Setting Off Wages against Damages Allowed?
A discussion of the judgment of the Court of Appeal of
Leeuwarden dated 20 January 2009, case number 200.008.981/01.
Set-Off
Pursuant to Section 7:632 of the Dutch Civil Code
("BW"), during the term of the employment agreement an
employer only has limited powers to set off a claim against the
employee's claim for his salary. Furthermore, when making a
set-off the employer has to respect the threshold for exemption
from seizure by garnishment of the salary. Finally, a set-off is
only allowed with regard to the claims of the employer of which a
comprehensive list is given in Section 7:632 (1) of the BW. One of
these claims is the claim concerning the damages owed by the
employee to the employer. It was this claim that was the subject of
dispute in a case that came up before the Court of Appeal of
Leeuwarden.
The Facts in the Judgment
An employee sold his firm to his employer as of 1 September
2007. As of the same date, the employee then entered the employment
of the employer in the position of Operational Manager at a gross
salary of €2,800 per four weeks. On 2 January 2008 the employee
reported sick. The employer then ceased paying his salary starting
from 28 January 2008, and took the position that it was not obliged
to pay the salary since it had the right to make a set-off. The
employer relied on the fact that under the purchase agreement for
the firm of the employee, the employer was entitled to damages,
since the employee should have passed on payments to the employer,
but had failed to do so. The employee claimed the continued payment
of his salary in preliminary relief proceedings. The Subdistrict
Court awarded the reliance of the employer on set-off, but ruled
that the employer did have to take into account the threshold for
exemption from seizure by garnishment.
The Court of
Appeal
The Court of Appeal established that pursuant to Section 7:632
of the BW, during the term of the employment agreement the employer
has the right to set off amounts payable by the employee on demand
against the employee's claim for his salary, provided that the
employer respects the threshold for exemption from seizure by
garnishment. The Court of Appeal emphasized that a set-off is only
allowed with regard to the claims of the employer of which a
comprehensive list is given in subsection 1 of Section 7:632 of the
BW. One of the claims in the comprehensive list concerns the
damages payable to the employer. However, in the opinion of the
Court of Appeal this provision should be interpreted restrictively,
in the sense that a set-off can only take place against damages
that are connected to the employment relationship. The Court of
Appeal draws this inference from the fact that the other set-offs
allowed in Section 7:632 (1) of the BW also arise from the
employment agreement in one way or another. Furthermore, the Court
of Appeal held that Section 7:632 of the BW makes clear that it was
intended, in order to protect the employee, to limit the general
power of setting off in the Civil Code, so that it is not obvious
to choose a broad interpretation of the concept of claim for
damages in Section 7:632 of the BW. The claim of the employer
against the employee resulted from the agreement between the
parties about the transfer of the undertaking. The Court of Appeal
ruled that as a result, a set-off was not permitted here, since
there was no connection to the employment relationship. The Court
of Appeal allowed the employee's claim for continued payment of
salary.
Tips:
- During the employment, a set-off against the payment of
salary is only allowed with regard to the claims of which a
comprehensive list is given in Section 7:632 (1) of the
BW.
- An employer cannot set off any claim for damages against
the salary of the employee on account of Section 7:632 of the
BW. The claim for damages must be connected to the employment
relationship.
- In cases where a set-off is possible, the employer should
always take into account the threshold for exemption from
seizure by garnishment. It is therefore not possible to make a
set-off against the entire salary.