Special Considerations for Expiration of Holiday Reserves According to the Practice of the European Court and Practical Advice for Organizing Company Holidays

According to the TLS, an employee's holiday claim expires one year after the end of the calendar year for which the holiday is calculated, and the expiration is suspended for the duration when the employee takes maternity leave, paternity leave, adoptive leave, or parental leave, as well as if the employee is on conscription or substitute service. 

The fact that the TLS does not stipulate the suspension of the expiration of the main holiday during the employee's sick leave period was criticized by Estonian lawyers as early as the effective date of the TLS on 01.07.2009, and although the topic of suspension of the expiration of the main holiday during an employee's illness has not been dealt with in Estonian courts, it cannot be ruled out that, taking into account the subsequent positions of the European Court, the Estonian court may still consider the holiday expiration to have been suspended during the employee's sick leave in a possible dispute. The interruption and constant postponement of employees' main holidays are not risk-free for the employer, also in relation to the responsibility for the employee's health. For instance, if years later an occupational disease develops in the employee, the analysis of the causes of its development may also look at whether the employer fulfilled its obligation to allow the employee regular annual leave. (Source: Lawyer Elena Lass, Pohla & Hallmägi Law Firm). 

Does Unused Holiday Really Expire?  

The European Court has already held in 2018 that employers must call upon their employees to take their main holiday and inform them of the possible expiration of their main holiday rights – if the employer fails to comply with these obligations, then the employee's main holiday claim does not expire within the respective expiration period. The European Court clarified in 2018 that it is up to the employer to prove that it has duly fulfilled its notification obligation. 

The same questions resurfaced in a decision taken by the European Court in September 2022, in which the court took the position that national norms are incompatible with European Union law, according to which an employee's main holiday claim would expire within the statutory expiration period in a situation where the employer itself had not, in fact, given the employee the opportunity to take the unused main holiday days due to reasons attributable to the employer (e.g., due to high workload in the company). The opportunity to take a main holiday, as understood by the court, includes the employer's obligation to call upon the employee to take their main holiday within the expiration period and the obligation to inform the employee about taking the main holiday. 

How Should an Employer Act to Avoid Such Disputes with Employees?  

The purpose of holidays is to ensure that people have sufficient and regular time off for rest and recovery, so it is not lawful to leave holidays untaken or to accumulate them. 

The responsibility for organizing holiday use and work tasks rests with the employer, so it is not in accordance with current law to postpone the right to use holidays due to intensive and important work responsibilities. In line with the purpose of holidays, there is an obligation to use holidays every calendar year, so that employees can recover and maintain their work-life balance. 

According to TLS § 28 Section 2(3), it is the employer's obligation to grant the employee the prescribed holiday. Internal communication between the HR manager and/or department head and the employee is crucial to enable all employees to take holidays while also ensuring that company operations do not stop. This places a responsibility on managers to organize work in a way that responsibilities and accountabilities are distributed so that every employee realistically can take their legally entitled time off without feeling that their absence negatively impacts work or that all unfinished work piles up after the holiday. This is important both for maintaining the employee's working capacity and from the perspective of mental health, which is widely discussed today. 

According to TLS § 69 Section 2, employers are required to prepare a holiday schedule by March 31 of each calendar year, which helps to get a comprehensive overview of the company employees' holiday plans. 

Lawyer’s Comments  

The European Court's decision in September 2022 has caused quite a stir among Estonian employers. Questions have arisen – do new obligations arise from this for Estonian employers, and if so, when and what? 

We consulted specialists on this topic and present the following thoughts from Elena Lass, a lawyer at Pohla & Hallmägi Law Firm, on this European Court decision. 

How Estonian domestic (labor) law appears in light of the European Court's 2018 and 2022 positions certainly requires more thorough legal analysis. Currently, at least, there are no amendments to the TLS in Estonia being developed based on these court decisions. Although cases where domestic court practice in Estonia is not in line with the positions of the European Court still arise, employers should always consider the possibility that the positions taken in the European Court's decisions are binding on all member states and that employees may be able to successfully rely on the European Court's decision in Estonian courts in situations where, according to current Estonian law and previous Estonian court practice, the law would be on the employer's side. 

