Social Plan Based Severance Pay Wrongly Considered Conflicting with Prohibition on Age Discrimination

Year of publication

2020


Year of publication

368


Reference

Supreme Court, January 24, 2020, ECLI:NL:HR:2020:114


Decision

Because measures were agreed, after consultation with representative trade unions, that made a differentiation on age, the judge should have shown more restraint in assessing compliance with the prohibited age discrimination rules.

For 34 years already, a bank had employed an (at the time) 63-year-old employee, when the position of the employee expired as the result of reorganisation. On the basis of the social plan that the bank had entered into with the trade unions in the form of a collective labour agreement (CAO), initially the employee’s salary was paid in full for twelve months, whereas he did not have to work. During these twelve months the employee had the opportunity to try and find himself a new position, either inside or outside the bank. When his attempts remained unsuccessful, his employment contract was cancelled on 1 September 2016. According to the social plan, in such case an employee would be entitled to a severance pay to the sum of 75% of the severance pay that would have applied under the Sub-district Court -formula (the old version, applicable until 1 January 2009). In the social plan, however, the level of this severance pay was capped to the amount of the salary the employee would receive until his retirement at the age of 62. Since the employee had already reached the age of 63, this implied that he was no longer entitled to a severance pay. Thus, the employee was forced to take early retirement. As a consequence he missed further pension accrual from that moment onwards and, consequently, would receive a lower old-age pension.

The employee argued that the capping scheme was invalid due to prohibited age discrimination and he claimed over € 230,000 at the Sub-district Court, being the amount of the severance pay he would receive if the capping scheme were not applied. The Sub-district Court indeed considered the capping scheme to contravene with the ‘Equal Treatment on Grounds of Age in Employment Act’, but only granted the employee an amount of over € 90,000. This equalled the amount the employee lost in income up to his statutory retirement age, increased with the pension damage due to the lack of further pension accrual until that age. On appeal, the Court of Appeal confirmed the Sub-district Court’s decision. According to the Court, the capping arrangement made a direct distinction on the basis of age. According to the Court of Appeal, an objective justification for this distinction was lacking, since it was neither an appropriate nor a necessary means to achieve the goal: ensuring a fair distribution of the available resources among those involved in the dismissal. According to the Court of Appeal, older employees with long-term employment were disproportionately hard hit by the capping scheme, whereas, given their age, they had poor opportunities on the labour market and, for some years, they would miss out thirty percent of their income and their pension accrual during those years.
When the bank appealed to the Supreme Court, however, the Court of Appeal’s decision was annulled because it was conflicting with the case law of the Court of Justice of the European Union. Since the Dutch law prohibiting age discrimination (the Equal Treatment on Grounds of Age in Employment Act) is based on a European Directive, the Dutch Court should interpret this law in line with the case law of the Court of Justice of the European Union. According to that case law, there may be an objective justification for age discrimination if there is a legitimate goal and if the means for achieving this goal are appropriate and necessary. Social policy and employment policy objectives may provide such a legitimate goal. Social partners have a large degree of freedom to decide what social and employment policy objectives they want to pursue and what means they want to apply to achieve them. This freedom, however, will be restricted where and when the prohibition of age discrimination would become meaningless.
As for the appropriateness of the measures, according to the case law of the European Court, the Judge should assess whether the measures taken are "manifestly inappropriate" for achieving the objective pursued.
As for the necessity of the measures, the Court should investigate whether the measures taken go beyond what is necessary to achieve the objectives pursued and whether they unduly affect the interests of employees who reach their retirement age. Each measure should be placed in its own context, giving due consideration to the disadvantages for the employees involved and to the benefits for all other employees.

Since the capping scheme had been agreed with representative trade unions, the Court of Appeal should have shown more restraint in assessing whether the capping scheme was an appropriate and necessary means of achieving the objectives pursued, according to the Supreme Court. The Court of Appeal should have assessed whether the means was manifestly inappropriate and if it unduly affected the interests of the disadvantaged employees. The Court of Appeal should have taken into account, among other things, that the employee had already received wages for twelve months. According to the Supreme Court, the Court of Appeal should also have considered all objectives pursued, not just ensuring the fair distribution of the available resources among the employees threatened with redundancy. Other objectives included limitation of the financial consequences for the bank and the staff that remains employed by the bank and restriction of the decreased earning power of employees who lose their jobs. The Supreme Court referred the case to another Law Court for a fresh decision having regard to the decision of the Supreme Court.


Comments

The decision of the Supreme Court shows how great the influence of European law can be if it is about Dutch legislation that is based on a European Directive.
It should be borne in mind that in this case it was a provision in a social plan that was agreed with representative trade unions. The far-reaching freedom of policy in that case to take measures that result in differentiation on age does not exist if in cases where the employer has unilaterally taken measures, or where measures have been agreed with individual employees or with the works council.



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