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New rules for calculating compensation for unused leavea
As previously reported, on 18 February 2026, the Plenum of the Constitutional Court of the Republic of Azerbaijan issued a decision regarding compensation for unused annual leave upon termination of an employment contract.
During the Plenum session, following a request submitted by the Commissioner for Human Rights (Ombudsman), the Constitutional Court reviewed whether Parts 2 and 3 of Article 144 of the Labour Code comply with Parts I and III of Article 25, Part II of Article 71, and Parts I and III of Article 149 of the Constitution of the Republic of Azerbaijan.
As a result, amendments were made to Article 144 of the Labour Code, allowing monetary compensation not only for annual leave but also for additional leave provided under Articles 115 and 116, as well as study leave, creative leave, and social leave.
Anar Bayramov has provided an explanation of the procedure for paying leave compensation following this decision of the Constitutional Court.
The decision states that, upon termination of an employment contract, the basic annual leave refers to the leave determined according to the employee's profession or position specified in the employment contract, with the minimum duration established by Parts 2 and 3 of Article 114 of the Labour Code, namely not less than 21 or 30 calendar days, respectively.
In other words, this is the minimum period of annual leave that every employee must receive to ensure adequate rest, regardless of working conditions, the nature of the work, or other specific circumstances.
The decision further emphasizes that, based on the constitutional principles of justice, equality, and the social state, certain categories of employees are entitled to longer annual leave periods and additional leave.
Currently, the Labour Code provides the following types of additional leave:
Additional leave due to working conditions and the specific nature of the employee's work (Article 115);
Additional leave based on length of service (Article 116);
Additional leave for women with children (Article 117);
Additional leave for specialists working in the territories of the Republic of Azerbaijan liberated from occupation (Article 118-1).
The Plenum of the Constitutional Court considers that depriving an employee of the right to compensation for accrued additional leave that could not be used for any reason, including circumstances attributable to the employer, effectively deprives that right of its genuine substance and reduces it to a merely formal entitlement.
Therefore, such a restriction on the exercise of the employee's right to annual leave does not comply with the principle of proportionality.
Accordingly, the Plenum concluded that the existing legal regulation, which creates unequal treatment between employees whose employment continues and those whose employment has been terminated, is inconsistent with the requirements of Parts I and III of Article 25 and Part I of Article 149 of the Constitution of the Republic of Azerbaijan.
The first part of the decision states that the provision in Part 3 of Article 144 of the Labour Code, which stipulates that "no compensation shall be paid for additional leave provided under Articles 115–117 and 118-1 of this Code," is inconsistent with the principles of equality and justice, which form the basis of the legal system.
The Constitutional Court concluded that this provision disproportionately restricts employees' right to paid annual leave and therefore does not comply with Parts I and III of Article 25, Part II of Article 71, and Part I of Article 149 of the Constitution of the Republic of Azerbaijan. Consequently, the application of this provision has been suspended.
The Court also required Parts 2 and 3 of Article 144 of the Labour Code to be brought into compliance with the Constitution.
According to the second part of the decision, based on the legal position set out in the reasoning section of the Constitutional Court's ruling, the relevant provisions of Article 144 must be amended to ensure that employees receive compensation for unused additional leave provided under Articles 115–117 and 118-1 of the Labour Code up to the date of termination of their employment.
The third part of the decision further states that until the necessary legislative amendments are adopted, employers must apply the constitutional principles set out in Articles 25 and 149 of the Constitution.
Accordingly, when terminating an employment contract, employers must pay compensation for all unused additional leave granted under Articles 115–117 and 118-1 of the Labour Code, using the same calculation method and payment rules that apply to compensation for unused basic annual leave.
Therefore, employers should not wait for separate amendments to the Labour Code before calculating compensation for additional leave. For all employment contracts terminated on or after 18 February 2026, compensation must be calculated and paid not only for unused basic annual leave but also for unused additional leave.
When Does the Decision Apply?
The fourth part of the decision provides that the ruling of the Plenum of the Constitutional Court applies to all employment relationships terminated after the decision entered into force, as well as to relevant cases currently pending before the courts.
