The Legal Nature And Consequences Of Granting Annual Leave During The Notice Period

IS ANNUAL LEAVE DEDUCTED FROM THE NOTICE PERIOD?

In cases where an employment contract is terminated by giving notice, whether an employee may be granted annual paid leave during the notice period is one of the issues that frequently gives rise to uncertainty in practice. In practice, it is common for employees with a balance of unused annual leave to be placed on leave directly rather than being required to work during the notice period; the legal nature and consequences of this practice are assessed in this study.

Article 17 of the Labor Law No. 4857 (“LL“) regulates notice of termination and notice periods, Article 27 regulates the right to leave for seeking new employment, and Articles 53 et seq. regulate the right to annual paid leave. Furthermore, the second paragraph of Article 59 of the LL explicitly stipulates that, in cases of termination by the employer, annual leave periods and notice periods cannot overlap. Consequently, the issue is not limited solely to the right to annual leave; it constitutes a multi-layered legal problem that must be assessed in conjunction with the indivisibility of the notice period, the right to seek new employment, and the employee’s constitutional right to rest.

However, in practice, there appears to be a general consensus that the granting of annual leave during the notice period is absolutely prohibited. Yet, the legal outcome regarding this matter may vary depending on which party terminates the employment contract. Indeed, the prohibitive provision in Article 59 of the LL is drafted specifically with regard to “termination by the employer“, and it must be separately assessed whether the same outcome applies in cases of termination with notice initiated by the employee.

Within the scope of this article, the legal nature of granting annual leave during the notice period will be examined in the context of the distinction between employer termination and employee termination, in light of the provisions of the Labor Law, the legal purpose of the right to annual leave, and the case law of the Court of Cassation.

WHAT IS THE LEGAL NATURE OF THE NOTICE PERIOD AND ANNUAL LEAVE?

The notice period is a protective mechanism that requires the terminating party to notify the other party in advance in cases where an indefinite-term employment contract is terminated without just cause. Pursuant to Article 17 of the LL, “where one of the parties wishes to terminate the employment contract by giving notice, they are obliged to notify the other party in advance by the periods prescribed by law.” The fundamental purpose of this provision is to afford a reasonable transition period to the party whose employment relationship is coming to an end, enabling them to adapt to new circumstances.

In cases of termination with notice by the employer, the employer is additionally required to grant the employee leave to seek new employment pursuant to Article 27 of the LL. Under this provision, the employee is entitled to seek new employment without any deduction from their wages during the notice period, and providing this right is a mandatory obligation on the part of the employer.

The right to annual paid leave, regulated under Articles 53 et seq. of the LL, is a right of constitutional character aimed at ensuring the employee’s rest. Indeed, the 9th Civil Chamber of the Court of Cassation explicitly emphasised in its decision dated 03.05.2012, numbered 2011/15046 E., 2012/15521 K., that the right to annual leave is “a right to rest with a constitutional basis.” Accordingly, as a rule, the right to annual leave does not convert into a monetary entitlement while the employment contract remains in force; the actual rest of the employee is accepted as the primary principle.

The question of granting annual leave and the notice period concurrently arises precisely at this juncture. This is because, during the notice period, the employee’s right to seek new employment and their actual entitlement to rest under annual leave may, in certain circumstances, conflict with one another. For this reason, the legislator has provided a specific limitation concerning the overlapping of annual leave and the notice period, particularly in cases of termination by the employer.

Indeed, the second paragraph of Article 59 of the LL expressly provides:

“In the event that the employment contract is terminated by the employer, the notice periods specified in Article 17 and the leave for seeking new employment that must be granted to the employee pursuant to Article 27 cannot overlap with periods of annual paid leave.”

In light of this provision, the question of whether annual leave may be granted during the notice period does not have a single answer; the legal assessment varies depending on which party effects the termination. Indeed, the prohibitive provision in Article 59 of the LL is drafted solely with regard to “termination of the employment contract by the employer“, and it must be separately assessed whether the same outcome arises in cases of termination with notice by the employee. For this reason, the matter will be examined under separate headings with respect to termination by the employer and termination by the employee.

CAN ANNUAL LEAVE BE DEDUCTED FROM THE NOTICE PERIOD IN THE EVENT OF TERMINATION BY THE EMPLOYER?

