No ABC or XYZ in Cases of Manifestly Unreasonable Dismissal
A discussion of the judgment of the Dutch Supreme Court of
27 November 2009, LJ BJ6596
Determining Compensation in Cases of Manifestly
Unreasonable Dismissal
If the Subdistrict Court rescinds an employment agreement, the
Subdistrict Courts Formula (also known as the 'ABC
formula') is used to determine compensation. An employment
agreement may also be terminated by giving notice. If the employer
terminates the employment agreement by giving notice, the employee
may claim compensation in a legal action, for example in connection
with the consequences of the termination for the employee. If the
Court considers the termination to be manifestly unreasonable, the
Court has to award compensation. A question that has long been
contemplated is how this compensation should be determined. On 14
October 2008 the Court of Appeal of The Hague ruled that in the
event of a manifestly unreasonable dismissal, compensation of - in
brief - the (current) Subdistrict Courts Formula x 0.7 should be
taken as a starting point. The four other Courts of Appeal
(Amsterdam, 's-Hertogenbosch, Arnhem and Leeuwarden), however,
ruled on 7 July 2009 that a different formula should be used: the
XYZ formula, which follows the Subdistrict Courts Formula as
applicable before 1 January 2009, but in which the Z factor is no
more than 0.5 (as opposed to a, basically, neutral C factor = 1 in
the Subdistrict Courts Formula). Since the judgments of the Courts
of Appeal, lower case law has not been unequivocal. On 27 November
2009 the Supreme Court expressed an opinion on the calculation
method for compensation in the event of a manifestly unreasonable
dismissal.
The Judgment of the Supreme Court
The Supreme Court held first that compensation can only be awarded
if it has been determined that the dismissal is manifestly
unreasonable. The mere circumstance that the employer did not offer
the employee compensation does not automatically make the dismissal
manifestly unreasonable. The Supreme Court furthermore ruled that
in compensation for manifestly unreasonable dismissal the
Subdistrict Courts Formula cannot be applied, because compensation
on the basis of a manifestly unreasonable dismissal is of a
different nature than compensation that may be granted by the
Subdistrict Court in the event that the employment agreement is
rescinded. Compensation in the event of a rescission of the
employment agreement is compensation to be determined equitably,
whereas compensation in the event of a manifestly unreasonable
dismissal is compensation for loss actually suffered. The
manifestly unreasonable dismissal proceedings are normal
proceedings in which the law of evidence and the normal rules with
respect to the estimation of the loss apply. Because the concrete
circumstances are important when estimating the loss, the Supreme
Court deems the general Subdistrict Courts Formula not to be
compatible therewith, not even with a generic discount. Although
the Supreme Court has not expressed an opinion on the XYZ formula,
it may be concluded from the judgment that in the opinion of the
Supreme Court the application of such a general formula is not
correct either. However, it is conceivable to the Supreme Court
that courts, in order to increase the predictability of decisions,
in future will give some insight into the factors that are relevant
to the determination of compensation in the event of a manifestly
unreasonable dismissal (as the Court of Appeal of Arnhem already
did in its judgment of 7 July 2009).
Tips
- First, the question must be answered whether the
termination is manifestly unreasonable at all. Only after this
question has been answered affirmatively, the question of
compensation is addressed. The mere fact that no compensation
is awarded does not mean that the dismissal is manifestly
unreasonable.
- When determining the amount of compensation all
circumstances of the case should be taken into account;
therefore a general formula is not compatible therewith. We now
have to await the elaboration of relevant factors that will
have to be developed in (lower) case law. Until that time the
outcome of manifestly unreasonable dismissal proceedings
continues to be an uncertain matter.
- On the one hand, from now on employees can get full
compensation after a manifestly unreasonable dismissal (without
a generic discount). On the other hand, it does not seem to
have become easy or easier for employees still to be eligible
for severance payment in manifestly unreasonable dismissal
proceedings because the extent of the loss is not always simple
to prove.