“I’ll rest when I’m dead”: the CJEU rules that holiday pay can be inherited

 

Steve Peers

Unfortunately, all of us have to die someday. More unfortunately still, some people die during their working life, without having a chance to enjoy a well-earned retirement. This raises (among many other things) the question of whether their employment law rights can be inherited.

EU law does not regulate the substantive inheritance law of each Member State. However, EU law does apply where there are cross-border aspects to an inheritance, as regards taxation (where the free movement of capital could be relevant) and as regards the choice of law and civil jurisdiction (which is subject to a Regulation applicable from 2015).

But what about employment law and inheritance? EU law has regulated a number of aspects of employment law, but does not specify what happens in the event of death. This CJEU has now ruled that, at least as regards the right to annual leave pursuant to the working time Directive, employment law rights can be inherited.

The judgment

Article 7(1) of the working time Directive states that every worker is entitled to at least four weeks’ paid leave, ‘in accordance with’ national conditions for entitlement and granting of leave. Article 7(2) states that this minimum period ‘may not be replaced by an allowance in lieu, except where the employment relationship is terminated’.

Previous CJEU judgments in cases such as Schultz-Hoff and Stringer, established that where workers cannot take their annual leave due to sickness, the right to four weeks’ paid annual leave accrued pursuant to the Directive had to be carried over. In the Bollacke judgment, the worker died after a long sickness. When he died, 140 days’ leave was due to him, and his wife (his sole heir) claimed that she had inherited this entitlement.

Although the national legislation implementing the Directive was silent on the issue of whether the allowance in lieu for unused holidays could be inherited, the higher German courts had ruled that it could not. So a lower German court asked the CJEU to interpret the Directive on this point.

According to the Court, the allowance could be inherited. It began by reiterating that paid holiday was a ‘particularly important principle’ of EU social law from which there is no derogation. Crucially, it asserted that the holiday and the payment for it were ‘two aspects of a single right’. Next, Article 7(2) of the Directive did not contain any conditions besides ending employment and having accrued holiday pay. Finally, inheriting the right to accrued holiday pay was essential to ‘ensure the effectiveness’ of the right, because otherwise an ‘unintended occurrence…beyond the control of both the worker and the employer’, would extinguish that right.

Also, the national court had asked whether the worker had to make an application first in order to obtain the back pay. The CJEU reiterated that Article 7(2) of the Directive did not provide for extra conditions, so no such requirement could be applied.

Comments

The Court’s judgment could have consequences for the interpretation of other EU employment law, and even for EU law more generally. While the Court confines its interpretation to a specific provision of the working time Directive, its judgment could form the basis for a prima facie argument that rights can be inherited pursuant to other EU employment law. Most obviously, this reasoning would apply to back pay due pursuant to the Directive on insolvent employers, and to compensation relating to any breach of other EU health and safety legislation – recalling that the working time Directive forms part of that corpus of legislation, and that the death of the worker might in fact have resulted from such a breach.

The Court’s focus on the effectiveness of the legislation concerned is a general point, and this means that this argument could be taken further, for instance as regards compensation due for breach of the EU’s non-discrimination legislation. This reasoning would equally apply as regards consumer law, a fortiori in cases (for instance, a breach of the product liability directive) where a breach of EU law again led to the person’s death directly.

As for the working time Directive itself, the Court’s insistence that no added conditions could be placed upon the right to accrued holiday pay means that such pay must be granted not only where the worker’s employment ended in the ordinary course of events (due to redundancy, retirement or voluntary departure), but also where the employee was dismissed for cause. This might certainly rankle employers in the case of those former staff members who treated every day as a holiday, or upset the general public in the event of an employee ‘going postal’.

In this context, the Court’s reference to death as an ‘unintended consequence’ beyond the worker’s and employer’s control is unhelpful, since it suggests that there might be cases where accrued holiday pay would not be payable on death. Of course, some workers commit suicide, and some appalling employers are responsible for workers’ deaths. Logically, the back pay should also be payable in both those circumstances (particularly the latter).

How can this judgment be enforced? As noted above, the problem in this case was created by national case law, not legislation, so it will be possible to remedy the problem by means of ‘indirect effect’, ie the national court interpreting that national law to be consistent with the Directive. In Member States where the law expressly limits inheritance of holiday pay, the Directive will be directly effective against public sector employers, but not against private sector employers.

In the latter scenario, workers’ heirs will have to seek compensation from the State based on the Francovich judgment, unless it can be argued that Article 31 of the EU Charter of Rights can be used to suspend the national law in question. The CJEU recently clarified whether the Charter can be used against employers indirectly in this way in the AMS judgment, but in today’s opinion in Fennoll an Advocate-General has rejected the idea as regards Article 31. Time will tell whether the Court accepts this analysis; but it is notable that today’s judgment makes no mention of the Charter at all.

