking in-depth, it is still difficult to see precisely how the Charter applied.

The judgments

In cases C-619/16 and C-684/16 Kreuziger and Max Planck, the facts were comparable. Messrs Kreuziger and Shimizu, respectively employed by the Land of Berlin and the Max Planck Institute, had failed to take the entire period of paid annual leave to which they were entitled. After their employment ended, the former employers denied their request to receive payment in lieu of leave. German law appeared to authorise the employers’ position that a failure to request paid annual leave automatically entailed its lapse upon termination.

The Court disposed of the Kreuziger case quickly, due to the dispute’s vertical nature (the employer was a German Land). Article 7 of Directive 2003/88 (the working time Directive) clearly confers the right to paid annual leave and, accordingly, payment in lieu for the leave not taken; the Court recently ruled on this issue in Bollacke. The Court dusted off the direct effect spiel. Since “provisions of a directive that are unconditional and sufficiently precise may be relied upon by individuals, in particular against a Member State and all the organs of its administration” [21], individuals can invoke the Directive and the judges must set aside domestic law if need be. The automatic lapse of this right upon termination of employment, without any safeguard to make sure that the employee could exercise it beforehand, violated EU law.

The reasoning of the Max Planck ruling extended further, since the main proceedings concerned a dispute between private parties. The reasoning of Kreuziger was copy-pasted: Article 7 of the Directive precludes an automatic lapse of the right to paid leave triggered by a mere failure to exercise it [40]. National courts must arrive, to the extent possible, at an interpretation of domestic law consistent with the Directive.

Failing all attempts at consistent interpretation, Mr Shimizu could not rely on the Directive alone, since “Max Planck had to be considered an individual” [65], and directives normally lack horizontal direct effect [68]. The Court thus turned to Article 31(2) of the Charter on the right to annual paid leave, noting that it entailed a clear, enforceable right, withstanding only derogations in compliance with Article 52(1) of the Charter [73]. Article 31(2) of the Charter needing no implementing act to operate, it could warrant disapplication of contrary domestic law:

74           The right to a period of paid annual leave, affirmed for every worker by Article 31(2) of the Charter, is thus, as regards its very existence, both mandatory and unconditional in nature, the unconditional nature not needing to be given concrete expression by the provisions of EU or national law, which are only required to specify the exact duration of annual leave and, where appropriate, certain conditions for the exercise of that right. It follows that that provision is sufficient in itself to confer on workers a right that they may actually rely on in disputes between them and their employer in a field covered by EU law and therefore falling within the scope of the Charter.

75           Article 31(2) of the Charter therefore entails, in particular, as regards the situations falling within the scope thereof, that the national court must disapply national legislation negating the principle [that the right to paid leave and/or payment in lieu cannot lapse automatically].

The last hurdle for the direct invocability of Article 31(2) of the Charter in German courts was the dispute’s horizontal nature. The Court recycled from its own case-law the bold suggestion that Article 51(1) of the Charter, which sets out who is bound by the Charter, is ambiguous in this respect and does not preclude individuals from relying on the Charter against each other:

76           … although Article 51(1) of the Charter states that the provisions thereof are addressed to the institutions, bodies, offices and agencies of the European Union … and to the Member States only when they are implementing EU law, Article 51(1) does not, however, address the question whether those individuals may, where appropriate, be directly required to comply with certain provisions of the Charter and cannot, accordingly, be interpreted as meaning that it would systematically preclude such a possibility.

Notably, the Court distinguishes Article 27 of the Charter on workers’ consultation (at issue in AMS) from Article 31(2) on annual leave, because the former Charter Article refers to national and EU law limits and the latter Charter Article does not. If this is the test for whether Charter provisions can have horizontal direct effect, it should be noted that most of the Charter provisions on social rights refer to national and EU limits – but most of the other provisions of the Charter do not.

73      By providing, in mandatory terms, that ‘every worker’ has ‘the right’ ‘to an annual period of paid leave’ — like, for example, Article 27 of the Charter which led to the judgment of 15 January 2014, Association de médiation sociale (C‑176/12, EU:C:2014:2) — without referring in particular in that regard to the ‘cases’ and ‘conditions provided for by Union law and national laws and practices’, Article 31(2) of the Charter, reflects the essential principle of EU social law from which there may be derogations only in compliance with the strict conditions laid down in Article 52(1) of the Charter and, in particular, the fundamental right to paid annual leave.

The Joined Cases C-596/16 and C-570/16 (Wuppertal v Bauer; Willmeroth v Broßonn) largely replicated the reasoning of the Max Planck and Kreuziger cases. Only, in the underlying disputes, it was rather the employees’ heirs seeking payment in lieu, on behalf of the deceased workers. According to the referring judge, German law provided that the right to unpaid annual leave, necessarily turned into payment in lieu upon the workers’ death, would not become part of their estates.

