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05.04.2019

Laura Skromule: on compensation of Unused Leave

The 2 April 2019 issue of iFinanses published an article by Laura Skromule, associate of PRIMUS DERLING, regarding compensation for unused leave in case of termination of employment. The iFinanses magazine covers topics on taxation, accounting and financial management providing daily information on changes in laws and regulations, as well as practical explanations as to their application.

The Department of Civil Cases, the Senate, the Supreme Court of the Republic of Latvia (the Senate) has delivered a judgment in case No SKC-340/2019, in which the court addressed the application of Article 149 of the Labour Law and the previous case-law in respect of the period for which unused vacation compensation is to be calculated in the event of termination of employment.

Essence of case

The employee gave notice of termination. After termination of the employment relationship, the employee filed a lawsuit consisting of several claims, including the employee’s request to recover from the employer compensation for unused leave (eight weeks in all) for two years.

The appellate court partially upheld the employee’s claim for compensation for unused leaves, and ruled that the compensation should be recovered for six calendar weeks rather than eight calendar weeks.

The judgment of the appellate court was based on Articles 149(3) and 149(5) of the Labour Law, in the version in force until 31 December 2014, as well as the existing interpretation of these norms in the Senate case-law.

The Labour Law undergoes changes

Article 149(5) of the Labour Law provided that reimbursement of annual paid leave in cash should be allowed only as an exception – if the employment relationship is terminated and the employee has not used the annual paid leave.

The appellate court noted that the Senate had previously admitted that, in conjunction with the interpretation of Article 149(3) of the Labour Law, which provides for compensation of unused leave in cash in case of termination of employment, it can be concluded that the employee’s right to compensation for unused leave is inextricably linked with the right to unused leave.

It follows from Article 149(3) of the Labour Law that the period for which the employee is entitled to claim compensation for unused leave is no more than six weeks, taking into account that the part of the leave (not exceeding two weeks) may be carried forward only for one year.

The finding that when the employee’s right to use the leave is lost, the right to compensation for unused annual leave that exceeds 6 weeks is lost as well was enshrined in the case-law.

After the entry into force of this judgment, the Labour Law was amended in respect of the period for which the employee is entitled to compensation for unused leave in the event of termination of employment. These amendments clearly and unequivocally stipulate that the period for which compensation for unused leave is due is not subject to any time-limits.

After reviewing the employee’s cassation complaint, the Senate set aside the judgment of the appellate instance in the part that rejected the claim for compensation for unused vacation.

Court judgment

The Senate found that the appellate court in this case had referred to the case-law on the interpretation of Articles 149(3) and 149(5) of the Labour Law, which analysed these legal norms in the form in which they had been in force before 1 January 2015, but were no longer in force when the circumstances of the present case occurred.

As a result, the appellate court incorrectly determined the period for which the employee was entitled to compensation for unused leave and ruled that the compensation should be recovered from the defendant for six weeks of unused leave, and not eight weeks of leave as requested by the claimant.
The Senate noted that the legislator had clearly stated that the remuneration should be paid for the entire period for which the employee has not used the annual paid leave, and therefore the court had no reason to apply the case-law which, when the new regulation came into force, had lost its significance.

In addition, the Senate has pointed out the duty of the court to hear civil cases in accordance with the laws and other regulations, stating that case law is only a tool to be used in the interpretation of legal norms.

Conclusions

The Senate judgment described above emphasized once again that in the application of the Labour Law special attention must be paid to the legal provisions in force at the moment of occurrence of the relevant event.

After the entry into force of the amendments made in Article 149(5) of the Labour Law, the content of legal norms, which determines the period for which the compensation for unused vacation is calculated, has changed significantly. Consequently, the interpretation, with regard to the period for which the unused leave compensation is calculated, has become irrelevant and inapplicable because it has been made in respect of legal provisions which currently provide absolutely different procedure.