Finally, there is clarification as to the legality of the limitation in severance pay to older employees 

On 26 February 2015, the European Court of Justice ruled that the Salaried Employees Act's exemption provision applicable at that time, according to which severance pay was not be to paid to employees who were entitled to receive state pension at the effective date of termination, was not contrary to the prohibition against discrimination due to age.

The previous exemption to severance pay

Under the previous exemption provision of section 2a (2) and (3) of the Salaried Employees Act, the entitlement to severance pay was forfeited if the employee received state pension or was entitled to retirement pension under a pension scheme agreed with the employer if the employee had joined the scheme before turning 50.

The exemption provision of section 2a (3) of the Act was abolished with the amendment of section 2 of the Act which came into force on 1 February 2015. 

The amendment was made as a consequence of the European Court of Justice's ruling in the Ole Andersen case in October 2010 when the Court ruled that section 2a (3) of the Act was too extensive compared to the underlying directive and contrary to EU legislation. 

This ruling was followed by a Supreme Court ruling of 17 January 2014 establishing that an employee who still wished to pursue a business career should be paid compensation under section 2 a of the Act irrespective of whether the employee was entitled to receive retirement pension. 

The Ole Andersen case and the Supreme Court ruling were described in previous articles at en.horten.dk at 29 April 2013 and 20 January 2014. 

The specific case

A salaried employee was terminated at the age of 65. The employee could therefore receive state pension, but he had applied for payment of state pension at a later time. 

Notwithstanding the fact that the employee started a new job at the expiry of the notice period, the employer did not pay severance pay referring to the previous provision of the Act. During the proceedings, the employee claimed that the employer's rejection to pay severance pay was contrary to the prohibition against discrimination due to age under EU law. The Eastern High Court referred this question to the European Court of Justice.

Discrimination due to age was justified by legitimate objectives

The Court ruled that the exemption provision of section 2a (3) of the Act constituted discrimination due to age. The Court then examined whether the Danish rules were objective and justified by legitimate objectives pertaining to the labour market and labour market politics and constituted an appropriate and necessary means to achieve these objectives. 

The Court found that the objective of the exemption provision was to limit the possibility of abuse in the event that the employee receives severance pay for the purpose of finding another job if the employee still wishes to retire. According to the Court, this is a legitimate objective, but it also had to be appropriate and necessary to achieve the objective. According to the Court, the Danish rule was suitable for achieving the objectives pertaining to employment policy pursued by the EU, and the rule was therefore not too extensive compared to those employees who had reached the normal pension age.

The Court therefore found that the previous section 2a (3) was not contrary to EU law. 

Comments

As described, the rules of the Act on severance pay were amended from 1 February 2015. Consequently, the Court's ruling of 26 February 2015 is of limited importance. 

The Court, however, performed a thorough evaluation of the objective and justified objectives that may justify discrimination due to age. The ruling may therefore be relied on to create clarity as to the Court's requirements for national provisions on discrimination due to age. 

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

contacts

Finn Schwarz

Managing Partner

Maria Schmiegelow

Attorney