The European Court of Justice ruled in the so-called Ole Andersen case from 2010 that the previous construction of section 2a(3) of the Salaried Employees Act, according to which an employee is not entitled to severance pay if he is entitled to retirement pension from the employer, constitutes unlawful discrimination due to age. Consequently, the government has just introduced a bill according to which this provision is deleted and the rules on fixing of severance pay are generally simplified.

APPLICABLE LAW

An employee who is dismissed and has been employed with the same company for 12, 15 or 18 years is entitled to a special pay of 1, 2 or 3 months' salary under section 2a of the Salaried Employees Act.

The purpose of this provision is to ease the transition to a new job for older employees who have been employed with the same company for many years. However, older employees who have no intention of seeking new employment after the dismissal are not entitled to severance pay. According to applicable law, the right to severance pay is therefore forfeited if the employee is entitled to state pension or retirement pension from the employer and if the employee entered into this arrangement before the employee reaching 50.

Until the ruling in the Ole Andersen case, the exemption provision concerning severance pay was construed by the Danish courts with the result that an employee would forfeit the right to severance pay if he could receive retirement pension from the employer irrespective of whether the employee was in fact to make use of this option.

According to the European Court of Justice, this construction is contrary to the EU principle on prohibition against discrimination due to age. The European Court of Justice found that the rule was based on an age criterion which did not take into consideration whether the employee intended to continue his professional career after the effective date of termination.

The Danish courts therefore had to change the way to apply this rule to make it consistent with EU law. This was done by deciding cases on an employee's right to severance pay where the employee was entitled to pension in such a way that if the employee had forfeited the right to retirement pension by actively seeking new employment and pursuing a professional career after the effective date of termination, the employee did not forfeit the right to severance pay.

In January 2014, the Supreme Court stated in a case concerning the right to severance pay that it was not possible on the basis of applicable law or the Ole Andersen judgment to conclude sufficiently clear guidelines as to the cases in which an employee waived retirement pension to pursue a professional career. The Supreme Court also stated that this delimitation should be made by the legislature as the question is political and does not belong under the courts.

IMPLICATIONS OF THE NEW BILL

The new bill means a significant simplification of the applicable rules on severance pay. The exemption provision that the employee's right to severance pay will lapse if the employee is entitled to state pension or retirement pension will be deleted in the new section 2a.

Whether the employee is entitled to pension or retires will therefore not be important for the right to severance pay, and it will therefore no longer be necessary to bring legal action to determine whether an employee has pursued or is pursuing a professional carrier after the effective date of termination.
The bill also contains a simplification of the rules on fixing of severance pay. An employee who has been employed for 12-17 years at the effective date of termination is entitled to compensation of 1 month's salary, while an employee who has been employed for 17 years or more at the effective date of termination is entitled to compensation of three months' salary. It is therefore no longer possible to receive compensation equivalent to two months' salary.

With the bill, there is a new focus on section 2a. Previously, the purpose of compensation was to ease the transition to new employment for older employees who had been employed with the same company for many years. Now, compensation is instead a kind of reward for long-term and loyal employment with the same company.

The act is expected to come into force on 1 February 2015 and will have effect on future dismissals.

COMMENTS

Since the Ole Andersen ruling in 2010, the legal position has been very unclear and untenable - especially for employers.

In each case, an assessment of whether a dismissed employee intends to pursue a professional career must be made specifically for each case and based on unclear guidelines. In many cases, this assessment will have to be based on actions committed after the effective date of termination with the consequence that it has been difficult for the employer to assess whether an older employee is entitled to severance pay. For the same reason, the courts have been reluctant to rule that the employer has violated the rules on severance pay, which has resulted in an unclear legal position for the employees.

An amendment to legislation has been necessary since 2010 to clarify the legal position and to make the rules consistent with EU law. As the exemption provision is to be deleted from section 2a, it will no longer be excusable for the employer to violate the rules on severance pay.

 

contacts

Marianne Lage

Partner

Maria Schmiegelow

Attorney