The annual paid leave claim is an employment claim arising from the conversion into a monetary sum, upon the termination of the contract, of leave days not granted while the employment relationship was continuing. The legislature has regulated this claim in order to safeguard the right to rest. It cannot be claimed for as long as the contract remains in force; it becomes due, and thus capable of being claimed, only upon termination.
The claim arises on the date on which the contract comes to an end, irrespective of the manner in which the termination took place; the final gross wage received is taken as the basis of its calculation. The limitation period, the moment from which interest begins to run, the allocation of the burden of proof and the character of the leave records are among the factors that determine the outcome of the proceedings. Since the burden of proving that leave was actually granted lies with the employer in particular, a failure to keep written records may have serious consequences.
In this briefing note we address the conditions under which the annual leave claim arises, the principles on which the calculation is made, and the matters to be observed at the mediation and litigation stages, in the light of the legislation and the case law of the Court of Cassation.
The Concept of the Annual Paid Leave Claim
The annual leave claim is an employment claim arising from the conversion into pay, upon the termination of the contract, of leave periods not granted during employment. For as long as the employment relationship continues, the right to leave is directed at rest and cannot be converted into money; upon termination, by contrast, the days not taken acquire a monetary character and become capable of being claimed. The claim falls due at the moment of termination and is calculated by reference to the employee’s final wage.
Falling Due on the Date of Termination
The claim relating to leave periods not granted falls due on the date on which the contract comes to an end. From that moment the employee may make a claim and the employer comes under an obligation to pay. The statute of limitations also begins to run on that date. The date of termination is therefore of central importance as regards the arising of the claim, the start of the limitation period and the calculation of interest.
The Distinction Between the Right to Rest and the Monetary Claim
The right to annual paid leave is an inalienable right, aimed at the employee’s physical and mental rest, which the employer must actually grant. Money cannot be claimed in place of leave while the contract is in force.
The annual leave claim, by contrast, is a claim that emerges upon the termination of the contract and denotes the monetary equivalent of the days not granted. In this respect the one has the character of a “right to rest” and the other that of a “monetary claim” arising after termination.
The Principle of Conversion Into Pay
Under the principle of conversion into pay adopted in employment law, leave periods not granted are converted into pay of their own accord at the moment the contract comes to an end. No further claim or step is required for that result to follow. The reason for which the contract came to an end — retirement, termination for just cause, termination by the employer, resignation and the like — does not affect the arising of the right. This item, once converted into pay, is calculated by reference to the employee’s final gross wage and becomes capable of being claimed upon termination.
The Legal Nature of the Claim
The annual leave claim is an employment claim arising in return for work. The general provisions on employment claims therefore apply as regards interest, mediation, the procedural requirement and the statute of limitations. The disputes seen in practice concentrate largely on the determination of the leave period not taken and on the method of calculation. The burden of establishing by written document that leave was granted lies with the employer; where no record exists, it may be concluded that the leave was not taken. Leave record documents, payslips and personnel files accordingly play a decisive role in actions of this kind.
For further detail on the subject, our note entitled Annual Leave Entitlement and Periods may be consulted.
Conditions Required for the Claim to Arise
The annual leave claim arises as a result of the conversion into pay, upon the termination of the contract, of leave periods not granted during the period of employment. For the claim to be advanced, the employment contract must first have come to an end.
Termination of the Employment Contract
The basic condition is that the employment contract has come to an end for any reason. The employee cannot claim pay in place of leave before a termination has taken place. On the date on which the contract ends, the periods not taken are converted into pay and fall due without any separate step being required. That same date is also important as regards the start of the limitation period.
Does the Type of Termination Change the Outcome?
As a rule, the manner in which the contract came to an end does not affect the arising of the claim. Whether the termination comes from the employee or from the employer, and whether it rests on a just or an unjust ground, the monetary equivalent of the days accrued but not granted arises. In this respect the item is independent of the type of termination.
Retirement, Resignation and Termination by the Employer
The claim may arise in every case in which the contract comes to an end. The employee leaving on retirement, resigning of their own will, the contract being terminated by the employer, or the contract coming to an end in some other way (death, expiry of the term and so on) constitute no obstacle to the claim arising. In these cases the equivalent of the leave periods accrued but not granted must be paid to the employee on the basis of the final gross wage.
