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Loyalty bonus was okay

April 2009 - Employment. Legal Developments by Norrbom Vinding Law Firm, member of ius laboris.

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Judgment reinforces case law which has established that employers may operate a loyalty bonus scheme so long as the terms and conditions are clear

It is all right for employers to implement a bonus scheme in which bonus payments are subject to continued employment.

The case started when an employee resigned in 2006. The employee participated in a so-called phantom share scheme. Under the scheme, one-third of the bonus award would be paid in cash over three years subject to continued employment on the payment dates. The employee resigned in the first year of the scheme and did not want to settle for a pro rata share; he wanted all of it for all three years. The employer refused and the employee then turned to the Maritime and Commercial Court.

The employee claimed that the case resembled the Novo, Intel and Saxo Bank stock option cases decided by the Danish Supreme Court. In those cases, the employees were held to be entitled to the full award under the stock option schemes. The resemblance was claimed to be in the wording, the disputed scheme using words such as stock, share, vesting, phantom share and unit.

The employer, in turn, argued that substance should prevail over the wording and that the terms and conditions were clear to the employee.

The Court found in favour of the employer. The disputed scheme was a cash bonus scheme and one that is undisputedly covered by s 17a of the Danish Salaried Employees Act. Accordingly, the employer, who had paid a pro rata award for the initial year, was entitled to maintain the requirement for continued employment.

In Norrbom Vinding's view: 

  • the case shows the importance of ensuring that terms and conditions are clearly specified in bonus schemes that are subject to continued employment; and
  • the extensive case law on stock options as to when rights are acquired cannot be extended to bonus schemes.

The case has been appealed to the Danish Supreme Court.

For more information please visit www.norrbomvinding.com