Termination Clauses Validly Concluded Before 1 January 2014 are Enforceable for High-Earning Employees

In a recent milestone judgment, the Belgian Constitutional Court has ruled that a termination clause validly entered into with a ‘high-earning’ employee before 1 January 2014 must be taken into account when calculating ‘step 1’ of the notice period (i.e. the part relating to the seniority until 31/12/2013). With its judgment, the Court has settled a highly-debated issue that began when the Unified Employment Status Act entered into force.

What preceded

For employees with an employment contract that took effect before 1 January 2014, the notice period to be observed in the case of dismissal comprises two parts that must be added up: a first part (‘step 1’) based on the employee’s seniority acquired before 1 January 2014, and a second part (‘step 2’) based on the employee’s seniority since 1 January 2014.

Regarding step 1, the Unified Employment Status Act (‘the Act’) provides that the notice period is calculated in accordance with the statutory, regulatory or conventional rules in force on 31 December 2013. However, for high-earning employees (i.e. white-collar employees with an annual gross salary higher than 32.254€ on 31 December 2013), an exception applies, introducing the fixed rule that the notice period to be observed corresponds to 1 month per started year of seniority with the employer and with a minimum of 3 months.  

The Act thus makes a distinction between so-called lower-earning employees (with a salary of a maximum of 32.254€ gross per year) for whom ‘conventional rules’, i.e. termination clauses entered into between the employer and the employee before 1/1/2014 apply, and ‘high-earning’ employees (salary that is above this threshold) for whom, on the basis of a literal reading of the law, such termination clauses do not apply (since for such employees a fixed notice period of one month per year of seniority is set).

However, the Explanatory Memorandum accompanying the Act does not follow such a literal reading. On the contrary, the Act’s own Explanatory Memorandum indicates that it was the legislator’s intention that also for high-earning employees a termination clause validly entered into before 1/1/2014 should have effect.

This contradiction led to legal debate that resulted in case-law going in both directions: some courts refused to apply termination clauses to step 1 for high-earning employees basing their decision on the allegedly clear text of the Act (which cannot be interpreted), while other courts accepted applying such a termination clause by referring to the Explanatory Memorandum.

Decision of the Constitutional Court

In its decision of 18 October 2018, the Constitutional Court has now settled the debate.

It has ruled that the difference in treatment in the Act between lower- and high-earning employees is discriminatory (as it violates Articles 10 and 11 of the Constitution) to the extent it does not allow the application of valid contractual termination clauses for high-earning employees for the calculation of step 1 of the notice period.

The situation is thus clear for step 1 of the notice period. It is indeed to be expected that labour courts will align with this ruling of the Constitutional Court and will apply termination clauses to step 1 for both lower- and high-earning employees, and this will happen regardless of whether such a clause is more beneficial to the employee (e.g. a clause referring to the old ‘Claeys-formula’) or not (e.g. a clause on the basis of the former article 82,§5 of the Employment Contracts Act providing for the ‘minimum notice’ of 3 months per 5 years of seniority for the highest-earning employees, i.e. employees with an annual salary exceeding 64.508 € gross on 31 December 2013).

However, the controversy over contractual termination clauses has not been completely settled.

Indeed, the Constitutional Court has explicitly indicated that its ruling only relates to step 1 of the calculation of the notice period (as this was the subject of the legal question raised). It has not commented on step 2 of this calculation (relating to the seniority from 1/1/2014). Therefore, the interpretation supported by some courts and legal scholars that the application of the contractual notice period could also be extended to step 2, if this is more favourable to the employee, has not yet been put to the test.

Conclusion

Employers contemplating a dismissal of an employee who entered into service before 1 January 2014 are advised to always check the employment contract to see whether or not a contractual termination clause was agreed upon.