Employer's responsibility for granting annual leave

Author: Dr. Gabriella Gubik

As the end of the year approaches, employers should review whether their employees have unused leave. This is because the Hungarian Labour Code (“Labour Code”) makes it clear that the employers are responsible for allocating the annual leave to their employees [Articles 122-125 of Labour Code].

The importance of the question

Employers who give their employees full freedom to claim or not to claim their days off may face the unexpected situation at the end of the employment that they have to pay their former employees a higher amount for the unused leave that they may have accumulated over the years. In order to avoid this, it is important to be aware of the main rules on allocating annual leave.

The Court of Justice of the European Union (the "Court") has also dealt with the obligations of employers to allocate annual leave in two decisions (L. Sebastian W. Kreuziger v Land Berlin /C-619/16/ and Max-Planck-Gesellschaft zur Förderung der Wissenschaften eV v Tetsuji Shimizu /C-684/16/). In these cases, German courts have asked the Court for guidance on the question whether, at the end of the employment, the employers can refuse to pay for the unused leave if the employees did not claim their annual leave. 

In the following, we will review the main Hungarian rules of allocating the annual leave, and we will also discuss whether the employer may refuse to pay for unused leave under Hungarian law.

The main Hungarian rules on granting annual leave

The Hungarian rules differ from the German rules examined in the cited judgments, inter alia, because they clearly name the granting of leave as an obligation of the employer [Article 122 (1)-(2) of the Labour Code]. The employees have only the right to be consulted on the leave in advance, but their demands are not binding on the employer. The exception to this is that 7 working days per year must be granted at the time requested by the employee. However, this does not change the fact that the employer remains obliged to allocate leave for these 7 working days and it does not depend on whether employees have requested the 7 days or not [Article 122 (2) of the Labour Code]. 

Employees are protected, however, by the fact that the employer must act in accordance with the general standards of conduct [Article 6 of the Labour Code], in particular by considering the employee's fair interests and cooperating with him. 

In line with EU law (Article 7 of Directive 2003/88/EC), as a general rule, the days of annual leave must be granted in the year in which they are due. The annual leave may be allocated in the next year only in exceptional cases as defined in the Labour Code [Article 123 of the Labour Code]. Payment for unused days off is possible only in the event of termination of the employment relationship [Article 125 of the Labour Code].

Evaluation of Hungarian legislation in the light of recent EU judgments 

a) The right to payment for unused leave

Employees are entitled to such a payment if two conditions are met: (i) the employment relationship has ended, and (ii) the employees have not taken all their days before the end of their employment. 

The Court held that it is contrary to EU law if a national rule makes the right to this payment conditional on the fact whether the employee have claimed the days off and, if they fail to do so, the employees are not entitled to the payment for their (unused) leave at the end of the employment. In the Court's view, the burden of ensuring that the employees actually exercise their right to paid annual leave should not fall entirely on the employees. The Hungarian legislation clearly meets that requirement.

Therefore, it is particularly important that the employer keeps proper records of used and unused leave and allocate them to the employees in a timely manner, in accordance with the conditions laid down in the Labour Code [Articles 122-124]. If an employer is not careful enough, it is possible that its employees may accumulate a significant amount of unused days for which they should be compensated at the end of the employment.

It should be stressed that this right is available to the employees in the event of termination of employment for any reason, including immediate termination by the employer for reasons attributable to the employee. Further, these rules also apply to employees who work flexible working hours.

b) Can the employer oblige the employees to take their leave?

As explained above, under Hungarian law the employer is obliged to allocate leave, so the employer may make a binding provision regarding the employee's leave, which includes the date of leave (except for 7 working days, see above) and whether or not the employee should take leave at all. 

The question arises as to whether the employer must oblige the employees if they do not wish to take leave. The Labour Code does not contain an explicit answer to this question, but as a general rule, the employer can act lawfully if it grants the leave in the year in which it is due, otherwise the employer may be fined. However, it is not clear how and what lawful conduct the employer may adopt in the event of resistance, in particular with regard to the principles of cooperation and fair consideration.

While interpreting Directive 2003/88/EC on the paid annual leave, the Court stated in its judgments cited above that the employer's obligation to pay for unused leave cannot be interpreted so that the employer's liability for allocating leave is unlimited. In the Court's view, the employer may, if necessary, at most formally encourage the employees to take leave and inform them in good time of the date on which they lose their right to leave or to the payment for unused leave.

The question is whether this interpretation would be represented by Hungarian courts, and thus whether the rule of the Labour Code, according to which the employer is obliged to grant leave, could be interpreted in the light of the Court's opinion in a way that the employer does not have to oblige the employee to take leave at all costs. If so, that would have important consequences for possible loss of the right to leave and the right to a cash payment.

c) Can the employees lose their right to annual leave and payment for unused leave?

In harmony with Hungarian legislation and practice, the Court held in its above-mentioned judgments that the purpose of the right to annual paid leave is to enable employees to rest, and that it is therefore intended that the leave should be taken in the year in which it is due instead of being compensated. 

Consequently, the Court concluded that employees cannot be encouraged not to take their annual leave in order to receive a cash payment at the end of the employment relationship. In the Court’s opinion, if an employer can prove that it gave the employee the opportunity to take leave during a certain reference period, but the employee did not take it with proven intent and with knowledge of the legal consequences, national legislation which allows the loss of untaken leave and the loss of the payment for unused leave is compatible with EU law. 

The Labour Code does not contain an express provision on the loss of leave or payment for unused leave, so such claims can be enforced within the general 3-year limitation period. [Article 286 (1) of Labour Code]. The Hungarian rules described above therefore provide overall increased protection for employees, since only the employer bears the risk if an employee does not take leave in the year in which it is due.

The question may arise, whether this Hungarian regulation, which places the full responsibility on employers, can encourage employees to behave properly. If the answer is no, the legislator is expected to consider limiting the right of employees to payment for unused leave within the framework allowed by European Union law.