The retroactive effect of a cap on management severance payments as included in the new Dutch Remuneration Act is ruled void by a Dutch lower court.

The Dutch Remuneration Act came into force in February 2015 with retroactive effect until 1 January 2015. The act is primarily known for the 20% bonus cap. The act also introduced a cap on management severance payments exceeding 100% of the annual fixed income.

Recently, a Dutch lower court ruled in a situation where a bank and its managing director entered into a settlement agreement on 14 January 2015 in which agreement the parties agreed that the managing director would receive a severance payment higher than the managing director’s annual fixed remuneration.

Due to the retroactive application of the new legal provision and the absence of suitable transitional scheme, the severance payment agreement made on 14 January were null and void. As a result the legal provision was in breach of article 1 of the European Convention on Human Rights (right to unfettered enjoyment of property). Therefor the court ruled that, although the severance payment was a lot higher than the annual fixed income of the managing director, the legal provision should not be applicable.