The Supreme Court of Denmark upholds the judgment regarding retention bonus pursuant to section 17a of the Danish Salaried Employees' Act
On 30 June 2017, the Supreme Court of Denmark passed its judgment in a case concerning retention bonus and upholds that an employee was entitled to a proportional part of a bonus when leaving the position before the expiry of the bonus period.
Case summary
The employee A was employed as General Manager Europe in the company B with effect from 1 October 2010. As of 1 January 2013, A became part of a bonus scheme that ran for three years until 31 December 2015. According to the scheme, the bonus was to be paid in the end of January 2016 if the employee met the specified criteria. The bonus scheme was introduced as a part of the integration process following the acquisition of B by an American group, and hence, the scheme was established as an attempt to retain a number of the key employees. In other words, it was a matter of retention bonus.
The bonus scheme stipulates among others things that the employee's entitlement to the bonus depended on the following three criteria: 1) the size of the bonus pool, 2) the duration of the employment and 3) the employee's performance. It appeared from A's bonus scheme that the bonus pool was 1.2 million Danish kroner and that the scheme was based on a point system according to which A accrued a certain amount of points each month. The number of points increased each month during the period so that the number of points was 100 for the first month (January 2013) and 250 for the last month (December 2015). The total number of points for the entire period was 5,990.
On 30 August 2014, A terminated his position effective as of 31 October 2014. In this connection, he was paid a bonus calculated according to the point system. However in A's opinion, the calculation should be made proportionally to the period in which he had been employed by B, i.e. calculated on the basis of the 22 months he had been employed out of the bonus period of 36 months pursuant to section 17a of the Danish Salaried Employees' Act.
Hence, A made a claim for the difference between the bonus calculated on the basis of the point system and the bonus calculated on the basis of a directly proportional bonus scheme. The difference was 162,395.65 Danish kroner.
The judgment of the Danish Maritime and Commercial Court
The Danish Maritime and Commercial Court ruled that a compensation which an employer pays to its employees in order for the employees to stay in their positions for a defined period, i.e. a retention bonus, is covered by the provision in section 17a, sub-section 1, of the Danish Salaried Employees' Act. Please see further regarding the judgment of the Danish Maritime and Commercial Court here.
The Danish Maritime and Commercial Court noted that it did not find that the conditions for the very narrow scope of the judgment no. U2012.1315H concerning deviation from the main provision of section 17a, sub-section 1, could be considered fulfilled for the bonus scheme in question. Thereby, the Danish Maritime and Commercial Court emphasized the existence of a performance evaluation according to the contents of the agreement and, furthermore, that the bonus was dependent on the size of the bonus pool and the employee's seniority.
In relation to the principle of the bonus scheme, the Danish Maritime and Commercial Court found that A was entitled to a proportional compensation for the financial year in which he terminated his employment. Thus, the progressive accrual principle was not in compliance with section 17a, sub-section 1, of the Danish Salaried Employees' Act which therefore cannot be deviated from to the disadvantage of A pursuant to the Danish Salaried Employees' Act, section 21.
The judgment of the Supreme Court of Denmark
The Supreme Court of Denmark notes that it was not a question of redundancy, and thereby crucial to the company, that A stayed in his position until the last day if possible.
On the contrary, the maximum bonus was determined by the company in proportion to A's annual salary. It is stated in the bonus scheme that payment of the bonus depended on the company's evaluation of his work performance and that this evaluation was discretionary. Hence, it was a prerequisite for the bonus to be paid that the company evaluated his performance to at least 3 on a scale of 1 to 5.
On this basis, the Supreme Court of Denmark upholds the judgment of the Danish Maritime and Commercial Court, stating that:
"The Supreme Court of Denmark finds that the agreed bonus, in the particular circumstances of this case, did in fact not only constitute a reward for A to stay in his position until the end of the bonus period but also payment for his work equivalent to salary".
Bird & Bird's comments
With this judgment, the Supreme Court of Denmark confirms that bonus schemes predominantly – even though it is a retention bonus - will be covered by section 17a of the Danish Salaried Employees' Act and that the exception of judgment no. u2012.1315H must still be considered as a very narrow deviation. If the payment of bonus is also partly dependent on a performance evaluation, it must be assumed that such bonus will always be subject to section 17a of the Danish Salaried Employees' Act.
Furthermore, the judgment establishes that the proportional principle of section 17a of the Danish Salaried Employees' Act cannot be disregarded pursuant to section 21 of the Danish Salaried Employees' Act. Therefore, a salaried employee is entitled to a proportionate part of a bonus payment in proportion to the seniority and not in proportion to other progressive accrual principles.