Building on prior case law (discussed here), the Court, besides noting the importance of the right under Article 7 of the Directive, stated that it should accrue, after the death, to the worker’s estate:

48      … from a financial perspective, the right to paid annual leave acquired by a worker is purely pecuniary in nature and, as such, is therefore intended to become part of the relevant person’s assets, as a result of which the latter’s death cannot retrospectively deprive his estate and, accordingly, those to whom it is to be transferred by way of inheritance, from the effective enjoyment of the financial aspect of the right to paid annual leave.

With respect to horizontal disputes (like the Willmeroth v Broßonn controversy, whereas Bauer was a public employee), the reasoning of the Court was identical to that used in the Max Planck case [87-91]. Article 31(2) of the Charter can be invoked in disputes between individuals, possibly leading to the setting aside of domestic norms like those at issue in the main proceedings.

The Charter’s effect on domestic measures

The Charter has many functions. It guides the interpretation of EU law and serves as standard of legality of EU acts. It does not enlarge the competences of the EU at the expense of the member states, but binds their action when they act as agents of the EU. In this residual scenario, delimited by the sibylline “implement[ation of] EU law” notion of Article 51(1) of the Charter, the Charter should serve as standard of EU-legality of national measures. In other words, the Charter can preclude some national measures.

The Charter applying to state measures falling “within the scope of EU law,” (a formula sanctified in Fransson [21], and unsurpassably frustrating), the following circumstances can arise:

a)      EU law does not apply to the matter, so neither does the Charter;

b)      EU law applies to the matter, and precludes the domestic measure. The Charter applies too: it might also preclude the domestic measure (“double preclusion”) or not;

c)       EU law applies to the domestic measure, but does not preclude it. The Charter applies too, and likewise does not preclude it;

d)      EU law applies to the domestic measure, without precluding it. The Charter, which also applies, precludes the domestic measure.

In the scenarios a), b) and c), the Charter is irrelevant to the ultimate determination of EU-legality.

Only in scenario d) does the Charter show its teeth, doing its standard of review job fully. Exclusively in this scenario, an otherwise EU law-compliant measure can breach the Charter and, accordingly, might be set aside by domestic judges. To this day, scenario d) has never occurred in its garden variety. Never has been the case that, for instance, a national measure that justifiably restricts one fundamental freedom (and falls therefore under the scope of Treaty law, without being precluded thereby) was found to breach the Charter. This unlikely coincidence warrants a deeper analysis (but not here), because it suggests that the Court is discreetly keeping the Charter in a locked drawer, lest member states react like the German Constitutional Court reacted after Fransson. A low-profile use of the Charter – one that essentially emptied it of its post-Lisbon potential – is what the Court’s record shows in the last 9 full years.

However, there is a hybrid category of cases, halfway between scenarios b) (double preclusion) and d) above. The paid annual leave rulings of 6 November 2018 belong in this atypical group, insofar as they relate to horizontal disputes. As far as their bearing on vertical disputes, they are squarely b)-type rulings: the measures are precluded by the Directive, and the breach of the Charter is just redundant.

The discussion below, instead, focuses only on the horizontal dimension of these rulings.

Did the Directive apply?

That the Directive applied must be assumed – otherwise the Charter would not have applied at all. Yet, the Directive could not apply to determine the outcome of the underlying dispute, for lack of horizontal direct effect. Can it be said that the Directive applied, and precluded the national measures, but was ineffective? The (ineffective) application of the Directive to the underlying scenario would then warrant the (very effective) application of the Charter. The Charter alone would warrant the disapplication of the German norms that breached both the ineffective Directive and the effective Charter.

The easier construction – that the Directive, lacking horizontal direct effect, could not apply – is untenable. Admitting that the Directive did not apply contradicts the notion that the German law fell within the “scope” of EU law, and would rule out the relevance of the Charter tout court. Some finer reasoning must support the Court’s decision. I suggest a couple of unnoticed distinctions that might help.

Direct application is not the same as direct effect: This is an all-time favourite for mid-term exams, so why not give this distinction a day in Court? Perhaps, the Directive did apply somehow (direct applicability), but could not be relied upon in domestic proceedings (lack of horizontal direct effect). This would explain the triggering of Article 51(1) of the Charter, but also the impossibility to use the Directive to solve the disputes between Mr Shimizu and Mrs Broßonn and their employers. Certainly the Directive applied, somehow. As soon as the transposition period expired, it deployed its legal obligatory effects and, even regarding horizontal disputes, triggered immediately Germany’s responsibility for failure to transpose correctly, which individuals can invoke to seek compensation without recourse to any implementing measure.

