Employee rights: more clarity on fair compensation

Since July 1 2015, under certain circumstances, employees have been entitled to fair compensation. A judgment by the Supreme Court in 2017 provided more clarity on how this compensation is calculated. This blog explains the situation in more detail.

This post was reviewed and updated on 27 September 2020

1. What is fair compensation?

Employees are entitled to transitional severance pay when their employer terminates their contract. When the employer behaves egregiously in ending the contract, the employee has the right to fair compensation in addition to transitional severance pay.

The law cites a number of situations where the right to fair compensation is given automatically. These situations include: wrongful dismissal, breach of contract terms, termination without the permission of the Employee Insurance Agency (UWV), breach of a ban on dismissal, breach of anti-discrimination legislation, and failing to adhere to the Collective Dismissal Act (WMCO).

2. What does the law say about the calculation method?

The law leaves the calculation of fair compensation entirely to the court’s discretion. The law does state that the level of compensation ‘should bear relation to the seriously egregious or negligent actions of the employer rather than the consequences of dismissal’. However, how this should be applied in practice is not made clear.

3. How do the lower courts determine the level of fair compensation?

The courts apply a number of different calculation methods. In a case before the district court in Eastern Brabant fair compensation was calculated by multiplying the transitional severance pay by two. The sub-district court in Rotterdam took the severity of the employer’s behaviour as its starting point and applied it to the particular circumstances of the case. The court also considered the anticipated loss of income and pension.
A court in Amsterdam chose a different route again by applying the sub-district court’s method. Some courts base their decision solely on the egregious behaviour while other courts focus on the negative impact. In short, the case law varies considerably.

4. What does the Supreme Court say?

The Supreme Court has issued the following guidelines for determining fair compensation:

● The court should decide fair compensation in a way that reflects the exceptional circumstances of the case.
● This may include having regard to the length of service, the reason that the employee is seeking fair compensation and their salary level.
● Insofar as the consequences are the result of serious egregious behaviour by the employer, the court may take the consequences of dismissal into account. In such cases it may consider lost earnings, opportunities in the labour market and future income.
● The extent to which the employer is at fault is relevant.
● Any transitional severance pay to which the employee is entitled should be taken into account.
● Fair compensation is not punitive in character. The main goal is not to punish the employer for his or her behavior. The imposition of a high financial penalty purely as a sanction is therefore not permitted.

5. Still no real certainty

The Supreme Court made clear that the consequences of dismissal may be taken into account in determining fair compensation. Where the employee is in a weak position in the labour market, compensation may be set at a higher level. On the other hand, it has been made clear that fair compensation is not punitive in character. The court will still have regard to all the circumstances and be required to justify the level of fair compensation it arrives at on that basis. In short: the Supreme Court has provided a little more substance in its judgment of June 2017, but there is still no certainty.

If you have any further questions relating to this topic, lawyers from the Legal Expat Desk will be happy to assist you. Please do not hesitate to contact us.

 

This blog was produced with the assistance of Jana Nowotny.