Dear reader of Employment News

In terms of employment law, 2010 has been an eventful year with new interesting legislation and case law. In our Newsletters, we have currently informed you about this new legislation and case law. Our Newsletters are available at Horten's homepage www.horten.dk/nyheder.

In 2010, there was particular focus on four subjects, which we will sum up below. The four subjects are case law concerning unequal treatment, absence due to sickness, reporting of employee benefits and the Supreme Court rulings concerning the level of compensation in case of an insufficient contract of employment.

We wish you a Happy New Year!

The Non-Discrimination Act – Case law in 2010

The Non-Discrimination Act contains a prohibition against unequal treatment due to different criteria, and as age and handicap were introduced as criteria in 2004, it was expected that a number of cases would arise concerning the construction and use of these concepts. Few people foresaw that case law concerning unequal treatment due to age and handicap would be so considerable and decisive.

In 2010, the following rulings were given concerning age and handicap:

Age – young workers

On 30 June 2010, the Eastern High Court ruled that an employee who had been dismissed before he reached the age of 18 and who had received a lower pay than the employees who had reached the age of 18 and whose employment was covered by a collective agreement was covered by section 5a (5) of the Non-Discrimination Act. It was therefore legal to discriminate in relation to pay and also to dismiss the employee before he reached the age of 18. The ruling has been brought before the Supreme Court.

Age – applicants

In a decision, the Equality Board has established that a 53-year old applicant had been subject to direct unequal treatment when receiving a rejection of his application with reference to the applicant falling outside of the target group as to age. The company's team consisted of young people under the age of 30 and the company wanted people of the same age for the team. The applicant was awarded compensation of DKK 25,000.

Dismissal of older employees

In a ruling, the Eastern High Court awarded five employees compensation of DKK 200,000 each as the Court found that SKAT in connection with the transfer of the five employees had not met the shared burden of proof that unequal treatment had not taken place in connection with the transfer. The Court took into account that the five employees were the eldest employees, and that an executive had indicated in connection with the transfer and the subsequent dismissals that the age of the employees had been a part of the decision to select the five employees. The employees had thereby proven actual circumstances giving reason to believe that the employees had been discriminated against, and it is then up to the employer to prove that the principle of non-discrimination has not been violated – which SKAT was unable to do.

Termination due to age

In a number of decisions, the Equality Board has established that the dismissal of a number of pilots due to their entitlement to pension at the age of 60 constituted indirect unequal treatment, and the pilots were all awarded compensation.

Section 2a of the Salaried Employees Act

Under section 2a of the Salaried Employees Act, an employee dismissed after having been employed for 12, 15 or 18 years is entitled to severance pay of 1, 2 or 3 months' pay respectively. Under section 2a (3) and (4), this entitlement to severance pay lapses if the employee in certain circumstances obtaining a right to pension according to a pension scheme established by the employer or is entitled to state pension.

In a specific case, the 65-year old employee who had been dismissed claimed that he did not want to use his right to pension, but would continue working, and he therefore believed that he was entitled to severance pay.

The question was presented to the European Court of Justice, and on 14 October 2010, the Court established that section 2a (3) of the Salaried Employees Act, which had previously been construed in such a way that an employee - regardless of whether the employee used the right to pension - was not entitled to severance pay, was too extensive compared to the underlying protective directive and therefore contrary to EU law.

It should be expected that the Danish Parliament will decide on a possible amendment of section 2a (3) and (4) of the Salaried Employees Act, and also a number of unions have given notice of legal proceedings in relation to severance agreements that have already been entered into.

Handicap

In relation to handicap, case law shows that a specific assessment of the handicap is to be made in order to establish whether the handicap is considered worthy of protection. It is thus not relevant to categorize a specific illness – it is the specific functional impairment that needs to be assessed.

During 2010, the Eastern and Western High Courts declared that epilepsy, brain damage and sclerosis are specific handicaps that enjoy protection under the Non-Discrimination Act.

Under the Non-Discrimination Act, the employer has a so-called "duty of adjustment" (section 2a of the Non-Discrimination Act) implying that the employer must take the appropriate measures considering the specific needs to give a handicapped person equal access to e.g. employment. However, if a disproportionate burden is imposed on the employer that cannot be reimbursed sufficiently through public measures, the employer cannot be ordered to make any special measures.

