As of 1 February 2015 all salaried employees, who have been continuously employed for 12 years or more, will be entitled to receive a severance pay payment if their employment is terminated by the employer.
From 1 February 2015 a dismissed salaried employee, who has been continuously employed for 12 years or more, has the right to receive a severance pay payment (fratrædelsesgodtgørelse) equal to one month’s salary. If the salaried employee has been employed for 17 years or more, the severance pay will be equal to three months’ salary.
Previously, a dismissed salaried employee with more than 12 years of continuous employment was not entitled to severance pay if the employee was also entitled to old-age pension or employer-funded retirement pension.
This was due to the provisions in sections 2a(2) and 2a(3) of the Danish Salaried Employees Act (funktionærloven) the validity of which has been questioned in several cases – both before the Danish High Court and also before the Supreme Court. All of these test cases originated from the ECJ’s ruling in the “Ole Andersen-case” which we have mentioned in our previous newsletters (link til nyhedsbreve af 12. Okt 2010, 17. Januar 2013 og 10. oktober 2014).
In the Ole Andersen-case the ECJ ruled that it was a breach of the Equal Treatment Framework Directive to deny a salaried employee his severance pay solely because the employee was entitled to an employer-funded retirement pension.
The amendments to section 2a of the Danish Salaried Employees Act, which take effect on 1 February 2015, are a direct consequence of the above-mentioned cases. The amendments to section 2a ensure that the Danish Salaried Employees Act now fully complies with the EU principle of non-discrimination on the grounds of age.
The legislative amendment further simplifies the severance pay provision by revoking the previous section 2a requirement whereby an employee was entitled to receive severance pay equal to two months’ salary after having completed 15 years of continuous employment. The effect of the legislative amendment is that a dismissed salaried employee (who otherwise complies with the continuous employment requirements) will now either receive severance pay of one or three months’ salary.
Employers should note that the amended provision applies to pre-existing employment contracts, thus, all employees who meet the continuous employment requirement on 1 February 2015 will be entitled to receive severance pay.
It is important for employers to change any standard provisions in their employee handbooks or other employment related documents to ensure that they comply with the new provisions.