Executive Compensation & Employee Benefits in Belgium

Sources of rules and practice

Overview

Provide an overview of the primary sources of law, regulation and practice that govern or affect executive compensation arrangements or employee benefits.

Belgian labour law encompasses a multitude of legislation (eg, the Employment Contracts Act of 3 July 1978, the Act of 12 April 1965 on the protection of remuneration and the Act of 25 April 2014 on the status and supervision of credit institutions) regulating the various aspects of compensation and benefits. This legislation is embodied mainly in acts, royal decrees and collective bargaining agreements declared generally binding and thus applicable to the entire private sector.

Enforcers

What are the primary government agencies or other entities responsible for enforcing these rules?

The labour courts are empowered to rule on individual grievances.

In addition, the observance of provisions in the field of labour law is verified by the Social Inspection Department. The Social Inspection Department can impose administrative fines on anyone not respecting the applicable legislation. The Financial Services and Markets Authority and the Belgian National Bank are also in charge of the supervision of credit institutions. Both institutions have the power to issue circular letters and communications, which contain guidance on the practical implementation of laws and royal decrees. They also have a wide array of sanction mechanisms at their disposal in the event of breaches of applicable laws and regulations, including administrative penalties. They can also submit matters for criminal prosecution.

Furthermore, non-observance of provisions of collective bargaining agreements that are declared generally binding by royal decree is also punishable with fines.

Governance

Governance requirements and shareholder approval

Are any types of compensation or benefits generally subject to specific corporate governance requirements or approval by shareholders or government agencies? What is the general process for obtaining approval?

In listed companies, shareholder approval is required for certain aspects of executive compensation of management committee members, such as any agreement that relates to severance indemnities exceeding 12 months, or 18 months after a reasoned advice from the Remuneration Committee, any share-based compensation with vesting periods of less than three years, and variable pay schemes that do not provide for payment of at least one-quarter based on performance criteria over at least two years, and at least one-quarter based on performance criteria over at least three years (such derogation is also possible with derogatory clauses within the by-laws). Note that as of January 2020, shareholder approval will be required for any agreement that relates to severance indemnities exceeding 12 months (even if the Remuneration Committee approves granting up to 18 months). Moreover, as of January 2020, listed companies must elaborate a remuneration policy for directors and managers, which must explicitly be submitted to the general shareholders’ meeting. (When a significant proportion of the votes have been cast against it, the listed company should take the necessary steps to address the concerns of those voting against it.)

In addition, in the banking sector, the Act of 25 April 2014 transposes Directive CRD IV into Belgian law and imposes detailed obligations upon credit institutions concerning governance, capital surpluses and remuneration policy.

The Act obliges credit institutions to work out a remuneration policy for directors, personnel with significant influence on the risk profile of the institution, members of the senior management, independent control functions, and personnel who are situated on the same level as those two categories in terms of remuneration, who have been awarded €500,000 or who are within the 0.3 per cent of the number of staff (‘identified staff’) with the highest remuneration.

In Annex II, the principles for the fixed and variable remuneration for such categories are determined in detail. The variable remuneration is limited to the highest of the following amounts: 50 per cent of the fixed remuneration or €50,000, but not exceeding the fixed remuneration (cap on the variable remuneration). Moreover, at least 50 per cent of the variable remuneration, including the deferred portion, must consist of shares or comparable equity instruments; and the payment of a portion of the variable remuneration (40 per cent or 60 per cent) must be deferred for a minimum period of three years. Variable remuneration is also subject to ex-post risk alignment, and malus or clawback in specific circumstances. Termination benefits are subject to a similar regime as for listed companies (even stricter, as according to the European Banking Authority Guidelines on sound remuneration policies, applicable under Belgian law, severance payment is considered as variable remuneration, with said requirements). Furthermore, with respect to ‘signing-on bonuses’ and pensions, certain principles to be respected are now placed on record.

Finally, credit institutions are obliged to abstain from effecting payments by any means that facilitate the circumvention of the principles of the Act. Credit institutions that receive exceptional government support cannot pay any variable compensation to their executives.

Consultation

Under what circumstances does the establishment or change of an executive compensation or benefit arrangement generally require consultation with a union, works council or similar body?

In principle, remuneration is agreed freely between the parties. This freedom of negotiation is limited by the existing collective bargaining agreements and by the companies’ policies.

If an executive compensation or a benefit arrangement implies a conclusion or an adaptation of a collective bargaining agreement, the trade unions will be involved. Remuneration of executives is, however, rarely laid out in collective bargaining agreements.

In publicly traded companies and in credit institutions, the remuneration committee must give its opinion regarding every variation in the remuneration policy.

A profit bonus (see questions 9 and 10) can be the same for all employees (equal amount or equal percentage of compensation) (known as ‘identical’ in the law) or differ per category (known as ‘categorised’). The bonus per category is determined by an allocation key based on objective criteria and set by law. Such bonus has to be introduced by a collective bargaining agreement (to be concluded with a trade union) if there is a trade union delegation within the company. In the absence of trade union delegation, the bonus can be introduced by an accession agreement.

Prohibited arrangements

Are any types of compensation or benefit arrangements prohibited either generally or with respect to senior management?

There is a maximum binding margin for remuneration costs (applicable to all employees and not only to senior management), which is determined every two years. It is prohibited to conclude any type of agreement that would lead to exceeding the maximum margin. For the 2019 to 2020 period, the Belgian state determined the margin at 1.1 per cent (on top of cost-of-living adjustments and pay scale increases).

Besides the above, there are in principle no specific prohibitions, rather a general prohibition on bribery.

