Standardisation of top incomes and judges' discretion

As we have reported to you in our NewsFlashes, on 1 January 2013 the ‘Wet normering bezoldiging topfunctionarissen publieke en semipublieke sector’ (‘WNT’) [Dutch Act on the Standardisation of the Remuneration of Senior Executives in the Public and Semi-Public Sector] came into effect. To sum it up, this act means that senior executives in the public and semi-public sector are not allowed to earn more than 130% of the salary of a minister and that any severance payment agreed between the employer and senior executive may not exceed €75,000 gross.

The act does not provide for standardisation by the Dutch subdistrict court in establishing severance pay: in other words, the Dutch subdistrict court is not bound by the WNT in that context. Nonetheless, not all Dutch subdistrict courts are overlooking the WNT, as is evidenced by two termination proceedings that have been completed this year. This is a good moment to share the initial results with you.

We will begin with the EindhovenSubdistrict Court, whose guiding principle is that it is not bound by the WNT. What is notable is that the subdistrict court qualifies this guiding principle in its follow-up considerations. Having regard to the WNT's social objective - the standardisation of remuneration in the public and semi-public sector - the act was treated by the subdistrict court as an independent factor in establishing the severance pay for the director of the cancer treatment centre Stichting Integraal Kankercentrum Zuid. However, given the specific circumstances in this case (including relative seniority in age, long service, and predominantly good performance), the subdistrict court did not regard the maximised WNT remuneration of EUR 75,000 as appropriate, and awarded the director severance pay (rounded up) of EUR 160,000 gross.

The Wageningen Subdistrict Court left absolutely no room for application (by analogy) of the WNT. This case concerned the termination of the employment contract with the director of the housing corporation Woningcorporatie Stichting Idealis. Stichting Idealis invoked the standardising force of the WNT as an argument for reducing the potential severance pay to be awarded. The subdistrict court did not accept this argument, but ruled - in line with the wording and the essence of the WNT - that no severance pay had been, or was in the process of being, agreed between the parties and that there were no other grounds for applying the WNT. The director was awarded pay of EUR 175,000 gross.

The above decisions show a marked difference in the way in which the WNT is interpreted and applied by the various Dutch subdistrict courts in practice. This gives rise to the question of whether the WNT (and its entry into force) is leading or will lead - implicitly or otherwise - to downward adjustment of the severance pay awarded to senior executives in the public and semi-public sector. The fact is that the Dutch subdistrict court, by the letter of the law, is not bound by the WNT when establishing (fair) severance pay. This does not alter the fact that it is at the Dutch subdistrict court's discretion whether or not to take the existence of the WNT into consideration in the ruling. However, in our view, contradictory arguments or considerations like the ones in the decisions above lead to unnecessary lack of clarity on the application and scope of the WNT. From the point of view of legal certainty it is very important that employers and employees are able to fully assess in advance the effect that termination proceedings will have. It is therefore worth recommending that it be included in the currently existing guidelines for the Dutch subdistrict courts whether, and if so how, the WNT will be taken into consideration when forming a judgment.

We will continue to monitor the relevant and fascinating developments on this subject for you.