The Senate of the Supreme Court of the Republic of Latvia narrows the obligation to compensate for unused annual paid leave provided for in the Latvian Labour Law

09
04 / 19

On 29 March 2019, the Department of Civil Cases of the Supreme Court of the Republic of Latvia reviewed Case No. SKC-62/2019, in which the Court made significant findings regarding the compensation of unused annual paid leave to an employee upon termination of an employment relationship. With reference to the European Union law, the Court has provided an interpretation of Article 149(5) of the Labour Law, which shall be taken into account henceforth not only by other courts examining labour disputes, but also by employers and employees. Despite the unconditional obligation of the employer to disburse compensation for the entire period, for which the employee has not used his or her annual paid leave, set out in Article 149(5) of the Labour Law, the Supreme Court of the Republic of Latvia has identified possible exceptions to that obligation.

1b0e8809 9e76 4e8e 8e19 30f89f3713c3In cases when the employer is able to prove that, despite the informing and encouraging of the employee to use the annual paid leave, the employee has purposefully failed to exercise such right, the employer shall not be obliged to disburse the compensation for the entire period.

It should be noted that on 1 January 2015, amendments to Article 149(5) of the Labour Law entered into force, stipulating that the compensation for unused annual paid leave shall be paid for the entire period of the employment relationship. The amendments to the Labour Law were made as the established case law at the time suggested that, considering the content of Article 149(3) and Article 149(5) of the Labour Law, as well as the statute of limitations laid down in Article 31 of the Labour Law, the unused leave could be postponed for one year, and in case the leave was not used, the compensation should not be paid.

The Court in its judgment of 29 March 2019, concluded that, despite the obligation to disburse the compensation for the entire period of the employment relationship set out in Article 149(5) of the Labour Law, the compensation period may be shortened for objective reasons. The Court concluded that the employee shall be entitled to the compensation for the entire period of the employment relationship solely in cases, when the employee has not used the annual leave for objective reasons. Disbursing compensation for all unused annual paid leave days, including those, which the employee has not used for subjective reasons, promotes the result contrary to the principles set out in the European Union law. According to the Court, in cases where, an employee, instead of using annual paid leave, intentionally and purposefully fails to use the annual paid leave in order to receive a financial compensation, the employer may not disburse the compensation for the entire period of the employment relationship, if such a fact can be proven (for example, the employer has regularly informed and encouraged the employee in writing to use the annual paid leave).

In the light of the newly established case law, in cases when the employer is able to prove that, despite the informing and encouraging of the employee to use the annual paid leave, the employee has purposefully failed to exercise such right, thus acting contrary to the mandatory nature of the right for annual paid leave, the employer shall not be obliged to disburse the compensation for the entire period, for which the employee has not used his or her annual paid leave. Thus, not only does the employee have the right to claim the annual paid leave, but also the employer has the right to demand that the employee actually uses the annual paid leave, and, if the annual paid leave is not used deliberately, the employer can refuse compensating the unused leave in cash. However, it shall be kept in mind, that the burden of proof remains with the employer!