Key employee was entitled to bonus

A retention bonus was comprised by the concept of "salary and wages" in the sense of the Danish Salaried Employees Act. Therefore, pursuant to Section 17a (1) of the Danish Salaried Employees Act, an employee was entitled to a proportionate bonus calculated based on the time of employment in the bonus period. Judgment of 30 June 2017 from the Danish Supreme Court

Pursuant to Section 17a (1) of the Danish Salaried Employees Act, a salaried employee, who is "remunerated in the form of commission on profit, bonus, or similar payments" and who leaves the employment before such amounts fall due, is entitled to receive a "pro rata" share of the payment which the employee would have otherwise received under the applicable scheme. The provision includes salary components received by the employee for making his working capacity available to the employer. 

In the judgment of 30 June 2017, the Danish Supreme Court had to decide whether a retention bonus, based on the employee's performance, seniority and earning of points, was comprised by the concept of "salary and wages" in Section 17a (1) of the Danish Salaried Employees Act. Furthermore, the Supreme Court had to decide whether it was contrary to this provision that the bonus amount was calculated progressively instead of in direct ratio to the employment term.

The case involved a key employee who had given notice of termination. The employee had participated in a 3-year bonus scheme where the size of the bonus depended on the earning of bonus points. Bonus points were earned for each month of employment in the bonus period. The earning increased in progression with the bonus period. Furthermore, payment of bonus was conditional upon the employee's rating as minimum 3 out of 5 on the performance rating scale.

The bonus scheme had been established to retain the employee after the sale of the company.

When the employee gave notice of termination, he had been employed for 22 out of totally 36 months of the bonus period. The bonus to the employee was based on the progressive earning of points and was consequently less than the amount he would have obtained if the bonus had been calculated proportionally to his term of employment. The employee claimed that this was contrary to Section 17a (1) of the Danish Salaried Employees Act.

The Supreme Court had to consider two questions: Whether Section 17a (1) of the Salaried Employees Act also encompasses the bonus scheme in the present case where bonus is earned and paid out progressively on basis of a point-earning system with the requirement of a certain performance; and whether payment of bonus calculated progressively at termination of employment is in contravention of Section 17a (1) requiring "proportionate" payment. 

Regarding the question whether the bonus scheme is comprised by the concept of "salary and wages" in Section 17a (1) of the Danish Salaried Employees Act, the Supreme Court referred to its judgment of 30 January 2012 (reported in U 2012.1315 H), which involved a special bonus scheme awarded to individual key employees by the employer with the purpose to retain the employees. 

This case involved a very special situation where the employees' workplace was to be closed down, but where the employer nevertheless had an urgent need to maintain the job functions in question until completion of the close down. Therefore, the employees had a strong incentive to seek new employment as quickly as possible. The majority of the Court found that under these very special operational circumstances, the retention bonus was not subject to Section 17a (1) of the Danish Salaried Employees Act, as the bonus amount did not constitute remuneration, but was exclusively granted to retain the employees in their positions. Consequently, the bonus scheme was not considered as remuneration in the sense of Section 17a (1) and was therefore not covered by this provision.

In the present case, the Supreme Court found that the bonus scheme did not only represent an award to the employee for remaining in his position until the end of the bonus period, but also a remuneration for the performance of work in the bonus period in the same manner as salary. The Supreme Court attached special attention to the fact that the position of the employee was to be abolished and the consequent decisive need for the enterprise to retain him in his position. The Supreme Court stated that there was no reason to believe that the retention purpose could not have been achieved by granting the employee a salary increase.

The bonus scheme in the present case was fundamentally different with regard to form and purpose from the bonus scheme in the judgment U 2012.1315 H. Consequently, the bonus scheme was comprised by the concept of "salary and wages" in Section 17a (1) of the Danish Salaried Employees Act.

Regarding the question of the progressive bonus payment stipulated by the scheme, the Supreme Court stated that it follows from Section 21 of the Danish Salaried Employees Act that Section 17a (1) cannot be deviated from to the detriment of the employee. Therefore, the payment to which the employee, according to this provision, is entitled upon termination must be calculated proportionally in direct ratio to the employment term.  

The judgment shows, in line with previous case law, that retention bonus schemes are basically subject to Section 17a  (1) of the Danish Salaried Employees Act. The limited exception established by the Danish Supreme Court in its judgment U 2012.1315 H is only applicable to very special situations where the bonus is exclusively granted to retain the employee in his position due to compelling operational needs and therefore has no relation to the performance of the employee. 

Furthermore, the judgment shows that upon termination, the employee is entitled to a pro rata share of the full bonus amount, calculated on basis of the employee's term of employment in the bonus period.

Read Plesner's comments to the judgment of the Danish Maritime and Commercial Court

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