Constitutional Court interprets how to take into account variable pay for the calculation of the indemnity in lieu of notice
15 Dec 2023
In the framework of a recent judgement, the Constitutional Court interpreted the regulations on calculating the indemnity in lieu of notice when the employee’s salary is partly variable. In the specific case at hand, the Court argued that – in order to determine the average variable pay over the last 12 months, to be taken into account for the calculation of the indemnity, – the period during which the employee was placed on temporary unemployment due to force majeure resulting from the COVID-19 pandemic can be disregarded. However, the Court’s broad interpretation also seems to indicate that other periods during which the employment agreement was suspended could be disregarded in this respect, which raises several questions.
Background
The case in which a question was referred to the Constitutional Court for preliminary ruling revolved around the dismissal of an employee who, in the 12 months preceding the dismissal, had been placed on temporary unemployment due to force majeure resulting from the COVID-19 pandemic for a total period of five and a half months. In the event of a dismissal, the indemnity in lieu of notice is calculated by taking into account the current salary (‘lopend loon’/’rémunération en cours’). The employee had a partly variable salary and, in such a situation, article 39 of the Employment Agreements Act states that – for the calculation of the indemnity in lieu of notice – the average variable pay over the last 12 months must be taken into account to determine the current salary or, if applicable, the part of these 12 months during which the employee was in service.
In this respect, parties disagreed on whether or not the five and a half months during which the employee was placed on temporary unemployment, and thus didn’t receive any salary, can be disregarded. The answer to this question can have a direct impact on the amount of the indemnity in lieu of notice. After all, if the entire 12 month period – including the months during which no variable pay was paid – has to be taken into account in this respect, the indemnity in lieu of notice will be calculated on a lower amount of variable pay compared to when the months of inactivity could be disregarded altogether for this determination; dividing the same amount by 12 or by five and a half has a significant effect on the outcome.
The case ended up before the Brussels Labour Tribunal, which decided to stay the proceedings and request the Constitutional Court for a preliminary ruling. More specifically, the Labour Tribunal asked whether article 39 of the Employment Agreements Act violates the principles of equality and non-discrimination if it’s interpreted as meaning that the indemnity in lieu of notice must still be calculated on the average of the variable salary in the 12 months preceding the dismissal, even in a situation such as this one, where the employee is involuntarily placed on temporary unemployment during (a significant) part of this 12 month period.
Constitutional Court judgement
However, the Constitutional Court decided that the request for preliminary ruling didn”t require an answer, because – according to the Court – the question was based on a misreading of article 39 of the Employment Agreements Act by the Labour Tribunal.
As mentioned above, article 39 states that – for the calculation of the indemnity in lieu of notice – the average variable pay over the last 12 months must be taken into account or, if applicable, the part of these 12 months during which the employee was in service. According to the Constitutional Court, this last part of the provision – which modifies the calculation relative to the period the employee was ‘in service – allows for the exclusion of the period during which no salary was due by the employer, because no work was performed, from those 12 months. This means – the Court argues – that this 12 month period could therefore be reduced by the five and a half months during which the employee was placed on temporary unemployment due to force majeure resulting from the COVID-19 pandemic. The Court thus seems to argue that, in the case at hand, the average variable pay to be taken into account for the calculation of the indemnity in lieu of notice must be determined based only on the six and a half months during which the employee was actually working and receiving pay.
Note, however, that – although this specific case revolved around periods of temporary unemployment due to force majeure – the Court’s argumentation is of such nature that, at least at face value, it would allow for disregarding all periods during which no work was performed and no salary was due.
Key takeaways
This is a remarkable, and potentially confusing, ruling by the Constitutional Court, which revolves around their noteworthy interpretation of ‘being in service’ (‘in dienst zijn’/’être en service’) in the sense of article 39 of the Employment Agreements Act. Indeed, according to the Court – in this context – ‘being in service’ means effectively performing work and – conversely – periods during which no actual work is performed and no salary is paid are excluded. Not only does this appear not to conform with the interpretation that’s commonly given to ‘being in service’ in Belgian labour law but, in the specific context of article 39, this interpretation of ‘being in service’ could open up a host of different discussions. After all, there are several situations in which the employment agreement is periodically suspended and no actual work is performed; must e.g. periods of annual leave or longer periods of illness also be disregarded when determining the average variable pay to take into account for the calculation of the indemnity in lieu of notice? Also, should the Constitutional Court’s interpretation be applied equally where variable salary is paid monthly, quarterly or yearly? While it might be commendable to apply the Court’s reasoning to make sure that an employee whose monthly salary is partly variable isn’t disproportionately disadvantaged as a result of periods of suspension of the employment agreement, applying the Court’s method when an employee e.g. quarterly receives variable pay, could have the opposite effect.
As such, this judgement raises a lot of questions and it will remain to be seen if – and to which extent – it will have an impact on the case-law of the Labour Tribunals and Courts.
If you have any questions regarding the above or the calculation of the indemnity in lieu of notice in general, don’t hesitate to reach out; we’d love to hear from you.