The Conversion of Unused Leave Into Pay
As set out in detail above, the right to annual leave is aimed at rest for as long as the contract continues and cannot in principle be converted into cash. Upon the termination of the contract, however, the periods not granted are converted into pay of their own accord and take on the character of a claim the employee may advance. That conversion arises from the statute; no additional step is required for it.
The Effect of Accrued Leave
Leave not taken while the contract is in force is not forfeited but carried over to subsequent years. Where leave days have accrued from past years at the moment of termination, they are therefore converted into pay in their entirety. The dispute most frequently encountered in practice concerns the determination of the number of days carried over. The employer must prove by written documents that leave was granted; failing that, the existence of leave carried over is assessed in the employee’s favour.
In the result, leave periods not granted cease at the moment of termination to be a right to rest and become a monetary claim in the full sense; the employee’s right to claim thus arises.
How Is Annual Leave Pay Calculated?
The starting point of the calculation is the level of the wage on the date on which the contract came to an end. Since the periods not taken are converted into pay at the moment of termination, the calculation is likewise made by reference to that date. The controversies seen in practice concentrate mostly on how the daily wage is to be found and which payment items are to be taken into account.
The Final Gross Wage Basis
The measure used in the calculation is the gross wage in force at the moment of termination. For leave relating to past years, the current figure at the moment the contract came to an end is taken into account, not the wage level of those years. This approach has also been adopted in the settled practice of the Court of Cassation.
Finding the Daily Wage
The daily amount is found by dividing the monthly gross wage by thirty; multiplying that figure by the number of days not granted yields the amount of the claim. The formula may be summarised as follows:
- Monthly gross wage ÷ 30 = Daily gross wage
- Daily gross wage × leave days not taken = Annual leave claim
- In the calculation, the leave period is taken into account in calendar days.
National holidays, weekly rest days and public holidays falling within the leave period
There is an express provision of the statute on this point:
Labour Act No. 4857, Art. 56
“In calculating annual paid leave days, national holidays, weekly rest days and public holidays falling within the leave period shall not be counted as part of the leave period.”
Its Relation to the Wage Taken as the Basis for Severance Pay
The wage taken as the basis of the calculation resembles the wage taken as the basis for severance pay in most cases. The two calculations do not, however, coincide exactly. The “wage including fringe benefits” is taken as the basis in the calculation of severance pay; in the leave claim the measure is the employee’s final gross wage. While certain continuous payments may be taken into account, incidental and irregular payments are as a rule left out.
The Position of Bonuses and Fringe Benefits
Whether bonuses, gratuities and social benefits are to be included in the calculation is determined according to the nature of the payment. Regular and continuous payments — a sales bonus paid steadily each month, for example — may be assessed as falling within the wage. Payments that are performance-related, incidental in nature or made only once a year, by contrast, generally do not enter the calculation.
In the practice of the Court of Cassation, the decisive criterion is whether the payment in question has become part of the employee’s principal wage.
The Type of Interest and When Interest Begins
The annual leave claim is an employment claim that falls due upon the termination of the contract. The type of interest to be applied and the date from which it runs are determined according to the manner in which the claim is advanced and whether default has arisen. The point most debated in practice is the date from which interest is to run.
The Type of Interest Applicable
Since this item is regarded by its nature as a wage claim, it is as a rule subject to the statutory rate of interest. Where the parties have not fixed another type of interest by contract, the courts award the statutory rate. The settled case law of the Court of Cassation is also to that effect.
The Date of Default
Although the claim falls due upon termination, interest does not always begin on the date of termination; the employer must have been placed in default. Accordingly, where the employee has demanded payment at the moment of termination or has served a formal notice, interest runs from the date of default. Where default has not been created beforehand, interest runs from the date of the action.
This distinction is important for the framing of the litigation strategy.