On the lack of direct effect, there is no real mystery: Article 7 of the Directive creates a precise and unconditional right, capable of invocation in domestic proceedings, so the direct effect checklist is in order. However, it can only work in vertical disputes. This distinction between direct applicability and direct effect could justify the Court’s truncated use of the Directive (sort-of applying to bring the Charter in under Article 51(1) of the Charter; not-really applying in its own right).

Scope of application is not the same as application: This is a contrived distinction, but it might operate in the background of these rulings. The Directive effectively cannot apply in domestic proceedings. However, the German law falls under the “scope” of the Directive, in a somewhat more abstract sense, as if applicable and applied were distinguishable. To accept that EU law reaches further than the circumstances to which it can actually apply is a head-scratcher. Yet, that is what the Court prescribed: domestic law must be set aside for intruding in an area that the Directive could not operate (the direct regulation of duties between private parties) but it nevertheless occupied – somehow. In the wake of Kücükdeveci (an earlier judgment on discrimination in employment), I noted the risk:

… it is necessary to evaluate the implications of Kücükdeveci: if the general principle of non-discrimination has a wider scope than the measures codifying it (the Directive), it follows that it can be invoked in a series of disputes that, despite concerning EU-regulated matters, fall outside the scope of the Directive.

Putting lipstick on Mangold

The distinctions above are nowhere mentioned in the rulings. So, if the Directive could not operate in domestic proceedings, how did the Court justify German law falling under the scope of EU law? This week’s rulings proffer only minimal reasons, but summon precedents to convey the idea that this apparent misalignment is nothing to worry about. From Bauer:

53           Since the national legislation at issue in the main proceedings is an implementation of Directive 2003/88, it follows that Article 31(2) of the Charter is intended to apply to the cases in the main proceedings (see, by analogy, judgment of 15 January 2014, Association de médiation sociale, C‑176/12, EU:C:2014:2, paragraph 43).

If one goes down the rabbit hole of cross-citations, however, Mangold awaits on the bottom. In terms of legal reasoning, it does not get any more controversial than Mangold. The judgment exasperated the former president of the German Constitutional Court and drafter of the Charter, who penned an op-ed wishing the Court of Justice to “Stop.” Ultimately, Mangold was criticised for encroaching into the Member States’ competence.

There are, in fact, a series of cases in which the Court prescribed the horizontal direct effect of a fundamental right, using a directive as a trampoline. Mangold was the first case, and Kücükdeveci followed. Dansk Industri (discussed here), also on discrimination on grounds of age, pulled the same trick, this time using the Charter rather than a general principle of law. AMS (discussed here) replicated the reasoning with respect to the workers’ right to consultation and information in the Charter, accepted its applicability but concluded that the Charter’s norm was not self-executing and stopped short of confirming its horizontal direct effect.

Egenberger (discussed here), very recently, asserted the horizontal effect of the right to non-discrimination on grounds of religion and the right of effective access to justice. In IR (discussed here), the Court consolidated Egenberger, and wisely recalled that non-discrimination is essentially a general principle: if the AMS explanation why the Charter applies to individuals were not compelling, the unwritten source might apply more liberally and come to the rescue just like in the good Mangold days:

69           Before the entry into force of the Treaty of Lisbon, which conferred on the Charter the same legal status as the treaties, that principle derived from the common constitutional traditions of the Member States. The prohibition of all discrimination on grounds of religion or belief, now enshrined in Article 21 of the Charter, is therefore a mandatory general principle of EU law and is sufficient in itself to confer on individuals a right that they may actually rely on in disputes between them in a field covered by EU law.

Conclusion

In all the cases mentioned, individuals could not rely on the directives in domestic proceedings. Yet, each directive somewhat marked the “scope” or “cover[age]” of EU law and let the fundamental right finish the work (unless some ingrained deficiency made it non self-executing, as in AMS). The simple annotation that the German law “is an implementation of [the] Directive” sanded over the uncomfortable truth: if the Directive was insufficient to set aside the norms of German law, perhaps these norms of German law lay outside the scope of EU law, and the Charter should not have found its way in the proceedings.

A sceptical reader might wonder what “a field covered by EU law” means, and wonder whether the Charter spilled over from the EU-law scope comfort zone. An optimist one can celebrate the expansive force of social rights. Horizontal application of fundamental rights translates into the creation of EU-based fundamental duties, and lets us catch a glimpse of solidarity in the making.

Barnard & Peers: chapter 9, chapter 20, chapter 6

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