As a rule, it is not possible to arrange for the notice period and the period of annual paid leave to coincide in cases of termination with notice by the employer. Indeed, this matter is expressly regulated under the second paragraph of Article 59 of the LL, which mandatorily stipulates that, in the event of termination by the employer, notice periods and leave for seeking new employment cannot overlap with periods of annual paid leave.

For this reason, the method commonly encountered in practice, whereby an employee is placed on their remaining annual leave during the notice period so that the employment contract comes to an end within that same period, does not, in every circumstance, produce legally valid results. In particular, the employer’s attempt to informally “absorb” the notice period by granting annual leave in order to avoid the employee actually working during the notice period is assessed in the case law of the Court of Cassation as a failure to properly utilise the notice period.

A. The Mandatory Nature of Article 59(2) of the LL

The provision in Article 59 of the LL is of a mandatory character with respect to terminations effected by the employer. Consequently, even where the employee consents, placing annual leave within the notice period does not in itself confer legal validity.

The foundation of this approach lies in the fact that the notice period is not regarded as merely a notification that the employment relationship is coming to an end. Indeed, the notice period constitutes a protective transition phase aimed at enabling the employee to exercise their right to seek new employment, to prepare for their departure from working life, and to adapt to new working conditions. Annual paid leave, on the other hand, is fundamentally grounded in the right to rest. Since the legislator considered the purposes of these two institutions to be distinct from one another, it prohibited their overlap within the same period in the context of termination by the employer.

The case law of the Court of Cassation also interprets this prohibition in a particularly strict manner. According to the Court of Cassation, where annual leave and the notice period overlap, it is the notice period, not the annual leave, that is rendered invalid. In the decision of the 7th Civil Chamber of the Court of Cassation dated 31.10.2016, numbered 2016/17771 E., 2016/17890 K., it was stated that “…Since annual leave and the notice period cannot overlap, annual leave must as a rule be granted before the notice period commences, and under no circumstances shall the notice period and annual leave overlap… The overlap of annual leave and the notice period renders the notice period invalid, not the annual leave…”, thereby clearly establishing that annual leave periods do not become invalid, whereas a notice period granted in contravention of Article 59 of the LL shall not be deemed to have been duly served.

B. The Overlap of the Notice Period and Annual Leave

The prohibition set out in Article 59 of the LL is not merely a theoretical provision; it gives rise to significant practical consequences regarding how the notice period must be utilised. Indeed, in cases of termination with notice by the employer, it is intended that the notice period be utilised continuously and in actuality, so that the employee is able both to maintain their working routine and to benefit from their right to seek new employment during that period.

For this reason, the employer’s practice of scheduling the employee’s remaining annual leave to coincide with the notice period, in order to avoid the employee actually working during that period, is regarded in the Court of Cassation’s case law as contrary to the purpose of the notice period. In particular, where the final portion of the notice period is designated as annual leave, or where the employee is shown as being entirely on leave throughout the notice period, the conclusion is reached that the notice obligation has not been duly fulfilled.

Indeed, in the dispute that formed the subject matter of the aforementioned decision of the 7th Civil Chamber of the Court of Cassation, the employee had been given a notice period; however, annual leave had additionally been granted so as to coincide with the final two weeks of the notice period. The Court of Cassation, accepting that this practice constituted a violation of Article 59 of the LL, concluded that the employee was entitled to notice pay. In doing so, the Court of Cassation demonstrated that it is not sufficient merely to formally commence the notice period; the notice period must be utilised in a manner consistent with the purpose envisaged by the law.

In light of this approach, rather than placing unused annual leave periods within the notice period, the employer is required either to grant the annual leave prior to the commencement of the notice period, or to extend the notice period by an additional amount equal to the annual leave period. Failing this, the employer may face the risk of being liable to pay notice pay on the grounds of having failed to duly utilise the notice period.

It should also be noted that the actual utilisation of the notice period and the immediate termination of the employment contract by payment of notice pay in lieu are distinct legal institutions. Where the employer immediately terminates the employment contract by paying notice pay in lieu, there is no question of the notice period being actually served; by contrast, in cases where it is asserted that the notice period has been utilised, that period must be spent in a manner consistent with the purpose of the LL.

