The Supreme Court has just ruled in a case concerning an agreed salary decrease with immediate effect entered into as an alternative to termination. The Supreme Court was to decide whether this was possible or whether such an agreement could only be entered into respecting the employee's individual notice of termination. The case had previously been heard by the City Court and the High Court reaching different decisions.

A Supreme Court majority – only one judge dissented – found that an agreement concerning a salary decrease could be made with immediate effect. The ruling illustrates that an employer may agree on material changes, including that the employment is terminated, with an employee respecting a reduced notice, if the reasons therefor are fair. It does not appear from the Supreme Court's grounds, but it has probably been of importance that the consequences for the employee were reasonable.

The Supreme Court's findings

The Supreme Court found that the salary decrease was agreed with immediate effect, and that an employer may agree on the immediate resignation of an employee or that the employee resigns at an earlier date than the effective date of termination. The Supreme Court also found that it is possible to agree on a salary decrease or other material changes respecting a shorter notice than the employee's individual notice, irrespective of the fact that section 21 of the Salaried Employees Act prescribes that no agreements may be entered into placing the employee in an inferior position than provided by law.

However, the Supreme Court opens up the possibility of setting aside agreements of this nature as the Supreme Court states that an agreement like the above may in the circumstances be set aside under the general rules on invalidity, in particular section 36 of the Contracts Act, but the Supreme Court found that this was not the case here.

Background

On 3 September 2007, an auditor and his employer agreed that the auditor's monthly salary was to be reduced from DKK 50,000 to DKK 42,000. In October 2007, the auditor terminated his employment resigning by the end of November 2007. At the same time, the auditor commenced legal proceedings against the employer claiming the salary difference, including holiday allowance, for three months equivalent to the notice of termination.

The case has been heard by all three instances.

The City Court's findings

The City Court found that the agreement concerning salary decrease had immediate effect with the result that the reduction as well as the other parts of the agreement were to become effective on 1 September 2007. The City Court took into account that the agreement was entered into as an alternative to termination of the auditor. The City Court found that by entering into the agreement, the auditor improved his terms in connection with a transfer of customers, and, consequently, the agreement could be maintained.

The High Court's findings

The High Court found that a salary decrease like the one agreed was such a material change of the terms that it had to be compared to a termination combined with an agreement concerning re-employment on changed terms. The salary decrease could therefore only be carried out respecting the specific notice of the Salaried Employees Act. The High Court found that it was not possible to derogate from this notice to the detriment of the employee by way of the agreement, see section 21 of the Salaried Employees Act.

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

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