Under Belgian law, active bribery is defined as follows: the presentation of an offer, promise or advantage to a director or an agent of a legal or natural person, to, without the knowledge or approval of the board of directors, general assembly, agents or employer, perform certain acts, proper to his or her function or facilitated by his or her function, or omit to perform these acts. Note that passive bribery (ie, accepting the offer, promise or advantage) can be sanctioned as well.

The broad definition mentioned above can render some incentives disputable, but normal relational gifts are still accepted. It is accepted that granting advantages to clients or suppliers is legitimate and is part of a normal economic or business relationship; the latter is obviously not a form of bribery.

In practice, only significant personal benefits would give rise to criminal prosecutions for bribery. A loan to a public officer or a payment of a cash amount to (for instance) a director in order to secure an action pertaining to his or her function or to obtain something through his or her function can be considered as a bribe.

Furthermore, note that there are special rules for credit institutions (see question 3).

Rules for non-executives

What rules apply to compensation and benefits of non-executive directors?

The new Code of Companies and Associations was approved on 28 February 2019. Directors of a BV/SRL (the former managers of a BVBA/SPRL) and an NV/SA and members of the management board (of an NV/SA) cannot perform such mandate under an employment contract.

In practice, non-executive directors are often unremunerated, in particular if their mandate is linked to employment in another company. Where they are remunerated, they often receive a fixed fee per year, sometimes combined with an additional fixed fee per board meeting they attend, which they receive in a self-employed capacity.

Disclosure

Mandatory disclosure of executive compensation

Must any aspects of an executive’s compensation be publicly disclosed or disclosed to the government? How?

Some companies have the legal obligation to disclose the compensation of their top executives: listed companies (for their non-executive, and executive directors and management committee members), and banks and insurance companies (for ‘identified staff’). For listed companies, disclosure occurs through two different documents:

• the Corporate Governance Charter, posted on the company’s website; and
• the Corporate Governance Statement, a specific section of the annual report (to be published on the company’s website as well).

For banks and insurance companies, disclosure occurs by any appropriate means, usually via the internet.

Employment agreements

Common provisions

Are employment agreements required or prevalent? If so, what provisions are common? Are any terms prohibited or unenforceable?

A written employment contract is in principle not required (except when entering into a fixed-term employment contract, or when entering into an employment contract for the completion of a specific task, or when entering into a part-time employment contract); however, for reasons of proof and to avoid unnecessary misunderstandings, it is advisable to draw up a written employment contract at all times. In the employment contract, the monthly remuneration of the employee should be specified, and it is also possible to provide for the granting of fringe benefits or bonuses. It is not possible to derogate, by way of mutual agreement, from provisions regarding remuneration included in collective bargaining agreements or in Belgian law, unless to the benefit of the employee (not to the detriment).

A contractual provision, incompatible with the Employment Contracts Act (or to the implementing decrees of this Act) will be considered as being null if this contractual provision aims to limit employee’s rights.

Incentive compensation

Typical structures

What are the prevalent types and structures of incentive compensation? Do they vary by level or type of organisation?

Non-recurring result-based bonus (CBA 90)

The company can introduce a bonus scheme that must meet a number of conditions. The most important of these is that the bonus must be subject to collective targets. The bonus plan must be adopted according to specific procedures and formalities, and apply to an objectively defined category of personnel. This may be the entire staff, but it could also be limited to a specific department or to a group of employees. Employers engaged in a collective dismissal procedure for closing down the company are no longer allowed to use the regime of the non-recurring result-based bonus. Employers using the procedure for collective dismissal when closing down the company are no longer allowed to use the regime of the non-recurring performance-related advantages

Share options (generally granted to executives)

Employers purchase such share options (also known as ‘warrants’) issued by financial institutions. The employer then offers these warrants to its employees, who then are able to resell them to the financial institution. By doing so, employees are exposed to stock market fluctuations for only a day or two, effectively minimising their overall market risk.

Stock options (generally granted to executives)

Stock options are granted free to the employees (beneficiaries). During a lock-up period of generally one year the beneficiary can neither exercise nor transfer such stock options. After this one-year period, the beneficiary has the option to either exercise the stock options or to sell them to any party of his or her choice except for the company-employer or any other affiliated company.

Bonus pension plan (generally granted to executives)

In the framework of a bonus pension plan, a part of the bonus budget is paid as a cash bonus (subject to ordinary taxes and social security contributions) and another part is paid as employer’s contributions under the pension rules.

Bonus agreement or policy

It is possible to set for an employee, or for a specific group of employees, objectives that, if reached, will trigger a bonus for such employees. Except in specific cases (eg, the banking sector and Belgian-listed companies), the parties are free to set the objectives and the amount of the bonus.

The profit bonus

This system offers companies the opportunity to share part of their profits with their staff (with the exception of company directors) in the form of a collective cash bonus.

Companies are allowed to make entitlement to this bonus dependent on seniority (maximum one year). In some situations, a pro-rata calculation can be used. The total amount granted cannot exceed 30 per cent of the total gross payroll for the accounting year and the bonus cannot be granted in lieu of existing benefits. The profit bonus is taxed at a rate of 7 per cent. It is not subject to ordinary social security contributions. Instead a solidarity contribution of 13.07 per cent is charged to the worker but withheld and paid by the employer in the same period and subject to the same conditions as ordinary social security contributions. The employer pays no contribution but cannot deduct the amount of the profit bonus from the corporate income tax.

Restrictions

Are there limits generally on the amount or structure of incentive compensation? Are there limits that adversely affect the tax treatment of the compensation relative to the employer or the executive?