C. Can the Notice Period Be Divided?

At the heart of the debates concerning the intersection of the notice period and annual leave lies the principle of the “indivisibility of the notice period” recognised in the case law of the Court of Cassation. According to this principle, the notice period is a unitary period that must run without interruption and must not be fragmented by annual leave, unpaid leave, or similar arrangements.

For this reason, practices such as the employee not actually working during the notice period, being shown as entirely on annual leave, or the notice period being utilised in separate portions are regarded by the Court of Cassation as contrary to the principle of the indivisibility of the notice period.

It is, however, important to note that in the case law of the Court of Cassation, annual leave periods are not treated as entirely void; rather, the sanction for unlawfulness arises in respect of the notice period. In other words, if the employee has genuinely taken annual leave, it is possible for those periods to be deducted from the annual leave account; however, the employer is not considered to have duly fulfilled its notice obligation.

Accordingly, it must be borne in mind that the method frequently encountered in practice, namely, “placing the employee on leave for the duration of the notice period”, does not eliminate the risk of notice pay even if it extinguishes the outstanding annual leave balance; on the contrary, it may in some cases directly give rise to liability for notice pay.

CAN ANNUAL LEAVE BE USED DURING THE NOTICE PERIOD IN THE EVENT OF TERMINATION BY THE EMPLOYEE?

In cases of termination with notice by the employee, the question of whether the notice period and annual leave may be used concurrently is assessed differently from the rules applicable to termination by the employer. Indeed, the prohibitive provision set out in the second paragraph of Article 59 of the LL is expressly drafted with regard to “termination of the employment contract by the employer“; the legislator has not provided for a similar prohibition in respect of termination with notice by the employee.

For this reason, both in academic doctrine and in the prevailing case law of the Court of Cassation, it is generally accepted that, in cases of termination with notice by the employee, annual leave and the notice period may coincide within the same period. However, this does not mean that the rules applicable to termination by the employer are entirely set aside; it requires a separate assessment to be made, particularly in respect of the employee’s express request, leave records, and leave for seeking new employment.

A. Literal Interpretation of Article 59(2) of the LL

When the second paragraph of Article 59 of the LL is examined literally, it becomes apparent that the prohibition against the overlap of annual leave and the notice period is regulated solely with respect to termination by the employer. The fact that the legislator has drafted the provision in this limited manner results in a different outcome being reached in cases of termination with notice by the employee.

Indeed, in the decision of the 9th Civil Chamber of the Court of Cassation dated 03.05.2012, numbered 2011/15046 E., 2012/15521 K., it was stated that: “In the event that the employment contract is terminated by the employer, the statutory or extended notice periods specified in Article 17 of Law No. 4857 and the leave for seeking new employment that must be granted to the employee pursuant to Article 27 cannot overlap with periods of annual paid leave. In light of this statutory provision, it must be accepted that, in cases of termination with notice by the employee, the notice period and the period of annual leave may overlap.” In doing so, the Court expressly accepted that, in cases of termination with notice by the employee, annual leave and the notice period may coincide within the same period.

This approach demonstrates that the prohibition in Article 59 of the LL cannot be interpreted broadly, and that the legislator has deliberately imposed a limitation solely in respect of termination by the employer. Accordingly, in cases of termination with notice by the employee, the utilisation of unused annual leave periods within the notice period shall not in itself constitute a violation of the law.

B. The Employee’s Request and Consent

One of the principal reasons why the concurrent use of annual leave and the notice period is considered permissible in cases of termination with notice by the employee is that the intention to terminate the employment relationship originates directly from the employee. Indeed, whilst one of the primary interests sought to be protected in cases of termination by the employer is enabling the employee to prepare for the process of seeking new employment, in cases of termination by the employee, the employee has already manifested their intention to depart from the employment relationship.

For this reason, in practice, employees who have a balance of unused annual leave frequently request to leave employment by utilising their remaining leave during the notice period rather than actually working throughout it. The Court of Cassation’s approach does not treat the coincidence of annual leave and the notice period within the same period as absolutely unlawful in such circumstances.

Nevertheless, whether the employee’s express request or consent exists is of significance in respect of the specific case. In particular, in circumstances where an employee is shown as being on leave despite not actually working, or where leave records are not properly maintained, the question of whether annual leave was genuinely granted may itself become a matter of dispute.

