High Court of Cassation and Justice Decision No. 40/2026 provides important clarifications regarding financial compensation for unused annual leave upon termination of the employment relationship. Beyond the issue of the limitation period, the ruling highlights a question with significant practical implications for employers: was the employee actually given the opportunity to exercise their right to annual leave?

Decision No. 40 of 9 March 2026, handed down in preliminary ruling proceedings, was published in the Official Gazette of Romania No. 665 of 11 August 2026. The referral to the High Court concerned the point from which the limitation period begins to run for claims relating to financial compensation for unused annual leave; however, the ruling has broader implications for the way in which employers must approach the management of annual leave.

Key point: ending the employment contract

According to Article 146 of the Labour Code, the general rule is that annual leave must be taken as time off. If, for valid reasons, the leave cannot be taken in full or in part during the year in which the entitlement arose, it may be granted within a period of 18 months starting from the following year. Cash compensation for unused annual leave is permitted only in the event of the termination of the individual employment contract.

On the basis of these provisions, the High Court has ruled that the right to bring a claim for cash compensation for unused annual leave arises at the time of termination of the employment relationship, which is the point at which the obligation to pay becomes due.

Consequently, the three-year limitation period provided for in Article 268(1)(c) of the Labour Code begins to run from the date of termination of the employment relationship, provided there is a current right to compensation.

Consequently, the length of service for each day of leave does not, in itself, determine the starting point of the limitation period for the right to compensation. However, the length of service for each day is relevant for determining the extent of the right that may be compensated.

One of the most important clarifications in Decision No. 40/2026 concerns the relationship between the 18-month carry-over period and the right to compensation.

The High Court notes that, in principle, the 18-month period represents the timeframe within which unused leave may be granted in kind. However, once this period has expired, the entitlement cannot automatically be deemed to have been forfeited in all circumstances.

For periods exceeding the carry-over period, it must be assessed whether the employer has actually offered the employee the opportunity to exercise their right to leave. Thus, according to the ruling set out in the decision, the right to compensation subsists where the employer has not actually offered the employee the opportunity to exercise their right to leave. Conversely, the right does not subsist where the employee has refrained from taking their paid annual leave, even though they were given the opportunity to do so. Therefore, the mere fact that the 18-month period has elapsed is not, in itself, sufficient to conclude that the days in question can no longer be compensated.

Why were the days of leave not taken?

This is, in practice, one of the key questions that Decision No. 40/2026 brings to the attention of employers.

The specific circumstances in which the leave was not taken must be analysed by reference to the ruling of the High Court of Cassation and Justice and the case law of the Court of Justice of the European Union: if the employee was informed, if a schedule was drawn up, if this was communicated to them, if they were actually given the opportunity to take the leave and, on the other hand, whether the employee requested to take it, adhered to the schedule or deliberately and knowingly refrained from exercising their right.

Therefore, accumulated leave entitlement does not, in itself, constitute either evidence of a breach of the employer’s obligations or evidence that the employee has forfeited their right to compensation. It is necessary to examine the circumstances that led to the accumulation of the entitlement and the conduct of both parties.

In the event of a dispute, the following may be relevant: how the leave was planned; when and how the schedule was communicated; the employee’s requests and how these were dealt with; any objective reasons that prevented the leave from being taken; and the steps taken by the employer to ensure that the right was effectively exercised.

Documentation becomes part of legal risk management

The decision does not turn the recording of leave into an obligation to retain a specific category of documents for every situation. In practice, however, for the employer, the ability to demonstrate retrospectively how leave was managed may become essential.

It is not enough for the leave procedure to exist in name only. It is important that it is underpinned by a consistent and verifiable administrative practice.

Schedules, communications to employees, holiday requests and approvals, changes to schedules and relevant correspondence can help to reconstruct the conduct of the parties and demonstrate that the employee was given a genuine opportunity to take their annual leave.

In this context, annual leave balances carried over from several years deserve special attention. The older a balance is, the more important it becomes to identify the reasons why the leave was not taken and to check the documents that may support this situation.

What do employers need to check?

In terms of Decision No. 40/2026, a prudent approach entails at least the following:

Auditing significant balances. Carry-over leave days from distant periods should be identified and analysed according to the year in which the entitlement arose, the carry-over period, existing bookings and the reasons for non-take-up.

Verifying accountability. The employer should be able to identify, for relevant cases, how the schedule was communicated and what steps were taken to enable the employee to take their leave.

Review of internal procedures. Procedures relating to the scheduling and taking of leave should facilitate the effective exercise of this right and ensure that records are sufficiently clear to allow for subsequent verification.

The objective should not be merely formal compliance, but the existence of a functional process that reduces the accumulation of historical balances and allows the conduct of both parties to be demonstrated.

A change of perspective for employers

High Court of Cassation and Justice Decision No. 40/2026 goes beyond the specific issue of the limitation period.

On the one hand, the High Court clarifies that, in the case of a current entitlement to financial compensation for unused annual leave, the three-year limitation period begins to run from the date of termination of the employment relationship.

On the other hand, for periods exceeding the 18-month carry-over period, the existence and extent of the right to compensation depend on an assessment of the actual opportunity afforded to the employee to exercise their right to annual leave and on their conduct.

For employers, the practical implication is significant: annual leave should not be viewed merely as an administrative balance, but as a legal right whose exercise must be facilitated in practice and whose management must be demonstrable.

Particularly in the case of historical leave balances, a proactive approach, based on planning, communication, documentation and regular monitoring, can contribute to better management of both legal obligations and the risk of litigation.

Conclusion

In Decision No. 40/2026, the High Court of Cassation and Justice provides an important benchmark for case law on unused annual leave.

The three-year limitation period for the right to financial compensation begins to run from the date of termination of the employment relationship, in the case of a current entitlement to compensation. At the same time, exceeding the 18-month period does not automatically result in the loss of the right for earlier periods: it must be assessed whether the employer actually offered the opportunity to take the leave or whether the employee chose, despite having that opportunity, not to take it.

For employers, the message is clear: it is not just the number of days that matters, but also their history and the way in which the right to leave was, in practice, ensured.

This material is provided for informational purposes only and does not constitute legal advice. The application of the principles presented herein depends on the specific circumstances of each case. For an individual assessment, the Hategan Attorneys team is at your disposal.