Non-recurring result-based bonus

The bonus paid in the framework of a plan to award ‘non-recurring result-based advantages’, is, within yearly indexed limits, exempt from all taxes or ordinary social security contributions. The maximum amount is set at €3,383 for 2019, but there is a personal social security contribution of 13.07 per cent due in addition to the special employer’s contribution of 33 per cent.

Should the employee receive more than €3,383 in 2019, the amount of the bonus that exceeds this limit will be subject to ordinary social security contributions and income taxes.

Share and stock options

Both stock options and warrants are exempt from social security contributions (and thus also from the calculation basis for holiday pay) in certain conditions (where there is no ‘in-the-money’ option or no guaranteed benefit).

If such options are listed on the stock market and can be sold at very short notice, the taxable value is equal to their actual value on the stock exchange on the date preceding the offer. If such options are not listed on the stock market, and providing that they are blocked for a period of at least 12 months, the taxable value is determined on the basis of a lump-sum assessment, which depends on the value of the underlying shares at the moment of the offer.

In recent years, several financial institutions have obtained rulings from the Ruling Commission with regard to the tax treatment of option plans on SICAV shares and listed warrant plans. The Ruling Commission has recently put a limit on the use of this kind of product for services rendered as of 1 January 2018 by using the concept of ‘disproportion’ with regard to the usually granted remuneration. In order for the use of options on SICAV shares or warrants not to be disproportionate, employees may only be granted options on SICAVs or warrants in an amount not exceeding 20 per cent of the sum of:

• the monthly gross salary, multiplied by 12.92 (thus including vacation pay, but without taking into account the benefits in kind);
• the 13th month; and
• the gross variable salary before conversion.

Profit bonus

The total amount of the profit bonus granted to the employees cannot exceed:

• 30 per cent of the total gross payroll for the accounting year; and
• the amount of the profit after tax of the accounting year.

The profit bonus can be ‘identical’, which means a same amount or a same percentage of the remuneration to the beneficiaries, or ‘categorised’, which means that the calculation method depends on the category of each beneficiary. In case of a ‘categorised profit bonus’, the different methods of categorisation are determined by the law, and the amount granted to the most-favoured category can be maximum ten times the amount granted to the least-favoured category. In case of an ‘identical’ profit bonus, a decision of the general meeting of the company is required, but not a collective bargaining agreement with the trade unions. In case of a ‘categorised’ profit bonus, a decision of the general meeting of the company is required but also a collective bargaining agreement with the trade unions, following a specific procedure and certain formalities.

Bonus pension plan

Occupational pension plans are subject to a very favourable tax and social security regime, compared with salary. Very briefly, instead of the normal social security contributions due on salary (about 27 per cent for white-collar employees and about 43 per cent for blue-collar employees for the employer, and 13.07 per cent for the employee), contributions to a pension scheme are subject to a special social security contribution of 8.86 per cent and an insurance tax of 4.4 per cent. There is an additional 3 per cent social security contribution (on the exceeding part) if the pension contributions exceed an annual pension target that corresponds to the maximum statutory pension for a civil servant (currently €78,453.60 a year).

Bonus agreement or policy

There are no specific rules on bonus social security and taxation. Bonuses are subject to ordinary social security and income tax rules.

Deferral

Is deferral and vesting of incentive awards permissible? Are there limits on the length or type of vesting and deferral provisions?

Deferral and vesting of incentive awards are permissible and valid, providing that the contractual provisions are correctly worded.

In listed companies, stock options granted to ‘executive directors’ may not be exercised before the end of three years after granting. Also, deferral rules apply to their variable compensation when it exceeds 25 per cent of the total compensation.

In banks, very strict rules apply to variable compensation granted to ‘identified staff’. Deferral rules must be applied (on at least 40 per cent of the variable remuneration). Also, half of the variable compensation must be granted in financial instruments. At present, the Belgian regulator tolerates that these rules are, by way of exception, not applicable when the variable compensation is lower than €75,000.

Are there limitations on the individuals or groups eligible to receive the compensation? Are there aspects of the arrangement that can only be extended to certain groups of employees?

See questions 11 and 16.

Recurrent discretionary incentives

Can it be held that recurrent discretionary incentive compensation has become a mandatory contractual entitlement? Is this rebuttable?

If a premium is granted over several consecutive years, there will be an entitlement to this premium on the basis of ‘custom’.

The employee will have to prove the existence of such custom in the event of:

• repeated payments of the premium over a certain period. Case law accepts the existence of a custom when a bonus is paid over two to three years. It is therefore recommended to the employer to specify in the contract that the employee acknowledges that, even if a premium is awarded for several years, this will not constitute a custom and that the employee acknowledges that he or she is not entitled to expect such a premium in the future;
• payment to a certain category of employees (eg, all employees, all white-collar employees, all the managers, etc); and
• payment of a similar amount or payment based upon the same criteria (eg, a certain percentage of the profit or the turnover of the company). If the amount varies from year to year and is determined by the employer on arbitrary grounds, it could be argued there is no custom.

A custom can be abolished by an individual or a collective agreement. In the hierarchy of sources of law, the custom is preceded (in this order) by:

1. the mandatory provisions of the law;
2. the collective bargaining agreements that have been declared generally binding;
3. the collective bargaining agreements signed by an employers’ federation to which the employer is affiliated;
4. the company-level collective bargaining agreements, the written employment contract, the other collective bargaining agreements;
5. the works rules;
6. the additional provisions of the law; and;
7. the oral employment contract.

It can be derived from this hierarchy that a custom can be overruled by a collective bargaining agreement, an individual agreement with the employees concerned or by the works rules.