The European Court in its September 2022 decision linked the possibility of applying the expiration of main holidays to whether the employer has indeed separately informed the employees about the expiration date of the unused main holiday days due to the employer. It was found in the proposal of the court's advocate-general in the European Court's 2022 decision that as long as the employer has not fulfilled its corresponding obligation to clarify about the expiration, the expiration period cannot start running. Simply put, the principle set out in the TLS, according to which the main holiday claim expires one year from the end of the calendar year for which the holiday is calculated, may alone be at risk without notifying the employee of this fact during the same calendar year. 

It can be pointed out that the court dispute was based on a narrower situation where the unused main holiday days had arisen due to the employer – the employer in the company was unable to allow the employee to take the main holiday due to high workload. TLS § 69, paragraph 5, relates to such a situation, according to which the employer has the right to interrupt or postpone the employee's main holiday due to unforeseen significant work organization emergency needs, especially to prevent damage. The interruption of the employee's main holidays by the employer and then postponing these holiday days to the following or even later years is not, however, widespread in Estonia, and therefore the topic certainly does not particularly affect many employers in practice. Employers, where interrupted main holidays of employees due to reasons attributable to the employer remain untaken in a significant number of days within the same year, should think about including the notification of the expiration of such main holidays for specific employees in their routine activities at the end of each year. Employers are advised to send out a notification to specific employees of the number of untaken days and the expiration date at the latest by December 31 of the same year for which the respective main holiday was created but remained untaken – in this case, it can be considered that the main holiday also expires within the standard 1-year period set out in the TLS. If the notification of the expiration of the main holiday days untaken in the previous year is left until the beginning of the new year or is made, for example, in the schedule or initially even only around the middle of the new year shortly before the expected expiration date, this could lead to the interpretation according to the European Court's position that the expiration period would only start from January 1 of the year following the notification year, in other words, would start running only 1 year later than the usual start of the expiration period. 

If the employer notifies the employee of such untaken main holiday on December 31 of the year of creation and untaken leave, the employee's opportunity to take such a holiday within the following 1 year can be considered quite sufficient and reasonable. If the employer wants additional assurance, in situations where the taking of such main holidays is still unduly hindered by the employee within the intended 1-year period, the employer may consider repeatedly notifying the employee closer to the expiration date, for example, at least a few months before the expiration, to notify the employee once again of the last opportunity to take the respective main holiday. Naturally, a situation where the employer continues to call the employee out of holiday within the same 1-year period and does not give them the opportunity to take the holiday later in the same year again postpones the expiration date. 

One may debate the practical and substantive value of the European Court's positions on notifying employees about the expiration of unused primary vacations from the standpoint of Estonian (employment) law. A correct Estonian employer, in fact, already fulfills the obligation set out in the Employment Contracts Act (TLS) to create an annual vacation schedule, mandatorily including the period of unused primary vacation. The employer itself regulates and must indeed manage the extraction of such unused primary vacation within the expiration period through the schedule. With the existence of a schedule, the employee lacks the option to independently take their unused primary vacation at different periods than those scheduled. Additionally, the employee actually also lacks the right to unreasonably refuse to use the scheduled unused primary vacation. 

However, even with the correct formulation of the vacation schedule, a separate notification function by the employer about the expiration of unused primary vacations could still hold certain value in Estonian employment law: awareness of their unused primary vacation's expiration could motivate employees to more thoroughly consider their vacation plans and inform their employer of their wishes, and later not unreasonably interrupt/defer their scheduled unused primary vacations. If the employee is not notified of the expiration of their unused primary vacation and unreasonably refuses to use it as scheduled, it's not entirely clear whether the expiration would apply in that case. However, in a situation where the employee, fully aware of their unused vacation's expiration date, unreasonably fails to use their unused primary vacation, expiration would clearly apply. Since employer notification of expiration could thus influence employee behavior even under Estonian employment law, the notification obligation considered in the European Court's decision is also relevant in Estonian employment relationships. 

