Voluntary severance scheme in a social plan does not constitute an early retirement scheme

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Summary

The ’s-Hertogenbosch Court of Appeal recently found that a voluntary severance scheme in a social plan does not constitute a de facto early retirement scheme (known in Dutch as a Regeling voor Vervroegde Uittreding or RVU). The employer in question was therefore not required to pay the high tax penalty of 52%. This judgment comes as a relief to employers involved in a reorganisation, but also to employees aged 55 and over, since they themselves often also wish to benefit from voluntary severance schemes.
Geschreven door:

CLINT | Littler

+31 20 8200 330

clintlittler@knaponline.nl

What was the case about?

An employer announced a reorganisation in 2013 as a result of which more than 200 jobs would be lost. A social plan had been agreed on with the trade unions that also provided for a volunteers scheme and a redundant employee replacement scheme. The employees who made use of that scheme received severance based on the (old) subdistrict court formula.

In the Tax Inspector’s opinion, the social plan constituted an early retirement scheme. He imposed a penalty on the employer on that ground, in addition to the tax for which the employees themselves are liable.

The employer applied to the court, which ruled in its favour. The court found that the employer had not intended to discharge almost exclusively older employees by means of the severance scheme.

The Tax Inspector appealed that judgment.

’s-Hertogenbosch Court of Appeal

When answering the question whether an early retirement scheme was involved, the Court of Appeal subscribed to the Supreme Court judgment of 13 May 2016. The question whether an early retirement scheme is involved depends on whether the payments or benefits are intended as a bridging facility or as a supplement to the employee’s income until his or her retirement date. The employer’s reasons for offering such payments or benefits are irrelevant. The objective characteristics and conditions of the scheme in the social plan and its actual implementation are decisive.

In other words, a voluntary severance scheme exclusively for employees aged 57 or older may be based on a reorganisation, but in the Supreme Court’s opinion an employer cannot reasonably argue in that case that the objective of the scheme is not the early retirement of older employees.

In this case, however, the Court of Appeal found that a scheme was involved whose objective was to offer all employees, regardless of their age, the possibility of voluntarily terminating their employment in exchange for severance pay. Moreover, severance pay based on the subdistrict court formula is unrelated to the employees’ age. In the Court of Appeal’s opinion it was furthermore not apparent from the conditions of the scheme that the employees were in fact being offered a payment to bridge the period until their retirement date: the social plan did not include any typical “early retirement provisions”, e.g. that the employee in question could not perform any other work after termination of the employment or that income from other work would be deducted from the severance pay. The Court of Appeal did not consider it relevant that the actual outflow primarily consisted of older employees and that the reflection principle (afspiegelingsbeginsel) had not been applied.

The employer therefore got off scot-free.

Has this put an end to the discussion between the Tax Administration and employers?

No, unfortunately not. The Tax Administration did not accept the Court of Appeal’s judgment and has already filed an appeal with the Supreme Court. That may be considered remarkable in light of the reorganisation already announced at the Tax Administration itself, on the grounds of which it imposed an early retirement penalty on itself last year in the amount of 170 to 200 million euros. This Court of Appeal judgment means that Mr Wiebes (the State Secretary for Finance) is no longer required to impose an additional tax assessment on his own department, which would significantly reduce the cost of the reorganisation at the Tax Administration!

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About the author

CLINT | Littler

+31 20 8200 330

clintlittler@knaponline.nl

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