The possibility of unilaterally terminating a custom with notice is not provided for in any legal text. It is, however, accepted by a majority of legal authors, at least if the following formalities are simultaneously complied with:

• notice can be given in any form, but it must be clear and unambiguous. The employer must be able to prove that each individual employee was informed (eg, by sending an email to all employees concerned, by sending a letter or by organising a staff meeting where all employees confirm their presence by signing an attendance sheet); and
• there are no legal guidelines to determine the length of the notice period to be respected. Legal authors state that the notice period must be determined taking into account the duration for which the custom has existed. The notice period is intended to allow the parties to negotiate a compromise and to give the employees the time to adapt to the new situation.

Effect on other employees

Does the type or amount of incentive compensation awarded to an executive potentially affect the compensation that must be awarded to other executives or employees?

The amount of incentive compensation awarded to an executive does, in principle, not affect the compensation that must be awarded to other executives or employees. In practice, however, it may be the case that employers ensure at least some sort of basic parity amongst employees of the same level or rank, possibly to avoid being subject to claims of discrimination.

An employer cannot discriminate with respect to promotion opportunities or working conditions. If an employee claims that he or she has been discriminated against before a competent court, and if he or she establishes facts from which it can be presumed that there has been direct or indirect discrimination, the burden of proving there has been no discrimination shifts to the employer.

Mandatory payment

Is it permissible to require repayment of incentive compensation under certain circumstances? Are there circumstances under which such repayment is mandatory?

This is not specifically foreseen in Belgian law. On the basis of the general principles applicable to every contract, the repayment of a paid remuneration could be claimed by the employer if an amount was paid out by mistake, or owing to an unfair or a deceptive act or practice.

Can an arrangement provide that payment is conditioned on continuing employment until the payment date? Are there exceptions?

The validity of a clause conditioning the bonus on the presence of the employee at the service of the employer on the date of payment is controversial. When the employee leaves during the reference period, we believe it is possible to argue that no pro-rata bonus will be due if the parties so agreed an ‘indivisibility clause’. However, case law exists holding that there are no legal obstacles to linking the granting of the bonus entitlement to certain conditions, like the condition to be in service of the company at the moment of the grant, and that such a presence condition is considered legal. On the other hand, some case law also states that a clause subjecting the right of an employee to a bonus on the condition of being in service at the moment of the payment violates article 3 of the Remuneration Protection Act and article 6 of the Employment Contracts Act and is therefore void.

According to the Belgian Act of 25 April 2014 on the statute and control of credit institutions (the Banking Act), every Belgian credit institution requires a solid and appropriate company organisation, including control, to guarantee an efficient and prudent administration of the institution, relying among others on a remuneration policy that guarantees a healthy and efficient risk management and prevents the taking of risks that exceed the tolerance level as determined by the institution (article 21 of the Banking Act).

No provision of the Banking Act prohibits linking the payment of the deferred variable pay to a presence condition.

In our opinion (considering any grant and pay-out of variable remuneration to an identified staff must be especially justified), such a presence condition makes sense in the framework of the Banking Act since it also enables the bank to extend the period during which it can apply risk adjustments.

Equity-based compensation

Typical forms

What are the prevalent forms of equity compensation awards in your jurisdiction? What is a typical vesting period? Must the arrangements be offered to a broad group of employees, or can the employer select the participants?

The prevalent forms of equity compensation awards in Belgium are successive stock options, warrants, free shares, performance shares and (restricted) stock units. For tax reasons, a typical vesting period is three years for stock options or warrants and two or five years for shares, depending on the nature of the plan.

In principle, the participants can be selected on a discretionary basis by the employer (with an exception in case of capital increase in favour of the personnel in accordance with article 609 of the Company Code).

The new Corporate Governance Code of 2020 recommends that non-executive directors be (partially) paid in company shares.

Must equity-based compensation be granted by the company’s board of directors (or its committee) or can the authority be delegated to officers or employees of the company? Are there limitations or requirements that apply to delegation?

Technically, at least board approval is required to issue equity-based compensation. In some cases, shareholder approval will be required. Once the principle of the issuance is decided upon by the board or shareholders’ meeting, terms and conditions of grants are often delegated to, normally, the remuneration committee.

Tax treatment

Are there forms of equity compensation that are tax-advantageous or disadvantageous to employees or employers?

Unquoted stock options and warrants are tax-advantageous because they are evaluated at a flat-rate value. Shares may also benefit from a tax exemption or a tax-advantageous treatment, depending on the nature of the operation.

Quoted stock options or warrants are not advantageous from a tax point of view as they are evaluated at their fair value (but it remains advantageous for social security reasons).

Registration

Does equity-based compensation require registration or notice? Are exemptions, or simplified or expedited procedures available?

There is no required registration or notice.

Withholding tax

Are there tax withholding requirements for equity-based awards?

Professional withholding tax has to be applied in accordance with the provisions of the Belgian Income Tax Code and its Royal Decree (appendix III) (even if the benefit is awarded by a foreign company). Such benefits must also be mentioned on the tax form.

Under determined conditions, some forms of equity-based compensation (eg, stock options) can be exempt from social security contributions.

On the other hand, the social security contributions can as a principle also be avoided if the benefit is awarded by a foreign company without any chargeback to the employer in Belgium, and if the employer has no legal or contractual commitment to grant the benefit. Note, however, that this issue is currently under discussion. Indeed, the Belgian social security authority (referring to recent case law in this regard) considers that social security contributions are due on such benefits (because they are linked to the work performances of the function of the employees or beneficiaries concerned).

Inter-company chargeback

Are inter-company chargeback agreements between a non-local parent company and local affiliate common? What issues arise?

Inter-company chargeback agreements are relatively common. As explained above, the local affiliate then has to withhold and pay the social security contributions in Belgium.

