The dead man, named only as Mr Bollacke, worked for the retailer K+K from August 1998 to November 2010, when he died.
He had been seriously ill since 2009 and was unable to work for a long period of time. When he died he had 140.5 days of annual leave outstanding, worth €16,000.
Mr Bollacke’s widow asked supermarket K+K for the money in lieu of the annual leave not taken by her husband. But they turned her down, saying she couldn't inherit her dead husband’s unclaimed holidays.
In 2011 she took her case to the Higher Labour Court in Hamm, North Rhine-Westphalia, which also rejected her claim.
But she then appealed the court’s decision and the Hamm court referred the case to the ECJ in Luxembourg.
In a judgment published on Thursday, the ECJ stressed the right to paid holidays was “particularly important”.
"The Court has previously held that where the employment relationship has terminated, the worker is entitled to an allowance in lieu in order to prevent all enjoyment of that right to leave being lost," it said.
Overruling German law, which states you lose your right to holidays when you die, the court said: “Receipt of financial compensation if the employment relationship ends by reason of the worker’s death ensures the effectiveness of the entitlement to leave.”
It will now be up to the labour court in Hamm to make a decision on the case.