Indeed, in the case law of the Court of Cassation, the burden of proving that annual leave has been granted is accepted as resting with the employer; the employer is required to demonstrate this by means of a signed leave register, leave form, or equivalent written documentation. For this reason, although it is theoretically possible for annual leave and the notice period to coincide in cases of termination by the employee, care must be taken in practice with regard to proof and record-keeping.

C. The Position Where Leave for Seeking New Employment is Taken Collectively

One of the matters of significance in connection with the concurrent application of annual leave and the notice period in cases of termination with notice by the employee is the manner in which leave for seeking new employment is utilised.

Pursuant to Article 27 of the LL, the employee may, if they so wish, use their leave for seeking new employment on a collective basis. In such a case, the employee may leave the workplace before the date on which the employment contract is to terminate and treat the remaining period as collective leave for seeking new employment.

In this scenario, if the employee additionally utilises annual leave, the period of actual work may be further reduced. For instance, in the case of an employee with an eight-week notice period who uses the final two weeks as collective leave for seeking new employment and who also has two weeks of annual leave entitlement, the employee may in practice leave the workplace considerably earlier.

However, in cases where leave for seeking new employment is utilised on a daily basis of two hours per day, it may not be practically possible to grant leave for seeking new employment on days when the employee is on annual leave. In such circumstances, claims for wage entitlements arising from leave for seeking new employment may additionally arise.

Accordingly, whilst the coincidence of annual leave and the notice period in cases of termination with notice by the employee is as a rule considered permissible, careful planning is nonetheless required in respect of leave for seeking new employment, leave records, and the actual working arrangement.

WHAT ARE THE CONSEQUENCES OF GRANTING ANNUAL LEAVE DURING THE NOTICE PERIOD?

A. The Risk of Notice Pay Liability

In cases of termination with notice by the employer, placing annual leave periods within the notice period gives rise, first and foremost, to the risk of notice pay liability. Indeed, in the case law of the Court of Cassation, where the notice period is not duly utilised in cases of termination of the employment contract by the employer, notice pay is awarded in favour of the employee.

In particular, practices such as the employee not actually working during the notice period, the final portion of the notice period being designated as annual leave, or the employee being shown as entirely on leave are regarded as contrary to the principle of the indivisibility of the notice period. In such circumstances, even if the employer has granted the employee annual leave, the employer may become liable to pay notice pay on the grounds of having failed to duly fulfil its notice obligation.

For this reason, it must be borne in mind that the method frequently preferred in practice, namely, “offsetting the notice period against annual leave”, may give rise to significant financial consequences for the employer.

B. The Risk of Liability for Leave-for-Seeking-New-Employment Pay

In cases of termination with notice by the employer, the employee’s right to seek new employment is additionally protected. Pursuant to Article 27 of the LL, the employee must be granted at least two hours of leave per day for seeking new employment during the notice period.

In cases where the employee is shown as being on annual leave throughout the notice period, whether this right has been actually granted may itself become a matter of dispute. In particular, where the employee is treated as being on annual leave at a time when leave for seeking new employment ought to have been granted on a daily basis, an outcome that is inconsistent with the purpose of such leave may arise.

In such circumstances, the employee may claim wage entitlements in respect of the leave for seeking new employment that was not granted. Moreover, pursuant to Article 27 of the LL, wages corresponding to unused leave for seeking new employment must be paid at a rate of one hundred per cent premium. Accordingly, the overlap of annual leave and the notice period may, in some cases, give rise not only to notice pay liability but also to additional liability in respect of leave-for-seeking-new-employment pay.

C. The Risk of Annual Leave Pay Liability

Another significant issue arising from the overlap of annual leave and the notice period concerns the validity and proof of the annual leave that is claimed to have been granted.

Although it is accepted in the case law of the Court of Cassation that, as a rule, where annual leave and the notice period overlap, it is the notice period, rather than the annual leave, that is rendered invalid, in cases where the employer is unable to duly prove that annual leave was genuinely granted, separate liability may additionally arise in respect of annual leave pay entitlements.

Indeed, in the case law of the Court of Cassation, the burden of proving that annual leave has been granted is accepted as resting with the employer, who is required to demonstrate this by means of a signed leave register, leave form, or equivalent written documentation. For this reason, in cases where the employee has not actually worked but no proper leave record has been maintained either, the employee may claim both notice pay and unpaid annual leave pay.