Stock purchase plans

Are employee stock purchase plans prevalent or available? If so, are there any frequently encountered issues with such arrangements?

Stock purchase plans are not prevalent, except in international groups of companies. This is because in Belgium, the conditions that must be met in order to benefit from a tax exemption or tax-advantageous treatment are strict.

Employee benefits

Mandatory and voluntary employee benefits

Are there any mandatory benefits? Are there limits on changing or discontinuing voluntary benefits that have been provided?

Normally, minimum salaries are fixed by collective bargaining agreements in every industry branch. Apart from these ‘statutory’ lower limits, the parties to an employment contract are free to determine the amount of salary. Male and female employees with an equivalent job are, however, entitled to the same remuneration.

Companies often grant their employees fringe benefits, which are considered part of the employees’ remuneration. The employer has no legal obligation to provide any fringe benefits (except if the joint labour committee of the branch of industry provides for this benefit) but, once granted, they cannot be withdrawn without the employees’ consent.

It is common practice in Belgium for a year-end premium to be paid to employees, usually equal to one month’s salary. The rules concerning this bonus are, most of the time, set out in industry-level collective bargaining agreements.

Belgium has a comprehensive social security system, providing the following benefits:

• healthcare;
• disability benefit;
• work accident benefit;
• occupational illness benefit;
• retirement pension;
• family allowance;
• unemployment benefit; and
• maternity benefit.

In addition, Belgian employees are entitled to paid annual holiday. The right to such holiday is in principle accrued on the basis of the days worked in the calendar year (and assimilated periods such as periods of legal suspension of the employment contract) immediately preceding the calendar year in which the employees will take up their annual holiday.

The corporate tax rate for small and medium-sized companies is reduced to 20 per cent (plus 2 per cent additional crisis contribution) on the first €100,000 for taxable years starting not earlier than 1 January 2018. If a beneficiary undertaking does not award one of its directors an annual remuneration of €45,000 (or the entire taxable sum if it is less than this amount), it is then liable for a special contribution.

This contribution amounts to 10 per cent (5 per cent for the tax years 2018 and 2019) of the difference between the ‘minimum remuneration’ and the highest remuneration that is granted to a company manager during the taxable period.

In such circumstances, a small and medium-sized company can, in principle, not use the advantageous corporate tax rates. The standard rates (29 per cent plus 2 per cent additional crisis contribution - as from 2020: 25 per cent) will thus have to be applied.

Typical employee benefits and incentives

What types of employee benefits are prevalent for executives? Are there tax or other financial incentives or disincentives for such employee benefit arrangements?

See questions 9, 10 and 24.

Termination of employment

Rules for termination

Are there prohibitions on terminating executives? Are there required notice periods? May executives be dismissed without cause?

Special rules apply to top executives of publicly traded companies and to banks (for their ‘identified staff’).

Harmonised dismissal rules for blue-collar and white-collar employees came into force in Belgium on 1 January 2014 and on 1 May 2018.

The length of the notice periods in cases of dismissal by employers can be summarised as follows:

Seniority	Notice period
< 3 months	1 week
3 months and < 4 months	3 weeks
4 months and < 5 months	4 weeks
5 months and < 6 months	5 weeks
6 months < 9 months	6 weeks
9 months < 12 months	7 weeks
12 months < 15 months	8 weeks
15 months < 18 months	9 weeks
18 months < 21 months	10 weeks
21 months < 24 months	11 weeks
2 years < 3 years	12 weeks
3 years < 4 years	13 weeks
4 years < 5 years	15 weeks
As of 5 years	+3 weeks per started year of seniority
20 years < 21 years	+2 weeks per started year of seniority
As of 21 years	+1 week per started year of seniority

Transitional measures apply to blue-collar and white-collar employees who entered into service before 1 January 2014. For those employees, two notice periods need to be calculated and added together: a notice period for seniority acquired up to 31 December 2013 based on the ‘old’ dismissal rules (modified for white-collar employees earning more than €32,257 on 31 December 2014 as one month per started year of seniority with a minimum of three months); and a notice period for seniority acquired as of 1 January 2014 based on the ‘new’ dismissal rules set out above.

Until recently, the employer did not, as a general rule, need a reason or a basis upon which to terminate an employment contract, as long as this basis was not prohibited by law. However, since 1 April 2014, employers need a reason for the dismissal of any blue-collar and white-collar employee with more than six months of seniority. The employer is free to communicate the reasons for the dismissal at its own initiative (no obligation). If not, however, the employee can request the concrete reason that resulted in the dismissal. The employer must then mandatorily communicate the reason(s) in writing by registered mail.

In general, in the event that an employer fails to communicate the reasons for dismissal within the foreseen time frame and without respecting the required formalities, the employee will be entitled to an additional lump-sum indemnity of two weeks’ remuneration.

Further, the employee can claim before the employment tribunal a lump-sum indemnity of between three and 17 weeks’ remuneration (if the dismissal is considered ‘manifestly unreasonable’). This is the case if the dismissal is based on reasons that are not related to the suitability or behaviour of the employee, not based on the necessities of the functioning of the organisation or service, and which would have never been approved by a normal and reasonable employer.

Mandatory severance pay

Are there statutory or mandatory minimum severance requirements? Are there any other mandatory, post-employment benefits?

See question 26. In Belgium, notice and severance in lieu are interchangeable.

Deviations from the notice periods set by law at industry level are not permitted, even when they would be more favourable for the employees. Deviations on an individual level or on company level, however, are not explicitly forbidden, but would only be permitted if they are not less favourable for the employee.

