Employee was entitled to prorated bonus

In connection with a business transfer, a company and a key employee agreed on a three-year retention bonus with a grant date of 1 January 2013. The retention bonus was to be paid at the end of January 2016, provided that the set criteria were met.

The bonus plan was based on a point system, where the employee could accrue points each month. The number of accrued points was determined by three criteria: the size of the bonus pool, length of employment, and the employee’s performance, which was assessed on a scale from 1 to 5. Hence, the employee’s bonus depended on the number of months of employment and the number of points accrued. The maximum bonus in the three-year period was 1.2 million DKK (127,113 £).

According to the company, the bonus plan was extraordinary in character and intended to affirm the employee in his position after the transfer of the business. However, this specific purpose was not mentioned in the agreement.

On 30 August 2014, the employee resigned with two months’ notice. The employee asked to get paid a prorated part of his bonus, corresponding to 22 months out of the three-year bonus period.

The company paid out bonus, but according to the point system and not as a prorated amount. Therefore, the employee claimed 162,395 DKK (17,202 £) in additional payment, corresponding to the difference between the bonus based on the point system and the bonus as a prorated amount.

The Maritime and Commercial Court: Transfer of business is not an extraordinary situation

The court was to decide whether the bonus should be prorated for the period of employment according to the Salaried Employees Act.

The Maritime and Commercial Court ruled that the bonus plan was subject to the Salaried Employees Act’s rules on the proration of bonuses in case of termination. Consequently, the employee was entitled to prorated bonus corresponding to 22 months of employment.

The court cited a Supreme Court decision from 2012. In its decision, the Supreme Court ruled that a company had so weighty interests in entering an agreement on retention bonuses with a number of employees that the agreement was not subject to the rules in the Salaried Employees Act. The Supreme Court took into account that the retention bonus was granted in addition to the base salary, holiday allowance, overtime pay and the possibility of further bonuses. Furthermore, the Supreme Court took into account that the specific purpose of the retention scheme was to retain the employees until the winding down of the company’s activities.

The Maritime and Commercial Court did not find that the bonus plan in this case satisfied the test formulated by the Supreme Court for when a bonus plan is exempt from the Salaried Employees Act. The Maritime and Commercial Court took into account that the bonus plan was based on a series of criteria which gave the bonus character of remuneration. Furthermore, the court took into account that there was no specific purpose of the bonus plan which could justify that the bonus plan was exempt from the Salaried Employees Act.

IUNO’s opinion

In 2012, the Supreme Court introduced a very narrow possibility of using retention bonuses in Denmark. However, the ruling by the Maritime and Commercial Court illustrates that retention bonuses are very rarely exempt from the Salaried Employees Act’s rules on proration of bonuses.

At the same time, the ruling illustrates that a bonus plan based on performance and thereby having the characteristics of remuneration is subject to the Salaried Employees Act’s rules on proration of bonuses in case of termination. This is the case even though the bonus plan had a retention purpose.

Given the case’s specific circumstances, the ruling does not clarify whether situations other than a company's winding down are weighty enough to justify retention bonuses.