Section 2a(3) of the Danish Salaried Employees Act is in violation of an EU directive concerning prohibition on differential treatment based on age

Date 16 dec. 2010

 

On 12 October 2010, the EU Court of Justice passed a verdict in the case C-499/08 concerning whether a salaried worker has the right to receive severance pay even though the he/she is eligible for retirement pension at the same time.

 

The question was whether the prohibition against discrimination based on age in the council directive of 27 November 2000 concerning a general framework for equal treatment in employment and occupation (2000/78/EF) prevents Denmark from maintaining a legal position which entails that salaried workers who have the right to receive retirement pension lose their right to receive severance pay, see Section 2a(3) of the Danish Salaried Employees Act.

 

The court found that Section 2a(3) of the Salaried Employees Act, which generally precludes a salaried worker from severance pay because he/she may receive retirement pension, entails a differential treatment which violates directive 2000/78/EC (hereinafter the Employment Directive).

 

Facts of the case

The case was filed by a salaried worker (hereinafter the Salaried Worker) who was working for the Region of Southern Denmark from 1979 and until he was dismissed in 2006. The Salaried worker was 63 years old at the time of the dismissal and did not wish to retire. Instead he joined the employment agency as unoccupied.

 

In connection with the dismissal, the Salaried Worker claimed that he had the right to receive severance pay pursuant to Section 2a of the Danish Salaried Employees Act. The claim was rejected referring to Section 2a (3) of the Salaried Employees Act because the Salaried Worker was entitled to receive his employer paid pension.

 

The Danish Society of Engineers, who conducted the case for the Salaried Worker as his union, presented the case to the Danish Western High Court maintaining that the rejection entailed a differential treatment based on age.

 

The Western High Court presented the question to the EU Court of Justice as a preliminary question asking whether Section 2a of the Salaried Employees Act, which entails that a worker will not receive severance pay if he is entitled to receive his employer paid pension at the same time, violates the prohibition of the employment directive concerning differential treatment inter alia based on age.

 

The payment of retirement pension is generally based on an age criterion. Therefore, only workers who fulfil this age criterion are precluded from the right to receive severance pay. 

 

The legal basis                  

The employment directive’s purpose is to suppress differential treatment regarding employment and business e.g. based on age and states that neither direct nor indirect differential treatment is allowed.

 

However, differential treatment based on age is allowed if : (i) the treatment pursues legitimate purposes, including employment, labour market and vocational education goals, (ii) the treatment is objective and reasonably motivated and (iii) the means to fulfil the purpose are appropriate and necessary.

 

The Salaried Employees Act gives a worker the right to severance pay corresponding to 1, 2 or 3 months’ salary if he/she has been employed at the same company for 12, 15 or 18 years without interruption.

 

If,  at the time of dismissal, the worker has the right to receive pension paid by the employer and the pension plan has been contracted before the worker was 50 years old, the right to severance pay is annulled, cf. the Salaried Employees Act, Section 2a (3).

 

The court’s processing of the case

Initially, the court stated that the case was covered by the employment directive’s field of application.

 

Afterwards, the court stated that the rule of the Salaried Employees Act entails an unequal treatment of some workers because these workers are precluded from the right to receive severance pay only because they are entitled to retirement pension.

 

The question was whether the unequal treatment should be allowed or not.

 

Concerning the purpose of the rule, the court determined that the limitation according to the preparatory work of the Salaried Employees Act is based on the fact that workers who are entitled to a retirement pension usually decide to leave the labour marked when their employment ends. The limitation therefore ensures that employees are not paid both severance pay and retirement pension simultaneously. The court found that the protection of workers who have a significant length of service at the company and the support provided to finding new jobs were legitimate employment and labour marked goals which in principle were objective and appropriate.

 

As regards the question of whether the means was commensurate with the goal, the court stated that the rule is not clearly inexpedient just because it precludes salaried workers from receiving pension and severance pay from their employers at the same time. 

 

However, the court was of the opinion that the limitation was too far-reaching compared to what was necessary to achieve the goal. In support of this, they noticed that the limitation not only affects salaried workers who actually receive retirement pension, but also the ones who are entitled to be paid the retirement pension, but decides to stay on the labour market instead.

 

During the processing of the case, The Danish Government had maintained, among other things, that the intention of the law was that severance pay should only be paid to persons who were interested in staying on the labour market, but due to their age had a hard time finding new employment. The court also maintained that the rule makes it possible to avoid that a worker who retires from the employment market receives a retirement pension and severance pay from the employer at the same time.   

 

As regards workers who actually decide not to stay on the labour market, the court found that the rules were not too far-reaching compared to what was necessary.

 

As regards workers who are entitled to be paid a retirement pension, but wish to give up this right,  the court found that the rule of the Salaried Employees Act, Section 2a (3), was too far-reaching compared to what was necessary.

 

As a result hereof, the court stated that the rule prescribing that workers who are entitled to retirement pension are not entitled to be paid severance pay expresses differential treatment based to age which is in violation of the employment directive.

 

Review

In to its present form,  Section 2a (3) of the Salaried Employees Act states that emphasis is only put on whether a terminated salaried worker is entitled to a retirement pension and not whether or not this entitlement is actually utilised. Former Danish case law is in accordance with this.

 

The ruling of the EU Court of Justice rejects this interpretation of Section 2a (3) of the Salaried Employees Act, and it must be expected that henceforth the rule will be interpreted in a way that workers who are entitled to a retirement pension will only be precluded from receiving severance pay if they actually choose to retire and therefore receive retirement pension.

 

In accordance with this, a change must be expected in the practice of the Danish courts who must apply a more purpose directed interpretation instead of the former close literal interpretation. This will also be in accordance with the Employment Directive.

 

On this basis, it is our expectation that the ruling of the Danish Western High Court will mark the beginning of a new practice from the Danish courts on Section 2a (3) of the Salaried Employees Act after which annulment of severance pay will depend on whether the salaried worker actually decides to leave the labour market.

 

Furthermore, it must be expected that the ruling of the EU Court of Justice will have legal consequences for workers who have not received severance pay even though they have not left the labour market after their dismissal.0020

 

 

If you have questions regarding the above or require additional information about the Danish Salaried Employees Act, please contact partner Thomas Weitemeyer (twe@mwblaw.dk) or attorney Pernille Nørkær (pno@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.