The Type of Action and the Effect of Amendment of the Pleadings
The date from which interest begins may vary according to how the claim is advanced. Where the claim was initially made for too little and was subsequently increased by amendment of the pleadings, interest on the increased portion is mostly run from the date of the amendment.
Where an action for an indeterminate claim is brought, by contrast, it may be possible for interest to run from the date of the action in respect of the whole of the claim. Choosing the type of action correctly therefore has significant consequences as regards interest.
A note on practice
The moment from which interest is to begin is determined by weighing the dates of amendment, of the action, of default and of termination together. On that account, serving a formal notice of default before recourse is had to the courts is important in order to avoid a loss of interest.
The Annual Leave Pay Action
Since the annual leave claim is an employment claim, it may be made the subject of an action directly, although in practice it is mostly advanced before the labour courts after the mediation stage. A sound assessment of the procedural conditions before recourse is had to the courts is necessary in order to avoid the loss of the right.
Mediation as a Procedural Requirement
Under the Labour Courts Act No. 7036, recourse to a mediator is a procedural requirement in annual leave claim actions. An action brought without taking that step is dismissed on procedural grounds. The application may be made to the mediation office at the employee’s domicile or at the place where the work is performed. If no agreement is reached in the process, the right to bring an action arises upon the final minutes drawn up.
The Courts With Subject-Matter and Territorial Jurisdiction
In disputes of this kind, the court with subject-matter jurisdiction is the Labour Court. In places where there is no labour court, the action is heard by the Civil Courts of First Instance sitting as labour courts.
As regards territorial jurisdiction, the court of the respondent employer’s domicile and the court of the place where the workplace at which the work is actually performed is situated are alternatives; the employee may bring the action at whichever of these two places they choose.
Partial Action or Action for an Indeterminate Claim?
In practice these actions are predominantly brought as an action for an indeterminate claim. This is because the leave period not granted and the amount of the claim depend largely on the employer’s records and may not be capable of precise determination when the action is brought.
Where the amount is clearly known at the outset, recourse may be had to a partial action; where the amount cannot be determined, an action for an indeterminate claim should be preferred. That type of action affords the employee appreciable advantages as regards interest and the statute of limitations.
The Burden of Proof
In these actions the burden of proving that leave was granted lies with the employer. The employer must establish its case by documents such as signed leave forms, the leave register, staff leave schedules and payslips. Where such documents have not been kept in due form, there is also a possibility that they will not be accepted by the court. Where no written document can be produced, it may be concluded that the leave was not taken. The employee, by contrast, is obliged to assert that the contract has come to an end and that a leave claim exists.
Court Fees and Litigation Costs
A proportional fee applies in these actions. An advance fee is paid on the amount claimed when the action is brought. In an action for an indeterminate claim the fee is taken initially on the portion notified and is completed once the amount of the claim is clarified.
In addition, litigation costs such as the expenditure on service of process, the court-appointed expert’s fee and, where necessary, the cost of an on-site examination are also borne by the claimant; where the action is allowed, these items are recovered from the respondent.
Independent Legal Assessment
Although the annual leave claim often falls short of severance and notice pay in amount, it is one of the items carrying the greatest risk for the employer in terms of the regime of proof. Since the burden of keeping records rests entirely with the employer, in a ten-year employment relationship every day for which no signed leave document exists may be assessed at the litigation stage as leave not taken. On the employee’s side, by contrast, the most frequent mistake is bringing the action without having served a formal notice of default and thereby forgoing the interest for the period between termination and the action.
When a particular file is assessed, the following heads should be addressed first:
- Comparing the leave taken year by year against signed forms or the leave register
- Recalculating the leave days carried over, having regard to the date of commencement of employment and the increases in entitlement tied to length of service
- Separating out which payments are continuous in nature when the final gross wage is determined
- Bringing forward the start of interest by serving a formal notice of default before or after termination
- Deciding, together with the effect on the statute of limitations, whether the claim is to be framed as a partial action or as an action for an indeterminate claim
- Leaving out of the calculation the national holidays, weekly rest days and public holidays falling within the leave period
Independent Legal advises on employment law disputes, from the calculation of employment claims through the conduct of the mediation process to the pursuit of actions before the labour courts.