Witholding severance payment to pension postponers violates EU law, says ECJ

Employees who have worked for an organisation for over 12 years must be paid up to three months' salary if they are dismissed under Danish law. The payment need not be made, though, if that worker is entitled to a pension from that organisation.

Ole Andersen was employed by a Danish local authority for over 18 years and when he was dismissed at the age of 63 he claimed three months' salary as a severance payment. Andersen had decided not to retire and draw his pension, but to seek work.

The local authority refused to make the payment to Andersen because Danish law said that it need not be paid to anyone entitled to draw a pension, regardless of whether or not they opted to actually draw that pension.

Andersen sued the authority and a Danish court asked the ECJ whether or not Danish law was in line with the EU's Equal Treatment Directive, which demands that countries outlaw discrimination on the grounds of age or other criteria, such as sexuality, sex or disability.

The Directive allows for some discrimination on the grounds of age, provided it is reasonable, proportionate and supports a wider policy objective, such as allowing younger people the opportunity to work.

Andersen was entitled to his pension when he turned 60, so the ECJ said that this was undoubtedly a case of age discrimination. It had to decide, it said, whether that discrimination was justified.

The ECJ ruling said that there were justifications for the law that a severance payment was not due to those who were entitled to a pension.

"The Danish Government pointed out that the restriction in [the law] on salaried employees guarantees, in a simple and rational manner, that employers do not pay double compensation to long-serving employees who have been dismissed, as this would not serve any employment policy objective," said the ruling.

"Restricting the severance allowance to only those workers who, on termination of the employment relationship, are not entitled to an old-age pension to which their employer has contributed does not appear unreasonable in the light of the objective pursued by the legislature of providing increased protection for workers for whom it is very difficult to find new employment as a result of their length of service for an undertaking," it said.

The ECJ said that the Danish law was largely justified in fulfilling the Danish Government's legitimate policy objective.

The Court said, though, that it had to ensure that the law "does not go beyond what is necessary to attain the objectives which it pursues".

The ECJ ruling said that it was clear to it that in creating the law, Danish legislators assumed that workers of pensionable age who might be entitled to the severance allowance would be likely to leave the labour market and take their pension because of their age and long service.

"As a result of that age-based assessment, workers who satisfy the criteria for eligibility for a pension from their employer yet wish to waive their right to their pension temporarily and to continue with their career will not be able to claim the severance allowance even though it is intended to protect them," said the ruling. "Thus, in pursuing the legitimate aim of preventing that allowance from being claimed by persons who are not seeking new employment but will receive a replacement income in the form of an occupational old-age pension, the measure at issue actually deprives workers who have been made redundant and who wish to remain in the labour market of entitlement to the severance allowance merely because they could, inter alia because of their age, draw such a pension."

The fact that the allowance could be withheld from over-60s who want to carry on working adversely affects not only the current but also the future earning ability of those people, the Court said.

"The measure at issue in the main proceedings prohibits an entire category of workers defined on the basis of their age from temporarily waiving their right to an old-age pension from their employer in exchange for payment of the severance allowance, which, after all, is aimed at assisting them in finding new employment," it said. "That measure may thus force workers to accept an old-age pension which is lower than the pension which they would be entitled to if they were to remain in employment for more years, leading to a significant reduction in their income in the long term."

The ECJ said that the Danish law "unduly prejudices the legitimate interests" of such workers, and is not compatible with the Equal Treatment Directive.