On 27 September 2012, the Eastern High Court ruled in a case as to whether an employer could avoid paying pension contribution to a former executive officer.

Background

The case concerned the validity of a Rider to a Service Agreement entered into between the executive officer and the company in connection with the sale of the company in which the executive officer was also a shareholder. The Rider provided:

”In continuation of the transfer of shares, it is agreed that, in connection with the end of the accounting years 2007, 2008 and 2009, the company is to pay a fixed pension contribution of DKK 610,000 in each of the three years. […] The company's obligation to pay the pension contribution will end, if [the executive officer] is not employed with the company at the time of payment”.

The executive officer was dismissed and retired at the end of March 2009 before the end of the accounting year 2008. By the effective date of termination, the executive officer had received the pension contribution for 2007, but not for 2008 and 2009.

The executive officer commenced legal proceedings against the company, claiming that the company was obligated to pay pension contributions for 2008 and 2009 as this was part of the purchase price for the shares, and as the Rider should be set aside, in full or in part, see section 36 of the Contracts Act, on the grounds that, according to the agreement, the company could arbitrarily change the conditions for payment.

The company argued that since the executive officer was not employed at the time of the payments, she was not entitled to the pension contributions.

City Court ruling

The City Court found that the agreement had been entered into between equal parties, and that the agreement was clear and unambiguous as to the matter in dispute. The Court found that the executive officer had not proved that the agreement was unreasonable or unfair, see section 36 of the Contracts Act, as the agreement was the result of prior negotiations between the parties, both parties being considered professional business people. On this basis, the executive officer was not entitled to pension contributions for 2008 and 2009.

The High Court upheld the City Court ruling.

Comments

The ruling confirms that weighty reasons are required in order for section 36 of the Contracts Act to result in an agreement between equal parties being set aside, and even more so where one party is an executive officer.

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

contact

Kristine Friis Nolsø

Senior Attorney