Making up of basic salary in severance agreement

Date 16 apr. 2010

The employee had worked for the company for eight years when the company decided to terminate its operations in Denmark. At commencement of the employment relationship, the employee negotiated with the company and was granted an individual severance agreement as a part of his contract of employment. The question in this case was whether the word salary in the employee’s individual severance agreement should be understood as basic salary or as salary including benefits such as pension, bonus and employer paid telephone allowance.

 

The case in brief

In connection with the company terminating its operations in Denmark in the fall of 2007, collective negotiations were conducted and as a result hereof a general severance agreement for all the employees was agreed to. It was specifically decided that the severance payment should be calculated based on the basic salary. The employee who took legal action was told that his terms of employment would not deteriortate  as a consequence of the severance package compared to the terms on severance pay included in his employment contract.  Thus, the case concerned the employee’s individual severance agreement and not the general severance agreement between the company and all the employees.

 

The dispute concerned whether the term salary in the individual severance agreement should be understood only as basic salary or as basic salary including benefits as pension, bonus and employer paid telephone allowance. The dispute wasn’t solved in the employee’s contract of employment but the term salary was used several times but without a specification of its actual meaning. However, the term basic salary was used a few times along with the term salary.

 

The legal background

According to Section 2a of the Danish Salaried Employees Act, the value of employer paid vehicles, employer paid telephone, value of board and lodging, pension and other non-cash benefits should be included in the calculation of the severance pay.

 

However, it was unquestionable that Section 2a of the Danish Salaried Employees Act was not supposed to be applied in this particular case, because the plaintiff had not worked for the company for more than 12, 15 or 18 years which is the formal requirement.

 

After this, the question was how Section 2a of the Danish Salaried Employees Act could be used as an interpretative aid to this particular severance agreement.

 

The decision of the Eastern High Court

The Eastern High Court decided to acquit the company on the grounds that the term salary was used along with the term basic salary and that it was written in the severance agreement that the severance payment was 12 months’ salary in accordance with the employee’s final salary rate. As a consequence of the Eastern High Court’s interpretation of the agreement, the court did not rule in favour of the employee concerning the claim that the final salary in the specific agreement included benefits.

 

Consequently, the Eastern High Court refused to use Section 2a of the Danish Salaried Employees Act as an interpretative aid, as the right to severance payment originated from the contract of employment and not from Section 2a. The Eastern High Court chose to base its ruling on an ordinary interpretation of the agreement.

 

The above proves that the principles from Section 2a of the Danish Salaried Employees Act can’t be used as an interpretative aid in cases where individual agreements don’t rely on the rules of the Danish Salaried Employees Act.

 

 

If you have any questions or require additional information on the above, please contact attorney Dan Moalem (dmo@mwblaw.dk) or junior associate Lotte Witt (lwi@mwblaw.dk).

 

The above does not constitute legal counselling, and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions or considerations.