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Compensation for unused holidays: duties and responsibilities of employers

Published in: Employment law
by Debora Teruggia
Home > Compensation for unused holidays: duties and responsibilities of employers

In its Order No. 17643 of 2023, the Italian Supreme Court provided important clarifications regarding the obligations and responsibilities of employers in relation to the payment of compensation for employees’ unused vacation time. This article reviews the highlights of the decision and discusses its implications.

The case: allowance recognized for 248 vacation days

In the case at hand, the employer had opposed an employee’s right to receive compensation in lieu for 248 days of unused vacation, arguing that the right was now time-barred.

The Italian Supreme Court, however, upholding the ruling on the merits, rejected this claim, arguing that the employer had failed to provide proof that it had fulfilled its obligations.

As a result, the employee was entitled to receive compensation in lieu of unused vacation, amounting to approximately 30,000 euros for the 248 days of vacation she had not been able to enjoy. Let’s see what are the rules and principles that led the Italian Supreme Court to make this ruling.

Rights and obligations of employers with respect to vacations

First and foremost, the right to vacation is a constitutionally guaranteed right, enshrined in Article 36 of the Italian Constitution: “the worker has the right to weekly rest and paid annual leave, and cannot renounce it”. The right to vacation is recognized for all employees in order to take (paid) rest to recover mental and physical energy and social relations.

Legislative Decree 66/2003 stipulates that employees are entitled, on an annual basis, to take a period of paid leave, the duration of which must not be less than four weeks. Depending on the work performed, collective bargaining regulates the number of days more precisely.

But the principle set out in Article 10 of Italian Legislative Decree 66 of 2003, which defines the so-called prohibition on the monetization of untaken vacation, applies to everyone: “The aforementioned minimum period of four weeks cannot be replaced by the corresponding allowance for untaken vacation, except in the case of termination of the employment relationship.” Employers thus have a very important burden: to ensure that employees can actually take paid annual leave.

If an employer fails to ensure that an employee takes his or her vacation within the time stipulated by law, he or she will be obligated to pay compensation for unused vacation even beyond the limitation period, which normally starts from the end of the employment relationship. We will come back to this topic in the next section.

The employer is the one who determines his employees’ vacations, which must take into account the needs of the enterprise and the interests of the employee. It is still the case that the employer cannot impose vacations, and we have already discussed this specific case in this article by Lawyer Marmo.

As a final note, among the employer’s duties is to invite (even formally, if necessary) the employee to take the vacation, providing clear and timely information about the obligations of the Law and the consequences with regard to non-take.

For as mentioned above, in the event that the employee decides not to take it, it will be lost by virtue of the prohibition of monetization provided by Legislative Decree 66 of 2003, which always operates, except in the case of termination of employment (resignation, contractual expiration, dismissal, etc…).

When does the right to vacation replacement allowance become time-barred?

In its Order No. 17643 of 2023, the Italian Supreme Court emphasized that the loss of vacation entitlement – and the corresponding allowance in lieu thereof – can only occur if the employer succeeds in proving that it has fulfilled its obligation to have invited the employee to take the vacation, to have enabled him or her to take it, and to have informed him or her of the consequences about not taking it. In the event that the employee has not taken his or her vacation, it is furthermore the employer’s responsibility to prove that he or she has fulfilled his or her informational obligations.

If the employer defaults or fails to provide such evidence, the statute of limitations on the right to vacation pay in lieu cannot begin until the termination of employment. This means that the employee will be entitled to receive the allowance even many years after the termination of employment.

In the present case, the Italian Supreme Court, stated the following principle of law: “The statute of limitations on an employee’s right to compensation in lieu of unused vacation and weekly rest periods runs from the termination of the employment relationship, unless the employer proves that the right to vacation and weekly rest periods has been lost by the same employee because he did not enjoy them despite an invitation to use them; such invitation must be made accurately and in time to ensure that the vacation and rest periods are still suitable to bring to the person concerned the rest and relaxation for which they are intended, and must contain the notice that, in the event of failure to take them, such vacation and rest periods will be lost at the end of the reference period or an authorized carry-over period”.

Hence, the entitlement to compensation in lieu generally runs from the termination of employment. But, if the employer has not fulfilled its information obligations to the employee, in light of the principle expressed by the Italian Supreme Court, the employer is required to pay the replacement allowance, even after this deadline.


Considerations and Advice

The Italian Supreme Court’s Order No. 17643 of 2023 highlighted the importance of employees’ annual leave entitlements and the responsibility of employers to ensure that such leave is actually taken.

As active practitioners in the area of employment law, I emphasize the importance for employers to be proactive, transparent and diligent in communicating with employees about their leave. This is critical to prevent possible legal issues and long-term financial consequences.

As always, legislation and case law are subject to interpretation and vary depending on specific circumstances. For this reason, it is strongly recommended to consult an employment law professional for personalized advice and to navigate the ever-changing legislative landscape.

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Publication date: 4 July 2023
Last update: 5 July 2023
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