The Court’s ruling that the worker cannot be expected to make a prior application for accrued holiday pay makes sense if one accepts its key finding that such pay can be inherited. It would be unreasonable to expect an employee to make such a claim while seriously ill, and it would simply be impossible in the event of the worker’s sudden death.

So this brings us to the Court’s key finding: does it make sense to say that accrued holiday pay can be inherited? While today’s judgment glosses over this, in previous cases (most recently Lock) the Court of Justice has emphasised strongly the importance of the worker receiving full holiday pay as an incentive to take the holiday, in order to get the rest which the Directive provides for, which is meant to guarantee the worker’s health. But obviously, deceased workers can no longer get the type of rest which the Directive refers to. Having insisted so strongly on the link between the pay and the holiday, the Court now insists on the severability of the two aspects of the right.  

Moreover, as usual the Court ignores the reference in Article 7(1) of the Directive to national conditions for eligibility and grant of holiday pay. Some prior case law does accept that limits can be placed on the carry-over of holiday pay, and therefore upon the accrued pay that can be claimed upon termination of employment. But the Court makes no specific mention of that case law (the KHS judgment) here.

So, with great respect, the Court’s judgment is not terribly convincing in terms of the wording and purpose of the Directive. Nor does the Court explain its reasoning very well in light of prior case law.

But having said that, no one would begrudge Mrs. Bollacke (and others in her situation) from receiving a modest amount of extra inheritance following her bereavement. The judgment is unlikely to have an enormous impact on employers, since most workers live to retirement age. And the ruling can be justified in the broader context of the relationship between workers and employers, since it prevents an unscrupulous employer, knowing that a worker is terminally ill, from artificially delaying proceedings in the hope that the worker’s claim will expire along with the worker.

 

Barnard & Peers: chapter 20

Salesman’s Holiday: the CJEU clarifies the calculation of holiday pay

By Steve Peers

While the EU’s Working Time Directive is often criticised in the UK, there are surely some workers who welcome (among other things) the four weeks’ annual paid leave which are guaranteed by the Directive – particularly if they would not otherwise receive it.  More particularly, for anyone who works on commission, yesterday’s CJEU judgment in Lock resolved an important issue affecting the calculation of their holiday pay.

Commission payments can often make up a large proportion of a worker’s income, and this is particularly manifest in Mr. Lock’s case. During 2011, his basic salary (£1222 a month) was well below the national average. But after adding commission (averaging £1913/month), his total salary (averaging £3135/month) rose well above it.

EU law does not regulate the level of workers’ salaries as such. But Article 7 of the working time Directive states that every worker must receive four weeks’ annual paid leave ‘in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice’.

While this wording seems to leave a lot of discretion to Member States, the CJEU has always circumscribed that discretion tightly in light of the importance of this social right (now set out in Article 31 of the EU Charter of Fundamental Rights). The right cannot be denied to fixed term-workers (BECTU) or to persons on maternity leave (Merino Gomez). It can be carried forward if a person is on long-term sick leave (Schultz-Hoff), but Member States still retain some power to limit this (KHS). As for the calculation of the pay, it cannot be ‘rolled-up’ across each month’s salary (Robinson-Steele), and must take into account various pay supplements (Williams).

But does that requirement to take pay supplements into account apply also to commission? A few years back, the Court of Appeal of England and Wales said that it didn’t. But according to the CJEU in Lock, building on its prior case law, it did. Furthermore, the Court clarified how to calculate that commission. Applying the Williams judgment by analogy, the Court ruled that Mr. Lock’s commission was ‘directly linked to his work’ within the company, and so was linked to the ‘performance of his tasks’. So it had to be paid during his annual leave, just like allowances related to ‘seniority, length of service and…professional qualifications’. In contrast, payments which ‘are intended exclusively to cover occasional or ancillary costs’ do not have to be paid to workers during their annual leave.

Comments

This judgment will certainly be welcome for workers who receive commission payments, in particular if they do not already get those payments while on holiday. Likewise, it will be unwelcome for their employers. But it’s not really much of a surprise in light of the general tenor of the CJEU’s judgments on annual leave and the working time Directive, going back nearly 15 years now.  

There is still a very residual role left for national law in this case: the CJEU says that national law can determine the period which is considered to be ‘representative’ for the purposes of calculating the worker’s average commission. So the employee cannot insist on selecting the period when his or her commission was particularly high; but nor can the employer limit the effect of the ruling by insisting upon a reference period when the commission was lower than usual.

Given that the CJEU consistently limits the possible discretion of Member States applying the Directive, the question again arises what happens if there is a dispute with a private employer regarding working time and the national legislation in question cannot be interpreted consistently with the Directive. The CJEU ducked this issue in Dominguez, but it arises again in Fenoll, where the Advocate-General’s opinion is coming in June.

In the meantime, in the AMS case, the Court has begun to clarify the legal effect of the EU Charter as regards private parties. The practical importance of the working time Directive surely requires that the CJEU has to give a proper answer to this question, at least as regards Article 31 of the Charter. 

Barnard & Peers: chapter 9, chapter 20