Case law from both the Eastern and Western High Courts show that the employer must be able to prove that a specific assessment has been made in relation to a handicapped person as to whether the duty of adjustment may be able to remedy the handicap, and if the employer cannot prove this, the shared burden of proof may result in the employer for this very reason being ordered to pay compensation for illegal unequal treatment.

Many cases are on the way in the legal system and are being presented to the European Court of Justice, and the employee organisations therefore have great focus on unequal treatment.

Absence due to sickness

The expenses for employees' absence due to sickness are considerable for the employers and, at the same time, the rules on absence due to sickness are limited compared to the companies' optimization of resources. It is thus important for the companies to be familiar with the optimal utilisation of the new rules of the sickness benefits legislation. The legislation was amended in 2009, and the amendments came into force in 2010.

Under the new rules, the employer may no longer demand a statement of incapacity in the event of the employee's sickness, the employer must hold sickness interviews, and the employer's possibilities of obtaining reimbursement of sickness benefits have improved. We will describe selected parts of the new rules below.

Prospect statement

A new type of doctor's statement has been introduced (the so-called prospect statement). This statement is divided into two parts. The first part is for the company and the employee to jointly describe the employee's functional impairments, the job function affected and any measures to spare the employee. The second part of the statement is for a doctor to assess whether and to which extent the employee may perform work at the company.

As opposed to previously, this gives the employer the possibility to enter into dialogue with the employee and to use his resources. It is, however, our experience that employers are still reluctant to deal with employees who are absent due to sickness.

The employer may demand the prospect statement at any point in time during the course of sickness or in connection with repeated sick notes making it possible for the employer to monitor employees with systematic sick notes as the employer may ask for a prospect statement from the first day of absence. This could be relevant in relation to employees who are often sick on Fridays and Mondays.

Free-text-statement

It is important to note that, in addition to the prospect statement, the company may still demand documentation for absence due to sickness in the form of a free-text-statement prepared by the employee's doctor. This statement may be used at an advantage in connection with short-term sickness or in a situation of dismissal where the employer e.g. wants to obtain information on the expected duration of the sickness.

Retention plan

In relation to employees on long-term absence due to sickness who the employer wants to return to work after the sickness period, it is possible to prepare a retention plan describing how the employee can return to work in full or in part as soon as possible.

Reimbursement of sickness benefits

The employer's possibility of obtaining reimbursement of sickness benefits has been extended to also include those situations where the employer cannot employ an employee on part-time absence due to sickness as a consequence of objective circumstances at the workplace. Previously, it was not possible to receive reimbursement in such situations.

In addition, there is extended access to reimbursement in those situations where the employee reported sick does not participate in the handling of his sickness benefits with the municipality. The amendment means that the employer's entitlement to reimbursement of sickness benefits will "wake up again" if the employee once again participates in the follow-up within a 4-week period.

The employer is still obligated to pay sickness benefits to an employee for the first 21 days of the sickness period. Previously, this obligation implied that the employer could risk having to pay sickness benefits to an employee for a period after the termination of the employment if the employee had reported sick before the termination of the employment. Today, the obligation to pay sickness benefits ends at the effective date of termination.

The rules on sickness benefits in practise

We have prepared a survey of how companies may find simple tools to be used at an advantage when the new rules on sickness benefits are to be used in practice.

You will find the survey on horten.dk/værktøjersygedagpengelovgivningen.

Reporting of employee benefits

Since 1 January 2010, employers have been obligated to report taxable employee benefits to SKAT. Each month, employers must report benefits or advantages granted to the employees, other parties of a contractual relationship (e.g. board members) or persons holding positions of trust.

This reporting includes employee benefits from the employer in the form of rewards to the employees such as a visit to a restaurant, wine, weekend stays, etc. subject to B-tax on income not taxed at source, but also Christmas presents exceeding DKK 700, commute cards, multimedia, staff loans if the interest is below minimum interest, use of company holiday cottage etc. Previously, it was the responsibility of the employee to report such benefits.