Indemnities in lieu of notice are calculated based on all contractual and statutory benefits and the employee’s fringe benefits. These payments are subject to social security contributions.

At the termination of the employment contract, the employee is also entitled to the holiday pay upon departure.

Typical severance pay

What executive severance payment level is typical?

See questions 36 and 37. Indemnities in lieu of notice are calculated based on all contractual and statutory benefits and the employee’s fringe benefits. These payments are subject to social security contributions.

A pro rata bonus or year-end premium must be paid if it is foreseen in the applicable rules regarding this matter (work rules, employer’s policies, collective bargaining agreement and employment contract). It can also be foreseen in a settlement agreement.

Reasons for dismissal

Are there limits on dismissal for ‘cause’? Are there any statutory limits on ‘constructive dismissal’ or ‘good reason’? How are ‘cause’ or ‘constructive dismissal’ defined? Are there legal or customary rules relating to effecting a termination for ‘cause’ or ‘constructive dismissal’?

In some cases, the law provides for grounds on which the employment contract can be terminated without notice or indemnity in lieu of notice.

Dismissal for serious misconduct

This is possible if the employee commits a serious fault that renders any further dealings between parties immediately and definitively impossible. Further, a strict procedure must be adhered to in the event of termination for serious misconduct: in brief, the employer must dismiss the employee within three working days of the moment the employer becomes aware of the relevant facts. After the first period of three working days, a second period of three working days starts running for notifying the serious cause that justified the dismissal. This last notification must be done by registered post. If this procedure is not followed, an indemnity in lieu of notice will be due, as for ordinary dismissals, whatever the nature of the fault committed by the employee.

Termination of the employment contract

This is possible as a result of force majeure (ie, act of God). This term is interpreted very strictly in Belgian case law as an unforeseeable event not caused by a fault by one of the parties, which is an insurmountable impediment to the further execution of the employment contract. The law provides that bankruptcy is not regarded as force majeure.

Constructive dismissal

As a rule, an employee’s function, responsibilities and remuneration are essential elements of the employment contract. A substantial unilateral modification by the employer of any of these elements will most likely be considered an act tantamount to a dismissal, enabling the employee to invoke constructive dismissal and claim a severance indemnity.

Gardening leave

Are ‘gardening leave’ provisions typically used in employment terminations? Do they have any special effect on benefits?

Under Belgian law, garden leave is possible upon condition that the employee agrees with such garden leave. The employer cannot unilaterally force an employee to stay at home, even if this leave would be remunerated by the company.

Employers that exempt employees completely from their obligation to work whilst continuing to pay their salary in whole or in part will pay an ‘activation fee’ as of 1 January 2018. This measure is intended to deter the practice of exempting older employees from their working duties. The percentage allowance is determined based on the age of the employee and remains the same up until the legal pension age is reached:

Starting age	Percentage contribution (on gross quarterly salary)
< 55 years	20 per cent (min €300)
55-58 years	18 per cent (min €300)
58-60 years	16 per cent (min €300)
60-62 years	15 per cent (min €225.60)
> 62 years	10 per cent (min €225.60)

In certain cases, the employer can be exempted or the percentage contribution can be reduced, for example for the duration of the legal notice period, or when the employee starts working again or has access to training.

The effect of the garden leave on benefits must be considered on a case by case basis, on the basis of the contractual arrangements in place.

Waiver of claims

Is a general waiver or release of claims on termination of an executive’s employment normally permitted? Are there any restrictions or requirements for the waiver or release to be enforceable?

After the termination of his or her employment contract, the employee may in principle waive statutory and contractual rights to potential employment claims. It is not required that the employee consults a lawyer or a counsel before doing so.

Post-employment restrictive covenants

Typical covenants

What post-employment restrictive covenants are prevalent? What are the typical restricted periods?

If a special non-compete clause (for companies with international activities) is agreed between parties, the applicable maximum period of 12 months after termination of the employment relationship that holds in principle for ordinary non-compete clauses does not apply. A clause being applicable for two or three years seems reasonable.

The clause must provide for the payment of a specific non-compete indemnity, equal to at least 50 per cent of the worker’s remuneration during the non-compete period, unless the employer notifies the worker within 15 days of termination of the contract that it waives application of the clause. Should an employer forget to waive the clause’s application, this indemnity must be paid.

Enforceability

Are there limits on, or requirements for, post-employment restrictive covenants to be enforceable? Will a court typically modify a covenant to make it enforceable?

Any exception or limitation to the freedom of commerce and the freedom of work must have a legal basis. If not, or if it does not satisfy the legal conditions, such contract clauses will be null and void and thus unenforceable. The most widely known and applied legal exceptions to this rule are non-compete clauses (see question 32). The worker can waive his or her freedom to compete with his or her former employer following the end of the employment relationship by agreeing to a non-compete clause. Courts will not rewrite non-compete clauses that do not fully respect the legal conditions: they will be considered null and void.

Remedies for breach

What remedies can the employer seek for breach of post-employment restrictive covenants?

When an employee violates a non-compete clause, he or she must reimburse the non-compete indemnity received from the employer and pay the employer the same amount in damages. The courts may decide, however, that the damages caused were higher and award a higher compensation to the employer. In the framework of an action in ‘summary proceedings’, the judge can impose upon the employee an injunction to stop breaching the non-compete clause, possibly subject to fines in case of breach of the injunction. When acting against the employee, the former employer can also act against the competitor: although the competitor is not bound by the non-compete clause, its liability can be at stake in case of ‘complicity’ in breaching the clause, which is considered as unfair competition.

Pension and other retirement benefits

Required retirement benefits and incentives

Are there any required pension or other retirement benefits? Are there limits on discontinuing or modifying voluntary benefits that have been provided?