Accordingly, employers must take this legal position into account when calculating compensation for unused leave in all employment terminations occurring after the decision became effective. Likewise, courts must also rely on this Constitutional Court decision when hearing relevant labour disputes.
The following examples illustrate how compensation should be calculated upon the termination of an employment contract.
Example 1 An employer terminated the employment contract of a specialist with 14 years of service on 10 February 2026.
In this case, the employer is required to pay compensation only for the unused basic annual leave. The employee's 4 days of additional leave earned based on 14 years of service will not be included in the compensation calculation, because the employment contract was terminated before the Constitutional Court's decision of 18 February 2026 entered into effect.
Example 2
An employee was hired for a managerial position on 1 May 2025 and is entitled to 6 additional days of leave based on length of service.
During the relevant working year, the employee used 10 days of basic annual leave. The employment contract was terminated on 28 February 2026.
To calculate the compensation, the total leave entitlement is first determined proportionally:
12 months = 36 days
10 months = X days
Calculation:
X = (36 × 10) ÷ 12 = 30 days
Since the employee had already used 10 days of leave, the employer must calculate compensation based on the remaining 20 unused leave days.
Example 3 An employee was hired as a worker on 1 June 2024. Having 7 years of service, the employee is entitled to 2 additional days of leave based on length of service. In addition, under Article 115 of the Labour Code, the employee is entitled to 6 additional days of leave due to working conditions.
The employee has never used any annual leave. The employment contract was terminated on 1 March 2026.
The compensation is calculated as follows.
For the first working year (1 June 2024 – 1 June 2025):
21 days of basic annual leave;
2 days of additional leave based on length of service;
6 days of additional leave due to working conditions.
Total: 29 calendar days.
For the second working year (1 June 2025 – 1 March 2026):
Since the employee worked 9 months instead of 12 months, the leave entitlement is calculated proportionally:
12 months = 29 days
9 months = X days
Calculation:
X = (29 × 9) ÷ 12 = 21.75 days
Accordingly, the total number of leave days for which compensation must be paid is:
29 + 21.75 = 50.75 days.
As previously reported, on 18 February 2026, the Plenum of the Constitutional Court of the Republic of Azerbaijan issued a decision regarding compensation for unused annual leave upon termination of an employment contract.
During the Plenum session, following a request submitted by the Commissioner for Human Rights (Ombudsman), the Constitutional Court reviewed whether Parts 2 and 3 of Article 144 of the Labour Code comply with Parts I and III of Article 25, Part II of Article 71, and Parts I and III of Article 149 of the Constitution of the Republic of Azerbaijan.
As a result, amendments were made to Article 144 of the Labour Code, allowing monetary compensation not only for annual leave but also for additional leave provided under Articles 115 and 116, as well as study leave, creative leave, and social leave.
Anar Bayramov has provided an explanation of the procedure for paying leave compensation following this decision of the Constitutional Court.
The decision states that, upon termination of an employment contract, the basic annual leave refers to the leave determined according to the employee's profession or position specified in the employment contract, with the minimum duration established by Parts 2 and 3 of Article 114 of the Labour Code, namely not less than 21 or 30 calendar days, respectively.
In other words, this is the minimum period of annual leave that every employee must receive to ensure adequate rest, regardless of working conditions, the nature of the work, or other specific circumstances.
The decision further emphasizes that, based on the constitutional principles of justice, equality, and the social state, certain categories of employees are entitled to longer annual leave periods and additional leave.
Currently, the Labour Code provides the following types of additional leave:
Additional leave due to working conditions and the specific nature of the employee's work (Article 115);
Additional leave based on length of service (Article 116);
Additional leave for women with children (Article 117);
Additional leave for specialists working in the territories of the Republic of Azerbaijan liberated from occupation (Article 118-1).
The Plenum of the Constitutional Court considers that depriving an employee of the right to compensation for accrued additional leave that could not be used for any reason, including circumstances attributable to the employer, effectively deprives that right of its genuine substance and reduces it to a merely formal entitlement.
Therefore, such a restriction on the exercise of the employee's right to annual leave does not comply with the principle of proportionality.
