Light in the darkness! Supreme Court issues landmark ruling on calculation of fair compensation

Fair compensation

Since the WWZ came into force (July 1, 2015), fair compensation has been one of the big black-boxes in employment law. As a refresher, the equitable compensation is an additional severance payment and may be awarded to the employee in addition to the transitional compensation.

Any employee who has been employed for more than two years and whose employment contract ends at the initiative of the employer is in principle entitled to the transition allowance. The purpose of that compensation is twofold: it serves as compensation for dismissal and to facilitate the transition to other gainful employment. The amount is determined according to a fixed formula. Whether the employer acted culpably or not, the amount remains the same.

If the employer has really made a fuss, in some cases the employee can claim fair compensation. This is also possible if the employee - given the duration of his employment - is not yet entitled to the transition compensation. However, there is a high threshold for this, namely that of seriously culpable acts or omissions. Examples include discrimination, sexual harassment or violation of the statutory dismissal rules. Fair compensation serves as compensation for injustice and has no formula. The judge is free to determine the amount based on specific circumstances of the case, which makes the amount of fair compensation very unpredictable. Consequently, we see in case law that very different compensation is awarded.

It was unclear whether the wrongfully lost wages should now be included in the calculation or not. After all, if the employer had not acted seriously culpable, the employee might have been employed by that employer for years to come. To what extent should that income loss be included?

In the legislative history and explanations of the WWZ, the legislator has not been particularly unambiguous about this. On the one hand, the legislator argued that the consequences of the dismissal should not play a role because that is one of the purposes of the transitional allowance. On the other hand, the legislator also stated that unjustly not enjoyed wages can be included in the calculation of the fair compensation.

The Supreme Court ruled last Friday, June 30, 2017, which now settles that discussion.

The case study

The employee, a hairdresser in a hair salon, submitted a request to her employer in January 2015 to take two weeks of leave during that year's summer vacation. The employer did not respond clearly and, for that reason, the employee simply "took" her vacation. When she reappeared at work, the employer terminated the employment contract for that reason.

That termination violated the law. The employee had not consented to the dismissal and the employer had not gone through the courts. The employee claimed substantial equitable compensation of €57,699.07, arguing that the employment contract - had the employer not terminated it - could have continued until her retirement age. This loss of income had to be included in the court's calculation, the employee argued.

The Arnhem-Leeuwarden Court of Appeal disagreed with her and awarded fair compensation of "only" €4,000. After all, the consequences of the dismissal had already been included in the transitional compensation. The Supreme Court ruled differently.

The consequences of the dismissal are attributable to the employer's seriously culpable behavior. For this reason, the consequences may be included in the calculation because they are not sufficiently compensated by the transitional compensation. Elements that may be included when determining the amount of the fair compensation are:

• any further duration of the employment contract
• Whether the employee has a new job in the meantime
• the degree of culpable conduct of the employer

In any case, fair compensation need not be punitive for the employer, the Supreme Court said. The Supreme Court referred the case back to the Court of Appeal (this time Den Bosch), which must now consider the €57,699.07 claim again.

On to a new formula?

In doing so, the Supreme Court has provided initial guidance for calculating fair compensation. In my opinion, there was a need for it. Also, the outcome seems fair to me. After all, the employee could also have requested restoration of the employment contract instead of fair compensation. In that case, her loss of income would have been compensated that way.

Is this ruling now a first step toward a formula for fair compensation? An interesting question, the development of which we will, of course, follow closely.