Supreme Court rulings concerning the compensation level for violation of the Contract of Employment Act

On 17 December 2010, the Supreme Court ruled in three cases concerning compensation to employees for lack of or insufficient contract of employment specifying a number of principles to fix the size of compensation. 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.

Background

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.

Findings

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.

See the press release.

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.

The content of this Newsletter is not, and should not replace, legal advice.

contact

Finn Schwarz

Managing Partner

Suzanne de fine Parsberg

Paralegal