The state pension system is financed by social security contributions paid on salary. It is a repartitioning system, and it grants pension rights based on salaried employment and assimilated days.

Occupational pension plans are not mandatory under Belgian law (except where they are imposed by a collective bargaining agreement concluded at the industry level) but are quite common.

Where a plan covers all employees and provides for employee contributions, if the company has a works council or other employee representation body, any plan change must be negotiated with the trade unions to be laid down in a collective bargaining agreement. The same is true if a plan (even though not legally required) was laid down by collective bargaining agreement. If there are no employee representation bodies in the company, but the plan still covers all employees and provides for employee contributions, the plan can be changed following a special procedure for work regulation amendments. Where this is not the case, courts generally consider that employers are not free to unilaterally change the terms of the plan, because it is deemed to be incorporated into the employment contract. For that reason, it is recommended to obtain individual (tacit or explicit) consent of the employees.

When moving from a defined benefit (DB) to a defined contribution (DC) plan, the reserves relating to the career under the DB plan must continue to evolve based on future salary increases (and other changes in the plan formula elements); this is the ‘dynamic management’ element of DB plans.

Typical retirement benefits and incentives

What types of pension or other retirement benefits are prevalent for executives? Are there tax or other financial incentives or disincentives for such employee benefit arrangements?

In recent years, many DB plans have been closed for future participation, since employers prefer the financing predictability of DC schemes.

Occupational pension plans are subject to a very favourable tax and social security regime, as compared with salary (see question 10).

Supplemental retirement benefits

May executives receive supplemental retirement benefits?

There are no legal standards regarding contribution levels, and benefits can therefore differ significantly. Executive plans can be significantly more generous than broad-based plans.

Many pension formulas (both in DB and DC) are step-rate (ie, they will make a distinction for the purpose of occupational pension accrual between salary below and above the state pensionable salary ceiling - currently €57,602.62). The part below the ceiling will yield less occupational pension, as it only complements the state pension, and the part above the ceiling yields more, as there is no state pension accrual. Industry sector plans typically have DC formulas with comparatively low - sometimes extremely low - contribution levels.

Belgium has strict anti-discrimination laws applying to the membership conditions and all other features of occupational pension plans. Every distinction made in an occupational pension plan must be objective, reasonable and proportionate.

In practice, many occupational pension plans make distinctions between blue-collar, white-collar and management plans. A law of 5 May 2014 is gradually eliminating the distinctions between blue-collar and white-collar employees. Such distinctions will be prohibited as of 2025, with a standstill obligation as of 2015. Some employers make distinctions based on internal job classification systems or scales, which will continue to be permissible.

Indemnification

Directors and officers

May an executive be indemnified or insured for claims related to actions taken as an executive, officer or director?

The Director’s liability: the new Code of Companies and Associations introduces a limitation on a director’s liability.

Under this Code, the liability of members of the board and the daily manager is limited. The limitation of liability is expressed in an absolute amount. Depending on the turnover and the balance sheet total generated by the company, a director can only be held liable up to such maximum amount. The idea is that the larger the company, the less the liability of the director will be limited. This will allow a director in a large company to be held liable for a higher amount. The maximum amount ranges from €125,000 for smaller companies to €12 million for larger companies and ‘public interest organisations’ (including listed companies). The maximum amounts apply to all directors together.

Directors’ liability is not limited in every case. For instance, the director will be liable for all the damage caused by him or her in the event of repeated ordinary negligence, gross negligence and fraudulent intent. The limitation of the directors’ liability will therefore only apply in the event of a single or accidental minor breach. The legislation was designed to avoid the limitation of liability of directors being larger than that of employees (see below). In practice, the difference between employees and directors will therefore be that for minor misconduct by employees, only the employer will be liable, and for minor misconduct by directors there will be a cap so that the liability can be insured.

The legal entity (or its subsidiaries or companies that it controls) is prohibited from exonerating or indemnifying members of the board or a daily manager in advance against their liability towards the company or third parties.

An employee can only be held liable for damages in a limited number of circumstances. A distinction must be made between damages caused during the execution of the employment contract and damages caused outside this context.

During the execution of the employment contract

Under article 18 of the Employment Contracts Act, in a case of damages caused during the execution of the employment contract, the employee is only liable towards his or her employer or towards a third party if he or she is guilty of fraud or serious fault. The employee is not liable for less serious misconduct (‘light fault’) unless his or her behaviour is repetitive.

The employer is liable towards third parties for damages caused by its employees during the execution of their employment contracts under article 1384, 3° of the Civil Code. Under article 18 of the Employment Contracts Act, the employer may only claim back the amount it paid from the employee if the latter is guilty of fraud, serious fault or repetitive light fault.

Outside the execution of the employment contract

The limitation of the employee’s civil liability provided by article 18 of the Employment Contracts Act does not apply if the employee causes damages outside the execution of the employment contract. In such a case, the employee’s liability is determined under the usual civil rules governing liability. Therefore, the employee will be liable towards the employer and towards a third party for his or her ordinary negligence.

Criminal liability

Article 18 of the Employment Contracts Act does not apply in the same way to the criminal liability of employees. Even if a criminal infringement is committed during the execution of the employment contract, the employee will be held criminally liable.

The employer may, however, be held liable for the payment of the fines imposed on the employee. The employer may afterwards claim back the amount it paid by withholding it from the employee’s salary. The question arises, however, as to the legality of such withholding since the fines paid by the employer based on its civil liability cannot be considered an advance.

Change in control

Transfer of benefits

Under what circumstances will an asset sale in your jurisdiction result in an automatic transfer of benefit obligations to the acquirer?

