Severance Pay under the Top Income Standards Act: Key Considerations
Recently, the Court of Appeal in 's-Hertogenbosch issued a noteworthy judgment in a case involving the termination of a senior executive officer under the articles of association, employed in the healthcare and welfare sector. One pivotal question addressed was whether compensation for failure to adhere to the notice period would be considered towards the maximum severance payment as stipulated by the Top Income Standards Act (WNT).
Top Income Standards Act (WNT)
The primary objective of the Top Income Standards Act (WNT) is to regulate and limit top incomes and severance payments within the public and semi-public sectors in the Netherlands. The maximum severance payment permissible between an employer and a senior executive under the WNT is EUR 75,000 gross, or an annual salary, whichever amount is lower.
Exceptions
Nevertheless, certain exceptions apply. Severance payments that originate directly, mandatorily, and unambiguously from statutory provisions, collective labour agreements, or other collective schemes (social plans) ratified with trade unions, are not subject to the WNT maximum of EUR 75,000. This exception encompasses severance payments or allowances over which neither the employer nor the senior executive has any discretionary influence or entitlement. Examples include non-statutory unemployment benefits stipulated in collective labour agreements for central government employees or directors in secondary education.
Court of Appeal in 's-Hertogenbosch
In the case adjudicated by the Court of Appeal in 's-Hertogenbosch, the focal issue pertained to whether the fixed compensation, owed by the employer to the senior executive for non-compliance with the notice period, would fall under the cap of EUR 75,000. The employer intentionally bypassed the notice period due to an absence of work for the senior executive during this period, resulting in the salary exceeding EUR 75,000 over the six-month notice period.
The Court of Appeal determined that the fixed compensation constitutes a severance payment not constrained by the WNT. Pursuant to Section 7:672(11) of the Dutch Civil Code, the senior executive possesses an unequivocal, mandatory, and direct entitlement to receive the fixed compensation equivalent to the salary for the notice period, amounting to EUR 101,228.88. The Court of Appeal further clarified that there was no mutual agreement or intention to contravene the stipulated WNT severance payment limit. The unilateral termination of the contract by the employer and the absence of the senior executive's agreement prior to termination to cease work with full remuneration were noted.
The Court of Appeal also confirmed the senior executive's entitlement to the agreed severance payment of EUR 75,000 as outlined in his employment contract. As per the Court of Appeal's ruling, the WNT's maximum limit for severance payments remains unexceeded, as the fixed compensation is excluded from consideration.
Vigilance in Severance Arrangements
Navigating the complexities of the WNT and its associated regulations demands vigilance. It is imperative to exercise caution when formulating severance agreements with senior officials. Agreements that contravene the WNT's prescribed limits are deemed null and void and may necessitate the recovery of excess payments made to senior officials. Hence, it is advisable to have any agreements intended for senior officials pre-emptively reviewed to mitigate potential pitfalls. Van Bladel Advocaten possesses the requisite experience and expertise in matters concerning the WNT.
