On 25 June 2020, in a joined judgment, the European Court of Justice (ECJ) held that a worker unlawfully dismissed and subsequently reinstated to their former employment is entitled to paid annual leave (PAL) for the period from the date of dismissal to the date of reinstatement (Period). Alternatively, the worker would be entitled to pay in lieu of untaken leave at the end of their employment if PAL was not given for the Period. 

What happened?

A Bulgarian case (C 762/18) referred to the ECJ involved a worker who was dismissed on 29 April 2004 and reinstated over 4 years later (13 November 2008) having ultimately succeeded in their claim for unlawful dismissal. The worker sought compensation for 285 days of accrued but untaken PAL during the Period. However, under the Bulgarian Labour Code and precedent case-law, the worker was not entitled to PAL as they did not carry out actual work under the employment relationship during the Period. 

The Bulgarian national court posed the following questions to the ECJ in order to assess if its national law was compatible with EU law:

1. Should Article 7(1) of Directive 2003/88 (Working Time Directive) be interpreted to preclude national legislation and/or case-law where the worker is not entitled to PAL on the grounds the worker did not perform actual work in the service of the employer;
2. If so, must Article 7(2) of the Working Time Directive preclude national legislation and/or case-law in the event the employment relationship with the worker has subsequently ended.

In a comparable Italian case (C 39/19), the Supreme Court in Italy referred a similar question to the ECJ. 

EU jurisdiction to review the case 

The Bulgarian government argued that the ECJ did not have jurisdiction to assess the case as the dismissal occurred before Bulgaria joined the EU. This argument was rejected as the case did not concern a dismissal, but the legal consequences of the dismissal and reinstatement which occurred after Bulgaria joined the EU. 

It was also argued that the applicant was not a ‘worker‘ within the meaning of the Working Time Directive during the Period and therefore the ECJ should not review the case. This point was also rejected as the question related to the right to PAL in connection with an unlawful dismissal and subsequent reintegration into employment and, under national law, where a dismissal is illegal, it implies that the Period is retroactively considered as part of a worker’s length of service.

The Italian government argued that the question referred should be inadmissible as it lacked factual context and reference to specific national legislation. This argument was rejected because the referring court clearly identified the question posed and specified the EU legislation on which interpretative guidance was needed.

What did the ECJ decide?

The ECJ, as well as reviewing the existing national law of Bulgaria and Italy, assessed Article 31 of the Charter of Fundamental Rights of the European Union (Charter) covering fair and just working conditions and Article 7 of the Working Time Directive. 

The ECJ concluded that Article 7(1) should not be interpreted narrowly. It held that the right to PAL was not only a principle of EU social law but also enshrined in the Charter. While the purpose of PAL is generally referenced to periods of actual work completed under the employment contract, the ECJ was guided by the specific circumstances of these cases. The ECJ referred to recent case law relating to sick leave, where it was held that the right to PAL would not be diminished where a worker was unable to fulfil his obligation to work due to illness during the reference period. The ECJ adopted the view that case law on to the right to PAL in such scenarios could similarly be applied to this situation because: 

1. The absence from work was not “predictable“;
2. The absence from work was “beyond the worker’s control”. 

Ultimately, the ECJ concluded that the employee should not be punished, by loss of a PAL entitlement, as a result of the wrongful act of the employer. The ECJ confirmed the inherent right to an allowance in lieu of untaken annual leave when an employment relationship ends; the reason why the employment was terminated is irrelevant. However, it was noted that an entitlement to PAL or an allowance in lieu of unpaid leave would not be allowed where a worker occupied another job in the Period.

What does this mean for employers?

It is important for employers to be aware of this potential “hidden” cost when conducting a risk analysis on claims for unfair dismissal. Given the backlog before the Workplace Relations Commission (WRC), which is increasing as a result of COVID-19, a significant gap between an employee’s date of dismissal and the date on which they may be reinstated is likely. The period between those two dates is deemed to be service for an employee under the ECJ’s latest decision.  This means that an employee who is reinstated will have accrued statutory annual leave during that period, even though they were dismissed and did not work for the employer during that period.

So quite apart from the cost of defending a claim for unfair dismissal and the employment costs associated with reinstating an employee on the WRC’s direction, an employer may also have the additional cost of accrued but untaken annual leave.

Contributed by Robert Glascott