- Date:
- 21 Mar 2012
The Danish Supreme Court has held in a precedent-setting ruling that it was not contrary to the Danish Salaried Employees Act that an employee was not entitled to a pro rata share of a retention bonus
The Danish Supreme Court has held in a precedent-setting ruling that it was not contrary to the Danish Salaried Employees Act that an employee was not entitled to a pro rata share of a retention bonus.
In certain situations, employers may need to retain one or more employees until a specified date – for instance, in connection with a business restructure, transfer or similar situations. Many employers therefore choose to reward the employee for not resigning until a specified date. In practice, the employee is offered a retention bonus which will be payable at a specified date if the employee is still in the company’s employment at that point. If, conversely, the employee resigns before that date, no bonus will be payable.
However, section 17a of the Danish Salaried Employees Act provides that a departing salaried employee is entitled to a pro rata share of the bonus etc. that the employee would have received if the employee had still been employed by the company. In section 21 of the same Act, it is specified that this protection cannot be varied to the detriment of the employee. Against this background, employers and a number of trade unions have disagreed for some time as to whether it is contrary to the Danish Salaried Employees Act to stipulate in the retention bonus agreement that the employee will not be entitled to a pro rata share of the retention bonus if the employee resigns before the specified date.
Restructure of power supply in Denmark
This was also the situation in this case, where a major power supplier had entered into an agreement with an experienced employee for a retention bonus. The reason for the agreement was that the power supplier would be consolidating the control room for the Eastern Denmark power network with the control room for the Western Denmark power network. It was important for the power supplier to maintain the staffing level of the control room which was to be closed until it had been consolidated with the other control room.
This was also the situation in this case, where a major power supplier had entered into an agreement with an experienced employee for a retention bonus. The reason for the agreement was that the power supplier would be consolidating the control room for the Eastern Denmark power network with the control room for the Western Denmark power network. It was important for the power supplier to maintain the staffing level of the control room which was to be closed until it had been consolidated with the other control room.
The retention bonus agreement specified that the bonus was conditional on the employee not resigning until the consolidation was in place. When the employee resigned before that date, the company did not pay him a pro rata bonus. Through his trade union, the employee sued the company for about EUR 50,000, equivalent to a pro rata bonus. The trade union argued that the retention bonus was covered by section 17a of the Danish Salaried Employees Act, which provides that employees are entitled to a pro rata bonus. The company, on the other hand, argued that the retention bonus was not covered by section 17a at all.
Retention bonus not covered by the Danish Salaried Employees Act
The case ended up before the Danish Supreme Court. In its judgment, the Supreme Court noted that the retention bonus had been awarded on top of the usual pay elements received by the employee under the applicable collective bargaining agreements – including base pay, holiday supplement, duty supplement, overtime, etc. In addition, the employee had been entitled to the retention bonus if his employment was terminated by the company.
The case ended up before the Danish Supreme Court. In its judgment, the Supreme Court noted that the retention bonus had been awarded on top of the usual pay elements received by the employee under the applicable collective bargaining agreements – including base pay, holiday supplement, duty supplement, overtime, etc. In addition, the employee had been entitled to the retention bonus if his employment was terminated by the company.
The Supreme Court further noted that working in the control room required a considerable amount of training and that it was important for the employer and for purposes of ensuring security of power supply that the staffing level remained the same until the consolidation had been effected. The Supreme Court therefore found that the company had had weighty reasons to make the bonus conditional on the employee’s continued employment.
On those grounds, the Supreme Court held that the retention bonus did not constitute remuneration for work performed in the same way as the employee’s usual pay, and the retention bonus was therefore not covered by section 17a of the Danish Salaried Employees Act. Accordingly, the company was not required to pay a pro rata share of the agreed bonus to the employee.
Norrbom Vinding notes
- that with its precedent-setting judgment the Danish Supreme Court has established that employers are allowed to make a retention bonus conditional on a salaried employee not resigning until a specified date; but
- that employers who need to retain one or more employees and therefore wish to enter into a retention agreement should consider carefully how such an agreement could be formulated.
The power supplier was represented by Norrbom Vinding throughout the court proceedings.