 

Furthermore, if a dispute over the expiration of primary vacation arises between the employee and employer, and the employer has acted entirely correctly, deeming the employee's primary vacation as expired, the employer must always be wise and actually present the objection of expiration to the employee – without such an objection from the employer, the court does not independently apply expiration. This principle is also reminded by the European Court in its September 2022 decision. Considering that the employer must be able to prove in case of potential disputes that the employee actually received the employer's notification about the expiration date of the unused primary vacation, it is advisable for the employer to contemplate whether to take the employee's signature under the notification, request a confirmation of receipt to be sent back to the employer via email, etc. 

Highlighting Other Pain Points in Vacation Planning  

Since accumulating a large reserve of unused vacation days is not consistent with the purpose of a vacation, companies should analyze their work organization and seek to answer why employees are not using their allotted vacation time. 

From the perspective of company management and organizational health, the reasons can be diverse, indicating issues with leadership, work organization, or resource shortages. Additionally, this points to ineffective risk management in the company, especially if critical information is held by a single employee who cannot be easily replaced. This becomes a significant issue if the employee leaves or falls ill, forcing the company to find a replacement at short notice to ensure work continuity. 

The reasons for not taking vacations can also stem from the work culture and attitudes. Here are some examples from HR practice: 

• A work culture that frowns upon taking vacations and favors employees' 100% dedication to the company. 

• Poor internal communication. 

• The purpose of the company's vacation management is not just to keep track of vacation balances for accounting or legal compliance, but to maintain the employee's working capacity and health. To facilitate communication, a common practice among BDO Estonia's clients is to configure payslips to show the employee's main vacation balance as of the end of the calendar month and year. However, there are cases where employees do not pay attention to this information, leading to missed important details. 

• Inefficiently organized work, e.g., lack of replacements and only one employee having access to crucial information. 

• Distrust towards coworkers and/or team members. 

• An employee's unwillingness to take a break. 

This reluctance can stem from various aspects, but commonly it's due to a desire to prevent others from accessing their work due to disorder or to hide something. Also, we've encountered employees with a strong sense of duty to complete everything themselves or those who feel irreplaceable. 

• Intense competition among employees. 

• Employees fear that during their vacation, the employer may realize they are not irreplaceable and someone else may perform better. 

• Workaholics who struggle to find activities for leisure time. This is most common in high-achievers, who risk burnout in the long term and lack a balance between work and personal life. 

• Significant reduction in wages due to vacation. 

If a company can minimize the accumulation of vacation reserves, it allows employees to genuinely rest, thereby maintaining their work capacity. In the long run, this is a valuable asset for the company, as it results in more dedicated and loyal employees and significantly reduces the employer's obligation to monitor and notify about vacation balances throughout the year. 

Advice from an HR manager's perspective: 

• Plan vacation schedules in advance in accordance with the law, involving employees. 

• Make regular communication regarding vacation planning and balance notification, including adding vacation balance information to employees' personal payslips and informing them how to keep track of their vacation balances in various HR self-service portals. 

• Maintain reasonable flexibility for both parties, considering the interests of both. 

• Direct communication from the immediate supervisor, not just for notification purposes, but also for discussing with the employee and understanding the real reasons behind not wanting to take a vacation. 

• Effective organization of replacements, so employees don't have to request colleagues for replacements before going on vacation. 

Conclusion Given the absence of court practice in Estonia on these matters and since Estonian legislation does not mandate extending the expiration of vacation due to incapacity, nor does it require the employer to notify the employee of the expiration of their vacation rights, we believe that the best and most benevolent practice of vacation accounting would be for employers to consider applying the decisions of the European Court in their company's vacation planning and taking processes to avoid future disputes. 

We continue to advise all employers to correctly schedule vacations, including periods for unused primary vacations from previous years. 

For those employers who need to recall employees from their primary vacations and cannot find an opportunity to utilize such interrupted vacations within the same year, we recommend implementing primary vacation expirations for additional assurance. This involves written communication - the employer should notify the employee of the expiration date of such primary vacation days by the end of the same year and keep records that help prove that such notification was delivered and received by the employee. 

If you have additional questions on this topic, please contact the experts at BDO.