12 July 2018

All circumstances relevant when calculating dismissed employee’s equitable compensation

The Dutch Supreme Court recently issued two rulings on how courts in employment termination proceedings should calculate equitable compensation. In its groundbreaking “New Hairstyle” ruling in 2017, the Supreme Court had already ruled that all circumstances, including the consequences of the dismissal, should be weighed when calculating equitable compensation awards for wrongfully dismissed employees. According to the two recent Supreme Court rulings, the “New Hairstyle” criteria also apply where an employee has asked the court to dissolve the employment agreement, and in appeal cases where equitable compensation can be granted instead of reinstatement. Employers facing these types of cases should bear in mind that the court can weigh all circumstances when calculating the equitable compensation – including the “value” of the loss of employment.

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In the first case (employee/Zinzia Foundation), the employee had requested dissolution of the employment agreement, alleging seriously culpable acts by her employer. The sub-district court agreed and dissolved the employment agreement. The employee was awarded an equitable payment of EUR 70,000, on top of the statutory transition payment. The Arnhem-Leeuwarden Court of Appeal, however, reversed the sub-district court’s ruling in part, and awarded the employee a substantially lower equitable payment of EUR 25,000. The court of appeal’s decision partly rested on the employee having already found a new job. According to the court of appeal, since the employee had found new employment, she had not suffered any material damage following the employer’s misconduct. In arriving at its figure, the court of appeal weighed all of the facts, including the employee’s newfound employment. The Supreme Court confirmed that these “New Hairstyle” criteria also apply where an employee requests dissolution, as in this case. Moreover, the Supreme Court held that the court of appeal’s obligation to give reasons for its decision does not mean that the court of appeal has to explain why it awarded a lower amount than what the court of first instance awarded and deemed equitable.

In its second ruling, the Supreme Court extended the New Hairstyle criteria to situations beyond those involving seriously culpable acts or omissions. In this case, the employer had requested dissolution of the employment agreement based on the employee’s refusal to perform work. While the sub-district court dissolved the employment agreement, the Den Bosch Court of Appeal reversed that decision and ruled that the employment agreement had been unjustly dissolved. The court of appeal denied the employee’s request to reinstate the employment agreement, but also denied the employee’s request for equitable compensation. In its arguments before the Supreme Court, the employee asserted that since the court of appeal had not reinstated the employment agreement, it had an obligation to award at least some equitable compensation. The Supreme Court disagreed. It held that in cases where reinstatement is not possible, the court of appeal is free to decide if equitable compensation is appropriate and, if so, to what amount. The court of appeal can therefore also decide not to grant any compensation at all, provided that it give reasons supporting its decision. The court of appeal can determine the amount of the equitable compensation by weighing the “value” of the loss of employment, as well as other circumstances, in line with the New Hairstyle ruling. What remains a controversial issue is the Supreme Court’s opinion that, after an unjust and overturned dissolution, a court of appeal can choose neither to reinstate the employment agreement, nor to grant the employee equitable compensation. Until now, it was widely believed that the law required the court of appeal to choose between one of the two options.

Stefan Sagel of De Brauw litigated both recent cases, as well as the landmark New Hairstyle case.