In a court proceeding regarding termination, the court may award the employee equitable compensation. This is compensation that must be paid to the employee in addition to the transition payment. The amount of this compensation can vary significantly. This therefore poses a major financial risk for an employer in the event of a termination. But under what circumstances is an employee eligible for this? And how is the amount of the compensation determined? In this blog, we discuss the most important rules.
What is equitable compensation?
Fair compensation can only be awarded by a court. It is a supplementary payment that can be awarded separately from the statutory transition payment. While the statutory transition payment is available to virtually every employee who is terminated (with some exceptions), not every employee is entitled to fair compensation.
When is an employee entitled to fair compensation?
Fair compensation may be awarded in various situations. The most common situation is when the court finds that the employer acted in a seriously culpable manner upon termination of the employment contract. Consider, for example, an employer who seriously harasses an employee, deliberately creates an untenable work situation or a strained working relationship, or pressures the employee to resign.
However, not every mistake made by the employer results in fair compensation. The threshold is high: the conduct must be seriously culpable. The mere fact that a termination is unjustified or that the employer made a procedural error is therefore not always sufficient.
In addition, fair compensation may be warranted if the employer terminates the employment contract without the required authorization or in violation of the statutory rules governing termination. This may occur, for example, in the case of an unjustified summary dismissal. In this case, the employee has a choice. He can ask the court to overturn the termination, in which case he remains employed as usual. Alternatively, he can ask the court for fair compensation. In that case, the employee remains unemployed but receives additional compensation.
How much is the fair compensation?
There is no set formula for calculating fair compensation. Nor is there a statutory minimum or maximum amount. The court determines the amount based on all the circumstances of the case.
In this regard, factors such as the severity of the employer’s conduct and its consequences for the employee may be considered. The length of time the employment contract would likely have continued had the employer not acted in a seriously culpable manner may also be taken into account. Furthermore, lost wages, any income from a new job or unemployment benefits, the ability to find other work, and the amount of the transition allowance may all play a role.
Fair compensation is intended to compensate the employee for the employer’s seriously culpable conduct. The compensation is therefore not simply a fine for the employer, nor is it punitive in nature. As a result, the final amount can vary significantly from case to case and cannot be accurately predicted in advance.
Fair compensation in a settlement agreement
In the case of termination by mutual agreement (VSO), the employment relationship is terminated by mutual consent. No court is involved, so there is no question of fair compensation in this case. However, an employee may argue that he would be entitled to fair compensation in legal proceedings and, on this basis, attempt to negotiate a higher settlement.
When should an employee take action?
The question of whether an employee is entitled to fair compensation often arises in termination proceedings before a court. The employer then asks the court to terminate the employment contract and cites a reason for doing so, such as poor performance, a disrupted working relationship, culpable conduct on the part of the employee, or another reason. In these proceedings, the employee may argue that he or she is entitled to fair compensation because the employer acted in a seriously culpable manner.
In the case of a layoff for business reasons or a termination due to long-term disability, the right to fair compensation is somewhat more complicated. In such cases, the employer does not go to court but instead applies to the UWV for permission. If the UWV grants permission and the employee believes they are entitled to fair compensation, the employee will have to go to court themselves. If the employer does not receive permission from the UWV, the employer may also go to court, and the employee will have the opportunity to request fair compensation during these proceedings.
In the event of summary dismissal, the employee must act quickly. The employee has two months to challenge the dismissal and, therefore, two months to claim fair compensation.
Advice on Fair Compensation
Whether an employee is entitled to fair compensation and how much that compensation might be depends heavily on the circumstances and the legal basis. It is also important for employers to know when their actions could result in additional compensation and how this risk can be mitigated.
Our employment law attorneys advise employers and employees on fair compensation and other severance payments. We are happy to help you assess the options, risks, and next steps and determine an appropriate strategy.
