Passing unscathed through fire and flood: The Constitutional Court has solved the conundrum of compensation for unused leave
At the end of October 2018, the Constitutional Court of the Russian Federation rendered ruling No. 38-P/2018 which cleared up the uncertainty around the calculation and payment of compensation for unused leave. It has been clarified that such compensation is due to employees for all unused leave and is not limited to the vacation days not used by employees in the last 30 months preceding dismissal.
Court practice on this issue used to be ambiguous, and Russian courts used to hold the following positions:
Position 1: Since employees must use all their annual paid leave within 18 months of the year for which leave is granted, vacation days unused after expiration of this period are deemed used up, and only vacation days unused in the last 18 months preceding dismissal and the one-year period granted for court appeal for protection of rights are to be compensated upon dismissal.
Courts derived this limitation from Article 9(1) of the International Labor Organization Convention on Paid Leave which grants 18 months as time limit for using up unused vacation days.
Position 2: The time limit for employees to use their vacation is provided not for employees but for employers who are thus required not to postpone employees’ vacation for more than 18 months. This time limit is a guarantee of employees’ vacation right, a reasonable limitation of working hours as well as fair and favorable working conditions. Moreover, the time limit set out by the International Labor Organization Convention on Paid Leave applies during the validity term of employment contracts but is not used to calculate and pay monetary compensation for unused vacation upon termination of employment.
This rule stems from Article 127 of the Russian Labor Code and Article 11 of the International Labor Organization Convention on Paid Leave which entitle employees to fully exercise their vacation right in a special way upon dismissal, i.e. by receiving monetary compensation for unused vacation days.
Having considered the appeals of several dismissed employees, the Constitutional Court of the Russian Federation came to the following conclusions on cases for which the first approach was upheld:
- Employees are entitled to monetary compensation for all unused vacation days upon dismissal regardless of the time elapsed since the end of the year for which these vacation days were not used.
- Article 9(1) of the International Labor Organization Convention on Paid Leave which establishes an 18-month period for use of leave does not apply to the calculation and payment of compensation for unused vacation upon dismissal. On the contrary, Article 11 of the Convention which limits in no way the unused vacation days that are monetarily compensated upon dismissal applies in such cases.
- The fact that vacation days are not “used up” does not mean that they can be accumulated for the purpose of receiving monetary compensation subsequently upon dismissal. Otherwise this would mean that basic paid vacation can actually be replaced with monetary compensation at employees’ request (albeit with payment deferment up to dismissal), but this is prohibited by law. Courts considering disputes over the payment of such compensation should therefore assess:
- The reasons for the employee not to exercise his/her right to paid annual leave;
- Whether the employer has violated the employee’s right to paid annual leave;
- The employee’s place and role in the administration of vacation at the employer;
- Whether the employee has abused his/her right to vacation as well the actual vacation use by the employee without documenting it as such.
In our opinion, employers are not required to pay unused vacation if vacation is not provided to employees for reasons for which employees are responsible. For example, when an employee authorized to approve the vacation schedule has not included himself/herself in this schedule.
In order to avoid artificial accumulation of unused vacation by employees and, as a result, substantial compensation payments upon dismissal, we recommend:
- Compiling and approving by December 17, 2018 at the latest an employee vacation schedule;
- Bringing this vacation schedule to the employees’ attention and ensuring that they acknowledge it by signing it;
- Sending employees on vacation as specified in the vacation schedule by notifying the employees 2 weeks prior to the beginning of their vacation. Please note that employers are not, as a general rule, required to postpone scheduled vacation at the request of employees;
- Documenting all vacation days used by employees.
If you have any questions or would like to discuss this matter further, please write to Anna Yakovleva.
 Article 9(1) International Labor Organization Convention (ILO) No. 132 On Paid Leave (revised in 1970) adopted at the 54th session of the ILO General Conference in Geneva on June 24, 1970; ratified by the Russian Federation and effected on September 06, 2011 (Federal Law No. 139-FZ dated July 01, 2010)
This position is reflected in a number of court decisions, in particular: St. Petersburg Appellate Court Ruling dated April 10, 2017 Case No. 2-105/2017, St. Petersburg Appellate Court Ruling dated November 23, 2016 Case No. 2-944/2016
 Article 10(2) Russian Labor Code
 Article 24 of the Universal Declaration of Human Rights adopted by the United Nations General Assembly on December 10, 1948, Article 7 of International Covenant on Economic, Social and Cultural Rights adopted by the United Nations General Assembly on December 16, 1966
 St. Petersburg Appellate Court Ruling dated March 14, 2017 Case No. 2-1092/2016
 Article 123(1) Russian Labor Code
 Article 123(3) Russian Labor Code
 Article 124 Russian Labor Code