The Belgian Employment Contracts Act stipulates that if the employer (or the employee) terminates the employment contract without a notice period or with a notice period that is too short, it will owe compensation in lieu of notice. In principle, this amount is due immediately and must be paid in a lump sum. Interest accrues from the termination date until the effective payment date of the amount in full.

As the severance costs for white-collar-employees in Belgium can quickly add up, especially during a financial crisis, the Employment Contracts Act offers a solution for certain employers.

In some cases, the Act provides that the compensation in lieu of notice can be paid in monthly instalments if the employer is recognised as an undertaking facing financial difficulties or one that is subject to unfavourable economic circumstances.

A royal decree of 29 August 1985 defines what should be understood by an 'undertaking facing financial difficulties' and one that is 'subject to unfavourable economic circumstances'. In short, these criteria should be assessed at the time the compensation in lieu notice falls due (not at the time notice of termination is effectively given). An undertaking engaged in a collective dismissal or one whose financial statements for the two financial years preceding the date of the dismissals indicate a pre-tax current loss, with the loss for the year immediately preceding the date of the dismissals exceeding the value of depreciation and write-downs on preliminary expenses and tangible and intangible assets, will fall within the scope of the royal decree.

If an employer falls within the scope of the royal decree and wishes to make severance payments in instalments, it should notify the employee of the circumstances that justify such payment terms. This notification should be made in writing and should refer to the applicable statutory provisions. As the law does not stipulate when the notification should be made, we recommend that it be made before or at the time of termination of the employment contract. In practice, we usually advise that employers notify the payment of compensation in lieu of notice in monthly instalments in the termination letter.