Recently, the Supreme Court decided on the fundamental question as to whether the employer is entitled to set-off loss of refund of sickness benefits against an employee’s claim for salary if the loss of refund is due to the employee’s failure to participate in the municipality’s follow-up.

The case concerned a salaried employee who was on sick leave due to stress and mental problems. During the sick leave, the municipality of residence requested the employee to fill out a form for the purpose of payment of sickness benefits which the employee failed to do with the consequence that the right to sickness benefits lapsed.

The employer consulted the employee and informed her that the employer’s loss of refund was going to be set off against the employee’s salary. The employer justified the set-off by the fact that the employee had failed to participate in the municipality’s follow-up without reasonable cause, and the employer had suffered a loss of refund. With reference to the general duty of loyalty in connection with an employment relationship, the employer believed to be entitled to set-off a similar amount against the employee’s salary.

OBJECTED TO SET-OFF

The employee did not believe that the employer was entitled to set-off based on the fact that she - in accordance with her doctor’s directions - had not checked her e-mails. It was therefore not until the date when the right to sickness benefits lapsed that she opened her E-boks and saw that there were important messages for her to respond to.

THE HIGH COURT: SET-OFF REQUIRES EXPRESS AUTHORITY IN AN ACT, AGREEMENT OR COLLECTIVE AGREEMENT

The High Court stated that an employer’s demand for refund of salary under the Sickness Benefits Act is only a demand deriving from the employee’s right to receive sickness benefits, and that the legislature has accepted the risk that the employer may loose a refund of salary paid during sickness.

Based on the above, and compared to the fact that the Salaried Employees Act entitles the employee to salary during sickness, a High Court majority found that there was no general access to set-off under the rules of law of obligations, and that an employer cannot set off a claim against an employee’s salary without this being explicitly authorised in an act, agreement or collective agreement.

The case was then brought before the Supreme Court.

THE SUPREME COURT: THE DUTY OF LOYALTY IMPLIES A DUTY TO PARTICIPATE, HOWEVER, NOT TO LIABILITY IN DAMAGES IN THE SPECIFIC CASE

The Supreme Court affirmed the High Court ruling - however, on different grounds. The Supreme Court stated that the employer’s loss of refund of sickness benefits was caused by the employee’s failure to observe the duty of loyalty resting on her in connection with the employment relationship. The employer’s claim for damages for loss of refund of sickness benefits was therefore covered by section 23 (3) of the Liability in Damages Act. The Supreme Court found, however, that there were grounds for ordering the employee to compensate the employer’s loss in the specific case. In this connection, the Supreme Court gave weight to the fact that the employee had not deliberately or by gross negligence set aside her duty to participate loyally in the municipality’s follow-up, seven though she should have been aware of the municipality’s follow-up. At the same time, the Supreme Court found that as an employer, the municipality had not guided the employee or offered her any help to fulfil the requirements of the Sickness Benefits Act.

SET-OFF WOULD HAVE BEEN POSSIBLE IF THE EMPLOYEE WAS SUBJECT TO LIABILITY IN DAMAGES

The Supreme Court made a statement of principle establishing that if the employee had been subject to liability in damages under section 23 (3) of the Liability in Damages Act for not having fulfilled the requirements of the Sickness Benefits Act thereby having inflicted a loss on the employer, the employer would generally have been entitled to set off the loss against the employee’s salary as the claims both arise out of the employment relationship. However, set-off may not take place in such a way that it deprives the employee of “... what is necessary to maintain a modest standard of living ...”.

INSTRUCTION AND GUIDANCE TO THE EMPLOYEE

The Supreme Court ascertains that it is incorporated in the employee’s duty of loyalty vis-à-vis the employer to fulfil the municipality of residence's requirements as part of the follow-up under the Sickness Benefits Act - irrespective of whether this is specified in internal guidelines. At the same time, the ruling illustrates that it is important that the employer clearly communicates its expectation to the employee’s participation in connection with the obtaining of refund of sickness benefits to ensure access to set-off. It is significant in this respect that the employer clearly informs the employee of the requirements of the Sickness Benefits Act which the employee has to fulfil during sickness, including that the employee understands the importance of reporting information for the purpose of the follow-up to the municipality and the consequence of failing to do so. The contract of employment and/or the staff manual may describe the above with advantage. Depending on the circumstances, it may also be necessary to give specific guidance to the employee.

contacts

Marianne Lage

Partner

Kristine Friis Nolsø

Specialist Attorney

Christian Vesterling

Assistant Attorney