Before 1 January 2010, company car and free telephone etc. (multimedia) were – and are still – covered by the employer's duty to report.

All kinds of remuneration – both in cash and in kind – are in general taxable if received during an employment relationship unless there is authority to tax exemption in legislation or in practice.

All benefits are reported stating the value that it would normally cost the employee if he was to buy the benefit himself – normally equal to the purchase price of the employee. In 2010, the Tax Assessment Committee decided that an employer's administration fee to a card issuer of approx. DKK 6 per year per employee for the card, information to the employee and administration of the arrangement was to be reported by the employer to SKAT.

Employee benefits covered by the triviality limit are not to be reported. In 2010, the triviality limit was DKK 5,500.

The triviality limit only concerns benefits made available by the employer mainly in connection with the performance of the work, e.g. vaccination, food and beverages in connection with overtime work, free newspaper at work, testing of the company's products etc. The private use of benefits that are not covered by the triviality limit and that are made available for the purpose of the work (e.g. Bro-Bizz) is not covered by the employer's duty to report. The same applies to bonus points earned in connection with flights etc., occasional private use of tools such as trailer, lift or tools. Benefits rewarding a good performance are not covered by the triviality limit and are to be reported to SKAT.

If an employer – intentionally or with gross negligence –fails to make due reporting or completely fails to report, the employer is liable to pay a fine.

The Supreme Court ruling of 17 December 2010 concerning the compensation level for violation of the Contract of Employment Act

Since the Supreme Court's ruling in 1997 in a case where the level of compensation for violation of the Contract of Employment Act was fixed at DKK 5,000 and where the violation had resulted in a dispute of DKK 10,000, the Act has been amended several times.

The latest amendment came into force on 1 March 2007 differentiating the level with the result that compensation in case of minor errors in the contract could generate compensation of up to DKK 1,000, whereas gross errors could generate compensation for up to 20 weeks' pay. These amendments have given rise to very different case law, and the Supreme Court rulings in these three cases have therefore been anticipated.

In connection with the rulings, the Supreme Court issued a press release describing the assessment principles as follows:

"If a contract of employment is subject to one or more insufficiencies that are excusable and without specific importance for the employee, the triviality limit applies under section 6 (2) of the Act with the result that compensation is to be fixed between DKK 0 and 1,000.

If a contract is insufficient, or if no contract has been prepared without this having had specific importance for the employee, compensation should in general be fixed at a maximum of DKK 5,000 depending on the nature of the circumstances. Without any certain basis for increasing or reducing the compensation, it should be fixed at DKK 2,500. In order to reduce – or in the circumstances, completely omit awarding compensation, the employee must correct the matter immediately after having been reprimanded. If the employer fails to correct the matter, this could speak in favour of increasing compensation.

In the event of a dispute or the risk thereof which could have been avoided had the duty of disclosure been complied with, compensation should in general be fixed at an amount of up to DKK 10,000 depending on the nature and importance of the circumstance. Without any certain basis for increasing or reducing compensation, it should be fixed at DKK 7,500. Elements speaking in favour of increasing compensation are e.g. if the contract contains misleading terms compared to the employee's legal position according to law or collective agreement, that the neglect of duty has resulted in the risk of loss of rights, including loss of substantial salary amounts, that it is not an isolated incident or that the employer has not corrected the matter after having been reprimanded. Elements speaking in favour of decreasing compensation are less important or excusable matters or if it is an isolated incident.

In the event of aggravating circumstances like the employer deliberately trying to circumvent the rights of the employee or persistent inactivity despite repeated requests to issue a contract, compensation may be fixed at up to 20 weeks' pay depending on the nature and importance of the insufficiency. Compensation of more than DKK 25,000 should, however, be reserved for cases of a particularly gross nature involving a risk for the employee of incurring a substantial loss.

In the event of successive violations of the Act, e.g. if an employee has received several insufficient contracts, a specific aggregate assessment should be made."

Source: www.domstol.dk.

These principles are presumed to make severance negotiations much easier in the event of problems with the contract of employment – compared to the previous case law.

With the description of the basis of the assessment principles, the Supreme Court has thus continued its approach from 19997 stating specific compensation without direct connection with the employee's wage or salary.