Danish Holiday Act to be brought into compliance with EU-legislation

The Danish Holiday Act is under review by the Ministry of Employment. The future Holiday Act is intended to be a simpler and more modern version, in accordance with international obligations.

In a statement from 27 April 2015, the EU Commission stated that the current Danish Holiday Act is not in compliance with EU-legislation because it does not entitle employees, at a minimum, to four paid weeks of vacation each year. The Danish Act entitles employees to 5 weeks of holidays per year, but not always with pay.

For example, the Act does not cover recent graduates or cross-border employees who enter the Danish job market, and others who have not accrued any vacation at the commencement of the employment. Thus, they are consequently not secured the minimum yearly vacation as stipulated in the Directive 2003/88/EC concerning certain aspects of the organisation of working time, known as the Working Time Directive. These employees will have to wait 16 months before they have accrued the right to paid vacation. The Commission is therefore of the opinion that the Danish Holiday Act is contrary to the European Union’s fundamental social rights concerning a minimum of yearly paid vacation.

The reason for these challenges is due to the Danish holiday system itself. It follows from the current Danish Holiday Act that entitlement to paid holiday accrues in the calendar year preceding the holiday year, which begins on 1 May. The Danish Holiday Act distinguishes between the “accrual year” and the “holiday year.” Employees accrue 2.08 days of paid holiday for each month of employment during the qualifying year (corresponding to the calendar year). Accrued holidays are taken during the period from 1 May to 30 April (the holiday year) following the qualification year. That implies that holidays accrued in the period from 1 January to 31 December 2016 must be taken as paid holiday during the holiday year, which commences 1 May 2017 and ends 30 April 2018.

If an employee has not accrued the right to paid holiday, the employer can deduct 4.8 percent of the monthly salary for each day of holiday taken by the employee.

According to section 7 of the Holiday Act, an employee does not accrue paid holidays if the employee is absent from work due to sick leave and the employer is not obliged to pay full or partial salary during the leave; that is also the case for maternity leave. However, a Danish Supreme Court ruling from 2010 determined that payment of a pension contribution by an employer during a maternity leave qualified as partial salary and the employee therefore accrued holidays during the leave, which were otherwise considered unpaid holidays.

It follows from the Working Time Directive that “Member States shall take the measures necessary to ensure that every worker is entitled to paid annual leave of at least four weeks in accordance with the conditions for entitlement to, and granting of, such leave laid down by national legislation and/or practice. That implies that it must be ensured that the employees have the right to at least four weeks holiday with pay per year.”

When employment ceases, an employee is on the other hand entitled to a holiday allowance for the current qualification year and for part of the previous qualification year to the extent the employee has not yet taken the holidays. The holiday allowance correspondents to 12.5 percent of the salary earned during the qualification year and should be deposited with the Holiday Account (“FerieKonto”) or by way of a special holiday card.

That also implies that an employee who is taking holidays after he or she was been employed with a new employer, can use the holiday allowance paid into the Holiday Account. The Danish holiday system is therefore mainly a problem for employees who are new to the job market, who have had a long period without pay or are foreigners coming from another holiday system.

According to section 26 of the Holiday Act, an employer is to calculate holiday allowance and holiday supplement (1 percent of the salary in the qualification year) based on amounts that constitute remuneration for work performed during the employment.

If an employee is entitled to a basic monthly salary and a variable performance commission or bonus, the employee is entitled to holiday allowance based on the commission or bonus.

In a case from 2016, the Danish Supreme Court found that an employee had received sufficient compensation during his vacation. The employee had a basic monthly salary together with a performance-based commission. If the performance income result for a given month were less than the basic salary during that month, the negative difference was transferred to the next month. During his vacation, the employee received the basic salary and holiday allowance, 12.5 percent, of the performance commission accumulated during last year. The question was whether the transferring of the negative result accumulated during his vacation was contrary to the EU Working Time Directive. The Supreme Court found that was not the case since the employee was entitled to holiday allowance based on all salary parts, including the commission.

This is in accordance with a decision from the European Court of Justice of 22 May 2014, Lock, case C-539/12 ECLI::EU:C:2014:351. The Court ruled that the Working Time Directive should be interpreted so it precludes a national legislation and practice where an employee whose remuneration consists of a basic salary and commission in respect of his paid annual leave is entitled to remuneration composed exclusively of his basic salary. In other words, the commission should be taken into account in the calculation of the total remuneration to which an employee is entitled in respect of his annual leave.

During current employment, that would not be viewed as a problem under Danish law, as the employee would receive his normal pay out of bonus, say every year in February or March on the basis of the result in the preceding year. However, if for instance the bonus accrued in 2015 was paid out in February 2016, the employee would just receive his normal monthly compensation also during his holiday in – for example – July 2016. However, if the employee terminated his employment to end on 31 January 2017, he would be entitled to 12.5 percent of both the normal salary and the bonus earned in 2016 and 2017, since holidays accrued in 2016 cannot be taken before May 2017 (and holidays accrued in the one month of 2017 cannot be taken until 2018).

It is expected that the Danish Parliament will propose a new bill with a new and modern holiday during the spring of 2017, which may change this particular, and perhaps peculiar, national holiday system.