A ‘transfer of undertaking’ exists as soon as an employee is confronted with:

• a change of employer (new legal entity employing him or her);
• as a consequence of a transfer of undertaking, a business or a part of it as a going concern; and
• by virtue of an agreement (according to European Court of Justice (ECJ) case law, it is sufficient that the transfer takes place in the framework of indirect contractual relationships).

In the event of a transfer of undertaking, there is an automatic transfer of employees attached to the transferred activity (the employees cannot refuse to transfer). The transferor’s rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer must, by reason of such transfer, be transferred to the transferee.

For a transfer of undertaking, business or part of a business or undertaking, the identity of the undertaking, business or part of business or undertaking, as an economic entity must be retained after the transfer. For a transfer of an economic entity to retain its identity:

• the transferee must perform the identical or similar activities as the transferor; and
• the transfer must concern a grouping of tangible assets or intangible assets that are necessary for continuing the activities.

Executive retention

Is it customary to provide for executive retention or related arrangements in connection with a change in control?

Executive retention agreements are sometimes negotiated on a case-by-case basis in connection with acquisitions or company reorganisations, but practices differ widely. They usually take the form of a one-off retention bonus payable after an agreed retention period.

Expedited vesting of compensation

Are there limits or prohibitions on the acceleration of vesting or exercisability of compensation in a change in control? Are there restrictions on ‘cashing-out’ equity awards?

Only the General Assembly may grant rights to third parties affecting the company’s properties or implying a debt or an undertaking on the part of the company, if the exercise of these rights is dependent on the launch of a public offer on the company’s shares or on a change of control.

If this decision is not filed in advance at the clerk’s office of the commercial court, this decision will be null.

Are there adverse tax consequences for the employer or the executive relating to benefits or payments provided pursuant to a change in control?

No.

Multi-jurisdictional matters

Exchange controls

Do foreign exchange controls rules apply to the remittance of funds, or the transfer of employer equity or equity-based awards to executives?

No.

Local language requirement

Must employment agreements, employee compensation or benefit plans, or award agreements be translated into the local language?

The language that has to be used depends on the location of the operational office with which the employee concerned is associated.

If the operational office with which an employee is associated is located in the Dutch or the French language region, Dutch (Flanders) or French (Wallonia), respectively, must be used for all the ‘social relations’, all ‘legally prescribed acts and documents’ and all ‘documents addressed to the personnel’. If the employer does not respect these linguistic requirements, all documents or actions drafted in the wrong language are null. The employee can still rely on the documents, however, if favourable to him or her under the Flemish language rules.

The Flemish Language Decree has recently been modified under the influence of a judgment of the ECJ. The Decree now provides that for individual employment agreements, an additional valid version can be drafted in an official language of one of the member states of the EU or the European Economic Area (EEA), which is understood by all parties concerned. This applies in the event that the employee finds him or herself in one of the following situations:

• he or she is domiciled in the territory of another member state of the EU or of the EEA;
• he or she is domiciled on Belgian territory and has made use of his or her right to free movement of employees or the freedom of establishment (according to EU law); or
• the free movement of employees applies to him or her based on an international or bilateral treaty.

Some case law has started to apply the rules of the ECJ judgment also to other documents than employment contracts, such as bonus plans, whenever the company is part of a larger international group and the employee has responsibilities for other countries or reports to a manger outside of Flanders.

If the operational office with which an employee is associated is located in one of the 19 Brussels municipalities, the legally prescribed acts and documents and the documents addressed to the personnel have to be drafted in Dutch, if addressed to a Dutch-speaking employee, and in French if addressed to a French-speaking employee. If the employer does not respect this linguistic requirement, the penalties are less severe than in the case of the wrong language being used in the Flemish or French language regions. Indeed, documents drafted in the wrong language are not null and void, but the only penalty is that the employer may be obliged to replace them with the document drafted in the correct language.

Net salary arrangements

Are there prohibitions on tax gross-up, tax indemnity or tax equalisation payments?

There are no prohibitions on tax gross-up, tax indemnities or tax equalisation payments.

When an expatriate benefits from the special tax status for foreign executives, tax equalisation can be granted free of tax and social security (within a limit of €11,250 per year).

Choice of law

Are choice-of-law provisions in executive employment contracts generally respected?

As a rule, an employment contract is governed by the law that the parties choose. In the case of the seconding of executives, the parties will typically choose to (continue to) apply the home country law. As a result, this law will govern the employment relationship also during the secondment.

This choice of law may be expressly provided for in the employment contract or may be derived from the provisions in the employment contract or the circumstances of the case; however, the choice of law may not deprive the employee of any protection granted by the mandatory rules of law that would apply in the absence of this choice of law.

Update and trends

Key developments of the past year

What were the key cases, decisions, judgments and policy and legislative developments of the past year?

Key developments of the past year47 What were the key cases, decisions, judgments and policy and legislative developments of the past year?

The new Code of Companies and Associations (CCA) has come into being. It was approved on 28 February 2019. With this new Code, company law becomes simpler and more flexible. The CCA follows other developments in Europe. The aim is to make Belgium more attractive for companies and associations. The (international) non-profit associations and foundations are now part of this code. In short, all company representatives, including directors of a public limited liability company (NV/SA), can now receive protection against dismissal (a notice period or indemnity in lieu of notice). The uncertainty as to whether members of a management committee (directiecomité or comité de direction), which is also renamed the ‘management board’, are always self-employed or can exercise their mandate under an employment contract no longer exists: they cannot work under an employment contract. The liability of company representatives is limited, which will make it easier to secure insurance.