Adjustments to Subdistrict Courts Formula
Adjustments to Subdistrict Courts Formula
Yesterday, on 30 October 2008, the Circle of Subdistrict Court
Judges ("the Circle") decided to adjust the current
subdistrict courts formula in a number of important respects as of
1 January 2009. The formula, A * B * C, in which A stands for the
years of service of the employee, B for the gross monthly salary
plus fixed wage components and C for the correction factor, is a
calculating formula that is used to determine compensation in the
event of dismissal. Subdistrict courts are not obliged to follow
the formula, but in practice compensations are generally calculated
with the help of the subdistrict courts formula. Since the
above-mentioned changes are important to all employers and
employees who are faced with a dismissal, we will briefly discuss
the main adjustments below.
A Factor - Calculation of
years of service
An important adjustment that will be implemented relates to the
A factor. In the present Recommendations, years of service from 40
to 50 years of age are count for 1.5 and starting from 50 years
count for 2. In the new proposal, years of service until the 35th
year of life count for 0.5, from 35 to 45 years count for 1, from
45 to 55 years count for 1,5 and years starting from 55 count for
2. The Circle has inter alia explained that it wishes to follow the
improved position on the labour market of younger employees, while
maintaining the same protection offered to older employees as
before.
C Factor - The correction factor
In principle, the C factor is 1 when the dissolution of the
employment agreement is neither to blame on the employer nor on the
employee. The Circle has announced that the C factor will pay more
attention to the special circumstances of the dismissal. The
following concrete circumstances have been named:
- The employee's position on the labour market after
dismissal. An employee who works in a branch where there is a
great lack of staff will receive less protection than an
employee in a branch where unemployment is high.
- The financial position of the employer. If the employer can
prove by means of annual accounts and substantiated prognoses
that he is unable to pay compensation calculated according to
the formula, this argument will be accepted more easily.
Older employees
The current Recommendations provide that the compensation will
not exceed the excepted loss of income until the pensionable age.
Since the pensionable age deviates more and more often from the age
of 65, this rule has proved not so practicable. Therefore the
adjustment will be made that when determining the compensation for
an older employee, the age at which he would probably have retired
if the dissolution would not have occurred is one of the aspects
that will be taken into account.
Short-term
employments
In short-term employments practice has shown that the
subdistrict formula was often deviated from. Nevertheless, the
Circle has stated that the Recommendations also apply to short-term
employments. Furthermore, it has now been decided that in case of
an application for dissolution of a fixed-term contract without the
option of early termination, the compensation will in principle be
equal to the salary over the remaining time of the
contract.
Effective Date and Other
Adjustments/Amendments of the Law?
When it announced the adjustments, the Circle also announced
that this adjusted formula will be used as of 1 January
2009.
Practical tips
When drafting a petition for dissolution, it is important to pay
attention to the following matters:
- As an employer, demonstrate on the basis of concrete job
openings and prognoses how the employee's position on the
labour market will be after dissolution of his contract;
- The courts are willing to limit the compensation if the
employer states that he is unable to pay the compensation based
on the poor financial situation and is able to prove this by
means of annual accounts and substantiated prognoses.
We will keep you posted on relevant developments.
Publication date
:
31 October 2008