Labour Court decision
Superior Court of Justice decision
In the context of a dismissal, legal arrangements with the aim of obtaining unemployment allowance payments for employees who would not normally be entitled to them can result in criminal prosecution. The practice of providing the employment and social services authorities with backdated documents and disguising the nature of the termination of an employment contract in order to obtain unemployment allowance payments may constitute the criminal offences of forgery and use of forgeries.
If an employment contract is terminated following dismissal with immediate effect or by mutual agreement, the employee is not entitled to unemployment allowance payments.(1)
Where dismissal is with immediate effect, the termination of the contract is a consequence of the employee's misconduct. Where an employee leaves the employment relationship by mutual agreement, he or she has agreed to the termination of the employment contract. An employee who agrees to the termination of his or her employment contract or who provokes dismissal by his or her misconduct is not entitled to unemployment allowance payments, since he or she is not affected by 'involuntary unemployment' as defined in law.
Employers and employees may be tempted to sidestep the legal requirements arising from the end of the employment relationship by opting not for dismissal with immediate effect or termination by mutual agreement, but instead for dismissal with notice, immediately followed by a settlement agreement.
At first glance, this approach appears to have advantages for both sides. It enables the employee to claim unemployment allowance and, from the employer's perspective, ensures that no legal action will be taken to challenge the termination on grounds of unfair dismissal. However, such an arrangement may represent a breach of the law if backdated documents are drafted and used, as the Criminal Division of the Court of Appeal has recently held.(2)
Two employees who had committed acts of gross misconduct were summoned to a preliminary interview with their employer.(3) The interview took place on May 3 2004 in the presence of two employer's representatives, a staff delegate and a representative of the Luxembourg Independent Trade Union Federation.
The law provides that an employer which wishes to dismiss an employee on the grounds of gross misconduct must notify the latter of his or her dismissal with immediate effect by registered letter within eight days of the preliminary interview.(4) In the event of dismissal for gross misconduct, the employee is not entitled to unemployment allowance payments.
The employer could have notified the employees of their dismissal with notice on the basis of a serious and objective reason. However, it would have been required to continue paying their wages for the duration of their notice periods, whereas the employer wished to punish what it considered to be gross misconduct.
Therefore, during the interview on May 3 2004, the parties decided to draft the legally required documents for dismissal with notice and to backdate the documents so that the employment contracts would be terminated with effect from May 31 2004. The employer's representatives and the two employees drafted and signed documents, which were backdated as if they had been drafted and signed some weeks previously. The corresponding backdated notices of receipt were also signed by both employees. The documents drafted and signed in this way were:
- the letters summoning the employees to the interview;
- backdated letters notifying the employees of their dismissal with notice; and
- backdated settlement agreements.
By providing these documents to the authorities, both employees obtained unemployment allowance payments.
The employees also asked the employer to inform them of the reasons for their respective dismissals. When they received no reply, they applied to the Labour Court to challenge what they considered to be unfair dismissals.
The Labour Court declared that the backdated dismissals were unfair.(5) It also revealed the facts to the Public Prosecutor's Office, since the backdated documents were likely to constitute forgery by all participants - namely, the two employees, the employer, the trade union representatives and the staff delegates.
Superior Court of Justice decision
As the criminal division of the district court, the Criminal Division of the Superior Court of Justice confirmed that the backdated dismissals with notice periods, which were linked to the employees' attempts to obtain unemployment allowance payments using backdated documents, constituted forgery and the use of forgeries under Luxembourg law. Both employees had received and retained allowances to which they were not entitled.
The parties' course of action was intended to avoid the application of the law. As such, it could not be said to constitute one of the means of terminating an employment contract that are defined in law, as the defendants argued. Therefore, the court considered that the scheme could not be regarded as the equivalent of a dismissal with immediate effect followed by an action brought by the employee in order to obtain provisional payment of unemployment allowances while awaiting a court ruling on the legitimacy of the dismissal.
The fact that the dismissal with notice period was part of an attempt to disguise a dismissal with immediate effect meant that:
- the court could not assess whether the two employees should have been granted the provisional unemployment allowance payments, as it could otherwise have done following a brief examination of the legitimacy of the dismissals; and
- the state employment fund could not claim reimbursement of the unemployment allowance payments (if necessary).
The agreement reached by the parties was not equivalent to a dismissal with a notice period notified on May 3 2004, and would have entitled the employees to unemployment allowance payments.
The fact that the parties chose a backdated dismissal with notice, rather than dismissal with a notice period beginning on May 3 2004, meant that:
- the entitlement to unemployment allowance payments was postponed until the expiry of the two employees' notice periods (ie, six months and four months, respectively);
- the agreement prevented the employees from finding new employment during their notice periods, which would have allowed the state employment fund to save on allowance payments; and
- even if the employees had not found new employment until after the expiry of the notice period, allowance payments would have been made for a shorter period.
The court found that the agreement reached between the parties could not be considered a dismissal with a contractual notice period that, by agreement, was shorter than the notice period defined by law. Entitlement to unemployment allowance payments necessarily starts after the legal notice period has expired,(6) regardless of whether the parties have agreed to a shorter notice period. Therefore, even if the parties had agreed to reduce the notice period, the payments would have started on the expiry of the legal notice period.
The parties' decision to reduce the notice period by backdating the dismissal caused damage to the state employment fund, which had had to intervene sooner than it would have done had the dismissal been declared on May 3 2004.
According to the statements collected during the investigations, the parties' sole intention was to find a solution that would suit their respective interests. Nonetheless, the solution that they chose led to serious criminal penalties. The case is a reminder to all parties connected with employment relationships that alternative solutions should be approached with great caution. The consequences of such employment relationship decisions should be assessed under the supervision of legal professionals before such arrangements are implemented.
For further information on this topic please contact Guy Castegnaro or Ariane Claverie at Castegnaro by telephone (+352 26 86 82 1), fax (+352 26 86 82 82) or email ([email protected] or [email protected]).
(1) Articles L521-3 (point 1) and L521-4(1) (point 2) of the Labour Code.
(2) Superior Court of Justice, 10th Section, March 23 2011, 56/11 X (not 7362/06/CD).
(3) In order to be allowed to dismiss on the ground of serious and actual reasons or gross misconduct, companies with at least 150 employees must summon the employee to a prior interview for the purpose of informing him or her of the employer's grievance and to hear the employee's explanations (as well as the comments of the person who assists the employee during this interview (Articles L124-2(1) and (2) of the code).
(4) Article L124-2(3) of the code.
(5) After the Labour Court had rejected its claims for the reimbursement of the unemployment allowances, the state appealed the first instance rulings. However, the action was abandoned when the company finally agreed to terminate the dispute and to reimburse the money claimed by the state.