On May 27 2016 the Maritime and Commercial Court found it contrary to the mandatory rules of the Salaried Employees Act that a senior employee in a pharmaceutical company (A) was awarded a bonus based on progressive calculation, not direct proportional calculation. The case involved whether a retention bonus falls under Section 17a of the Salaried Employees Act, which – in line with previous case law – the court found to be the case.

When A resigned from his position in October 2014, he received a sum based on a three-year bonus plan. The sum was calculated according to a point system whereby employees were awarded more points the longer that they remained employed during the bonus period. A became part of this bonus plan when the company was acquired, which resulted in a significant integration process. However, it remained necessary to keep the operation running, and for this reason the senior employees were awarded the bonus. When A resigned he had been employed for 22 months of the 36-month bonus period, and he consequently believed that he was entitled to a direct proportional share of the agreed bonus in connection with his resignation.

The Maritime and Commercial Court considered whether A's claim for the bonus payment under the bonus plan constituted 'salary' as defined in Section 17a. In this respect, the court stated – in accordance with the dissenting judge in Supreme Court Judgment U 2012.1315 H – that remuneration which an employer pays to its employees for remaining employed in a specific period – a so-called 'retention bonus' – should fall under Section 17a.

The Supreme Court judgment established the narrow possibility that a retention bonus could fall outside the scope of Section 17a. This would be the case if a retention bonus was awarded only for a specific purpose in a situation where the company has compelling interests in retaining the employee for a certain period for the performance of certain tasks, and where the bonus does not therefore resemble salary. This specific case involved retaining employees to ensure that a utility company control room was manned with experienced employees. However, the court found that the exemption in the Supreme Court judgment did not apply, as the bonus plan involved a performance-based agreement and the bonus was dependent on the size of the bonus pool and the employee's seniority.

The court further considered whether the bonus plan point system was consistent with Section 17a. The court found that this was not the case. The Maritime and Commercial Court attached significance to the contents of the bonus plan, the purpose of Section 17a and the wish to counter the risk of circumvention. Consequently, A was entitled to a direct proportional share of the agreed bonus.

The judgment demonstrates that the Supreme Court exemption should be interpreted restrictively and that it applies only where there are special, operational reasons.

For further information on this topic please contact Tina Reissmann at Plesner by telephone (+45 33 12 11 33) or email (tre@plesner.com). The Plesner website can be accessed at www.plesner.com.

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