The most important facts in brief:
- In insolvency proceedings the vacation entitlement of employees continues.
- If the employment relationship is terminated, the vacation entitlement is converted into a Entitlement to vacation compensation um.
- Whether or not the vacation pay claim is satisfied preferentially depends on this, when the employment relationship is terminated.
What is the content of vacation entitlement in insolvency?
During insolvency proceedings, vacation entitlement generally continues to exist. However, if the employment relationship ends so that the vacation can no longer be granted in full or in part, the entitlement to vacation into an entitlement to monetary payment (so-called vacation compensation entitlement).. The amount of the entitlement to vacation compensation is the salary that the employee would have received during this period.
How is vacation entitlement treated in insolvency proceedings?
Insolvency and insolvency proceedings have no influence on employees' vacation entitlement. However, the insolvency of the employer does have an impact on the entitlement to vacation compensation.
In order to understand the effects of insolvency on the entitlement to vacation compensation, it is important to understand the difference between an insolvency claim and a liability of the estate:
- Insolvency claimInsolvency claims are claims that arose before insolvency proceedings were opened. Insolvency claims are serviced on a subordinate basis, which means that the insolvency administrator and the creditors of debts of the estate receive their money first. Only if there is still money available will the creditors of insolvency claims also be paid. The insolvency creditors are treated equally. This means that the remaining money is distributed equally in percentage terms to all creditors of insolvency claims. Creditors of insolvency claims therefore only receive an average of around 5 % of their claim.
- Liability to assetsLiabilities of the estate are claims that arise after the opening of insolvency proceedings. As described, liabilities of the assets are serviced with priority over insolvency claims, Sections 53, 55 InsO.
Whether the vacation pay claim qualifies as an insolvency claim or as a liability of the estate generally depends on this, when the employment relationship is terminated. The background to this is that, in the opinion of the Federal Labor Court, vacation entitlement is a total package (BAG, 10.09.2020 - 6 AZR 94/19), so that there is also a uniform qualification. The entitlement to vacation pay in lieu of leave is therefore not divided up, but is either a full insolvency claim or a full liability of the estate.
- Termination after the opening of insolvency proceedingsIf the employment relationship is terminated after the opening of insolvency proceedings, the entitlement to vacation pay in lieu of notice is deemed to be a claim against the estate as a whole. This requires the insolvency administrator to continue the employment relationship.
- Termination before the opening of insolvency proceedingsIf the employment relationship is terminated before insolvency proceedings are opened, the entitlement to vacation pay in lieu is an insolvency claim. However, there is an exception to this rule. If a so-called strong provisional insolvency administrator, to whom the power of disposal has been transferred, has claimed the employee's work performance, the claim for vacation compensation is also a liability of the estate. This requires that the employee has increased the assets through their work up to the end of the employment relationship, i.e. that they have worked for the company. If the employee is released from work shortly before the end of the employment relationship, for example, the vacation pay claim is an insolvency claim.
There is an exception to this differentiation if there is an insufficiency of assets. Insufficiency of assets exists if the debtor's assets are only sufficient to cover the costs of the proceedings, but there is no further money. In such a case, the liabilities of the estate are divided into liabilities of the new estate and liabilities of the old estate. The new estate liabilities are serviced with priority over the old estate liabilities. In such a case, the entitlement to vacation pay in lieu is considered to be a new insolvency estate liability in full if the employee is called in to work after notification of the insolvency.
To what extent are there vacation entitlements?
Vacation entitlements are often very high, as they are also Vacation entitlements from previous years still exist. In principle, vacation must be taken within one year. However, vacation not taken can be carried over to subsequent years. If the vacation entitlement neither expires nor lapses, it is carried forward:
- DecayIf annual leave is not taken, it only lapses if the employer requests its employees to take the leave and the employees are informed clearly and in good time that the leave will otherwise lapse.
- Statute of limitationsThe limitation period only begins to run when the employer informs his employees that the leave will expire if it is not taken.
Employers often fail to comply with their duty of disclosure, with the result that many employees have very extensive vacation entitlements that are converted into claims for vacation compensation when the employment relationship ends.