Accordingly, the Plenum concluded that the existing legal regulation, which creates unequal treatment between employees whose employment continues and those whose employment has been terminated, is inconsistent with the requirements of Parts I and III of Article 25 and Part I of Article 149 of the Constitution of the Republic of Azerbaijan.
The first part of the decision states that the provision in Part 3 of Article 144 of the Labour Code, which stipulates that "no compensation shall be paid for additional leave provided under Articles 115–117 and 118-1 of this Code," is inconsistent with the principles of equality and justice, which form the basis of the legal system.
The Constitutional Court concluded that this provision disproportionately restricts employees' right to paid annual leave and therefore does not comply with Parts I and III of Article 25, Part II of Article 71, and Part I of Article 149 of the Constitution of the Republic of Azerbaijan. Consequently, the application of this provision has been suspended.
The Court also required Parts 2 and 3 of Article 144 of the Labour Code to be brought into compliance with the Constitution.
According to the second part of the decision, based on the legal position set out in the reasoning section of the Constitutional Court's ruling, the relevant provisions of Article 144 must be amended to ensure that employees receive compensation for unused additional leave provided under Articles 115–117 and 118-1 of the Labour Code up to the date of termination of their employment.
The third part of the decision further states that until the necessary legislative amendments are adopted, employers must apply the constitutional principles set out in Articles 25 and 149 of the Constitution.
Accordingly, when terminating an employment contract, employers must pay compensation for all unused additional leave granted under Articles 115–117 and 118-1 of the Labour Code, using the same calculation method and payment rules that apply to compensation for unused basic annual leave.
Therefore, employers should not wait for separate amendments to the Labour Code before calculating compensation for additional leave. For all employment contracts terminated on or after 18 February 2026, compensation must be calculated and paid not only for unused basic annual leave but also for unused additional leave.
When Does the Decision Apply?
The fourth part of the decision provides that the ruling of the Plenum of the Constitutional Court applies to all employment relationships terminated after the decision entered into force, as well as to relevant cases currently pending before the courts.
Accordingly, employers must take this legal position into account when calculating compensation for unused leave in all employment terminations occurring after the decision became effective. Likewise, courts must also rely on this Constitutional Court decision when hearing relevant labour disputes.
The following examples illustrate how compensation should be calculated upon the termination of an employment contract.
Example 1 An employer terminated the employment contract of a specialist with 14 years of service on 10 February 2026.
In this case, the employer is required to pay compensation only for the unused basic annual leave. The employee's 4 days of additional leave earned based on 14 years of service will not be included in the compensation calculation, because the employment contract was terminated before the Constitutional Court's decision of 18 February 2026 entered into effect.
Example 2
An employee was hired for a managerial position on 1 May 2025 and is entitled to 6 additional days of leave based on length of service.
During the relevant working year, the employee used 10 days of basic annual leave. The employment contract was terminated on 28 February 2026.
To calculate the compensation, the total leave entitlement is first determined proportionally:
12 months = 36 days
10 months = X days
Calculation:
X = (36 × 10) ÷ 12 = 30 days
Since the employee had already used 10 days of leave, the employer must calculate compensation based on the remaining 20 unused leave days.
Example 3 An employee was hired as a worker on 1 June 2024. Having 7 years of service, the employee is entitled to 2 additional days of leave based on length of service. In addition, under Article 115 of the Labour Code, the employee is entitled to 6 additional days of leave due to working conditions.
The employee has never used any annual leave. The employment contract was terminated on 1 March 2026.
The compensation is calculated as follows.
For the first working year (1 June 2024 – 1 June 2025):
21 days of basic annual leave;
2 days of additional leave based on length of service;
6 days of additional leave due to working conditions.
Total: 29 calendar days.
For the second working year (1 June 2025 – 1 March 2026):
Since the employee worked 9 months instead of 12 months, the leave entitlement is calculated proportionally:
12 months = 29 days
9 months = X days
Calculation:
X = (29 × 9) ÷ 12 = 21.75 days
Accordingly, the total number of leave days for which compensation must be paid is:
29 + 21.75 = 50.75 days.