Senior Employee was entitled to bonus
31 May 2016
It was contrary to the mandatory rules of the Danish Salaried Employees Act when A, who held a position of a senior employee in a pharmaceuticals company, was not awarded bonus based on a direct proportional calculation, but on a progressive calculation. Furthermore, the case involved the question of whether a retention bonus was comprised by Section 17a of the Salaried Employees Act, which the court - in line with previous case law - found to be the case. Judgment of 27 May 2016 of the Maritime and Commercial Court.
When A resigned from his position in October 2014, he received an amount according to a 3-year bonus plan, which was calculated on the basis of a point system where the employees were awarded more points the longer they remained employed during the bonus period. A became part of this bonus plan when the company was acquired. This resulted in a large integration process. However, it was still necessary to keep the operation running, for which reason the senior employees were awarded this bonus. When A resigned, he had been employed for 22 out of the 36-month bonus period, and, consequently, he believed that he was entitled to a direct proportional share of the agreed bonus in connection with his resignation.
First, the Maritime and Commercial Court was to consider whether A's claim for payment of bonus under the bonus plan constituted salary as defined in Section 17a of the Salaried Employees Act. In this respect, the court stated - in accordance with the dissenting judge in the Supreme Court judgment U 2012.1315 H - that remuneration which an employer pays to his employees for remaining employed in a specific period - a so-called retention bonus - is to be considered as comprised by Section 17a of the Salaried Employees Act.
The mentioned Supreme Court judgment establishes a rather narrow possibility of a retention bonus falling outside the scope of Section 17a of the Salaried Employees Act. This will be the case if the retention bonus is only awarded for a very specific purpose in a situation where the company has compelling interests in retaining the employee for a certain period for the performance of tasks, and where the bonus therefore does not resemble salary. The specific case involved the retaining of employees to ensure that the control room in a utility company was manned with employees who had experience with work of this specific nature.
However, in this case, the court found that the exemption in the Supreme Court judgment U 2912.1315 H did not apply, as the bonus plan involved a performance-based agreement and, also, that the bonus was dependent on the size of the bonus pool and on the seniority of the employee.
The next question for the court was whether the point system of the bonus plan was consistent with Section 17a of the Salaried Employees Act. The court found that this was not the case. The Maritime and Commercial Court attached importance to the contents of the bonus plan, the purpose of Section 17a of the Salaried Employees Act and, finally, the wish to counter the risk of circumvention. Consequently, A was entitled to a direct proportional share of the agreed bonus.
The judgment shows that the exemption created by the Supreme Court in the judgment U 2012.1315 H is to be interpreted restrictively and that it can only be applicable when there are special - operational - reasons therefor.
First, the Maritime and Commercial Court was to consider whether A's claim for payment of bonus under the bonus plan constituted salary as defined in Section 17a of the Salaried Employees Act. In this respect, the court stated - in accordance with the dissenting judge in the Supreme Court judgment U 2012.1315 H - that remuneration which an employer pays to his employees for remaining employed in a specific period - a so-called retention bonus - is to be considered as comprised by Section 17a of the Salaried Employees Act.
The mentioned Supreme Court judgment establishes a rather narrow possibility of a retention bonus falling outside the scope of Section 17a of the Salaried Employees Act. This will be the case if the retention bonus is only awarded for a very specific purpose in a situation where the company has compelling interests in retaining the employee for a certain period for the performance of tasks, and where the bonus therefore does not resemble salary. The specific case involved the retaining of employees to ensure that the control room in a utility company was manned with employees who had experience with work of this specific nature.
However, in this case, the court found that the exemption in the Supreme Court judgment U 2912.1315 H did not apply, as the bonus plan involved a performance-based agreement and, also, that the bonus was dependent on the size of the bonus pool and on the seniority of the employee.
The next question for the court was whether the point system of the bonus plan was consistent with Section 17a of the Salaried Employees Act. The court found that this was not the case. The Maritime and Commercial Court attached importance to the contents of the bonus plan, the purpose of Section 17a of the Salaried Employees Act and, finally, the wish to counter the risk of circumvention. Consequently, A was entitled to a direct proportional share of the agreed bonus.
The judgment shows that the exemption created by the Supreme Court in the judgment U 2012.1315 H is to be interpreted restrictively and that it can only be applicable when there are special - operational - reasons therefor.
