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No entitlement to severance pay upon retirement at fixed retirement age

December 2005 - Employment. Legal Developments by Norrbom Vinding Law Firm, member of ius laboris.

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In his employment contract, an employee E was covered by a provision with the following wording: ”The Salaried Employee is under an obligation and will be entitled to retire without notice when reaching 65 years of age, unless otherwise agreed”. In pursuance of this provision, E retired from his position with the company C when he reached 65 years of age.

In connection with E’s retirement, a dispute arose between E and C regarding whether E was entitled to severance pay in pursuance of section 2a(1) of the Danish Salaried Employees Act.

A majority of the Danish Supreme Court judges found - as opposed to the Maritime and Commercial Court - that such a provision on retirement upon reaching a fixed retirement age could not be considered a termination; nor could it be equated with a termination applying section 2a(1) of the Danish Salaried Employees Act. Thus, E’s retirement was not covered by the provision in the Danish Salaried Employees Act on severance pay, and consequently C was under no obligation to pay severance pay.

The judgment illustrates

  • that a compulsory retirement age fixed by an employer (in this case 65 years) and consequent retirement will not be equated with a termination of the employee, which is why it will not result in an entitlement to severance pay in pursuance of section 2a(1) of the Danish Salaried Employees Act.

Thus, the Danish Supreme Court conclusively settled the legal position within this area. I is also essential to emphasise that it was undisputed that the employee met the requirements in section 2a of the Danish Salaried Employees Act, and thus, he did not proceed to receive state pension or pension from the employer at the time of retirement. As regards the validity of clauses on compulsory retirement age, such clauses are to be compared to the statutory provisions implemented on age discrimination in pursuance of which the fixing of a compulsory retirement age below 65 years will require specific grounds, cf. section 2 as compared with section 5a (in particular subsections 3 and 4) of the Danish Act on prohibition against discrimination in respect of employment etc. (”The Danish Discrimination Act”).

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