At resignation, an employee was not entitled to a proportionate share of a staff retention bonus

Date 29 feb. 2012
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On 30 January 2012, the Danish Supreme Court decided on the matter of an employee’s right to a proportionate share of a staff retention bonus at resignation, before the occurrence of the event which would trigger the bonus. The Supreme Court found that the employee, based on the agreement, could not have had a legitimate expectation of receiving a proportionate share paid out in case of resignation, and therefore concluded that the employee was not entitled to a proportionate share. In so doing, the Supreme Court reversed the Maritime and Commercial Court’s previous decision, in which the employee was awarded a proportionate share.


The case in brief

In 2005, the energy company, Energinet.dk (in the following, the ”Company”) merged with three other energy companies and subsequently wished to establish a headquarters in the Triangle Region in Jutland.


Subsequent to the decision of combining the control centres, the Company experienced problems retaining employees in Eastern Denmark up to the final combining. With the purpose of ensuring adequate and qualified staffing in the control centres in Eastern Denmark until 2008, the Company concluded staff retention agreements with a number of employees in control functions, including the employee in question (in the following, the “Employee”), who had been employed with the Company since 2000.


According to the staff retention agreement, the Employee would receive a bonus corresponding to 12 months’ salary if the Employee was still employed full-time as of 30 June 2008. Hence, the purpose of the agreement was to ensure that employees in control functions would not resign from their position before 30 June 2008.


When the Employee at the end of February 2008 resigned from his position with the Company, he demanded a proportionate share of the staff retention agreement corresponding to 26/30ths of the final bonus. The Company disputed this claim, referring to the fact that the purpose of the staff retention agreement was to retain the persons covered by the agreement in their position for the duration of the entire period.


The legal basis

Section 17a (1) of the Danish Salaried Employees Act prescribes that an employee who resigns his position during a current financial year is entitled to a proportionate share of performance related bonuses, incentive bonuses and other considerations which, according to agreement or common practice, constitute part of the relevant employee’s regular remuneration.


The wording of Section 17a of the Danish Salaried Employees Act covers performance related bonuses, incentive bonuses and other considerations, but has, in practice, been interpreted to also cover other matters. Generally, it has been assumed that if the performance related bonuses, incentive bonuses or other considerations constitute part of the salary, an employer may not make payment conditional upon the employee being employed for a specific longer period or until a specific point in time, as the salaried employee regardless thereof will be entitled to a proportionate share of the consideration, the (full) payment of which will otherwise take place at a later point in time.


The Decision of the Supreme Court

Initially, a united Supreme Court established that the employee, based on the wording of the agreement, could not have a legitimate expectation of receiving a proportionate share of the bonus in case of resignation before the agreed point in time.


Furthermore, the majority (four judges) found that the Employee was already paid in accordance with the agreement in force at the time and that the staff retention bonus was provided independently of the employment relationship in other respects, also including the performance of the employee and the Company’s financial performance. Therefore, the majority did not find that the bonus was a consideration covered by Section 17a (1) of the Danish Salaried Employees Act, and therefore, the employee was not entitled to a proportionate share.


Contrary to this, the minority (one judge) declared that an agreement on a staff retention bonus is covered by Section 17a (1) of the Danish Salaried Employees act, and that the Employee was therefore entitled to 26/30ths of the bonus. Among other things, the minority noted that the Supreme Court’s practice regarding share options and the like, allotted in order to retain a person in his/her position for a longer period, is regarded as entitling to a proportionate share at resignation, and that that, in the view of the minority, must be changed in general if staff retention bonuses are to be exempted from Section 17a of the Danish Salaried Employees Act.


Consequences of the decision

In our view, the Supreme Court’s decision is of great practical significance.


The Supreme Court specifically recognises that a company may have operational and genuine reasons for wishing to retain the employee, and that the company in such a case should be allowed to reward the accommodation of such a need without having to pay a proportionate share to employees who do not accommodate the need of the company.


The circumstances which the Supreme Court seems to have emphasised are 1) that the employees, based on the wording of the agreement, could not have a legitimate expectation of gaining a proportionate share on an on-going basis during the employment, 2) that the bonus was neither dependent upon the performance of the employee nor the company’s performance and 3) that the company had a genuine operational need to reward employees who remained in employment with the company.


The decision diverges from the present interpretation of Section 17a, and in light thereof, it is still not certain if the decision is based on very specific reasons or if an actual clash with the present expanded interpretation of Section 17a is the case.


The extensive interpretation of the field of application of Section 17a has led to frustrations with employers wishing to reward employees for remaining employed until the occurrence of a given event.


A company may have an obvious operational need to retain key employees until the occurrence of a given event. Therefore, it seems correct that the company in such a case can reward an employee who accommodates the company’s need without at the same time having to reward employees who do not accommodate the company’s need.


In the concrete case, the Supreme Court emphasised that the wording of the scheme did not give employees any legitimate expectation of receiving a share of this scheme if they did not remain employed with the company in the given period. Furthermore, the company had an obvious operational interest in retaining the employee in the period in question.


Therefore, companies who, out of an operational need, wish to reward employees for remaining with the company should pay close attention to how the bonus scheme is prepared.


It is important to be aware that the decision is concretely motivated by the specific operational need which the company had. However, the decision cannot be viewed as being a general, changed treatment of bonus schemes.



If you have any questions or require additional information on the Supreme Court’s decision, please contact attorney Pernille Nørkær (pno@mwblaw.dk or junior associate Pinar Gökcen (pgo@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.