Accordingly, the practice of granting annual leave during the notice period constitutes a process that must be carefully assessed not only from the perspective of offsetting leave periods, but also with regard to the employer’s burden of proof and potential employee entitlement claims.

CONCLUSION

It is not possible to speak of a single, uniform, and absolute legal outcome in respect of the matter of granting annual leave during the notice period. The assessment of this issue varies, first and foremost, depending on which party terminates the employment contract.

Indeed, the prohibitive provision set out in the second paragraph of Article 59 of the LL is prescribed solely in respect of terminations with notice effected by the employer; in cases of termination by the employer, the overlap of annual leave and the notice period is as a rule regarded as unlawful. The case law of the Court of Cassation likewise adopts the principle of the indivisibility of the notice period, accepting that where annual leave and the notice period coincide, the legal sanction shall arise in respect of the notice period.

By contrast, in cases of termination with notice by the employee, a different approach is adopted having regard to the literal scope of the prohibition in Article 59 of the LL. Indeed, in the case law of the Court of Cassation, it is accepted that, in cases of termination by the employee, annual leave and the notice period may coincide within the same period.

Nevertheless, in respect of both scenarios, matters such as leave for seeking new employment, the proper maintenance of annual leave records, the actual working arrangement, and the burden of proof retain their significance. In particular, in cases of termination by the employer, attempts to “absorb” the notice period through annual leave periods may give rise to significant legal risks in respect of notice pay, leave-for-seeking-new-employment pay, and annual leave pay entitlements.

For this reason, in the process of terminating employment relationships, it is of importance that practices relating to annual leave and the notice period be assessed comprehensively, not merely from the perspective of practical convenience, but within the framework of the mandatory provisions of the Labor Law, the case law of the Court of Cassation, and the rules governing the burden of proof.

FREQUENTLY ASKED QUESTIONS (FAQ)

Can the employer place the employee on annual leave during the notice period?

In cases of termination with notice by the employer, placing periods of annual paid leave within the notice period is as a rule not possible. The second paragraph of Article 59 of the LL expressly provides that, in the event of termination by the employer, the notice period and periods of annual leave cannot overlap. For this reason, where the employer shows the employee as being on annual leave during the notice period, it may be concluded that the employer has failed to duly fulfil its notice obligation.

What happens if annual leave and the notice period coincide?

According to the case law of the Court of Cassation, where annual leave and the notice period overlap, it is the notice period, not the annual leave, that is rendered invalid. In other words, the periods of annual leave taken by the employee are accepted as valid; however, the conclusion is reached that the employer has failed to duly fulfil its notice obligation. In such circumstances, notice pay may arise in favour of the employee.

Can an employee use annual leave during the notice period of their own volition?

In cases of termination with notice by the employee, it is as a rule considered permissible for annual leave and the notice period to coincide within the same period. Indeed, the 9th Civil Chamber of the Court of Cassation accepts that, in cases of termination with notice by the employee, annual leave and the notice period may overlap. Nevertheless, in practice, it is of importance that the employee’s request be express and that leave records be properly maintained.

Can the employer avoid paying notice pay by granting annual leave?

No. The employer’s practice of showing the employee as being on annual leave during the notice period does not in itself extinguish the notice obligation. In particular, where the notice period is made to coincide with periods of annual leave, the employer’s risk of liability for notice pay continues to subsist.

Does granting annual leave during the notice period extinguish the annual leave pay entitlement?

Where the employer is able to duly prove that annual leave was genuinely granted, the periods used may be deducted from the annual leave account. However, where no leave records exist or where it becomes apparent that the employee did not in fact take leave, the employee may additionally claim unpaid annual leave pay in respect of the unused periods.

Does the granting of annual leave during the notice period affect the right to leave for seeking new employment?

Yes. In particular, in cases of termination with notice by the employer, showing the employee as being on annual leave may prevent leave for seeking new employment from being actually granted. In such circumstances, the employee may claim wage entitlements in respect of the leave for seeking new employment that was not granted. Furthermore, pursuant to Article 27 of the LL, leave-for-seeking-new-employment pay may be required to be paid at a rate of one hundred per cent premium.