Retention bonus accepted by the Danish Supreme Court

A major Danish energy company was to merge two control rooms for the electricity grid. In that connection, the company was to ensure qualified staff until the merger in the control room that was to be shut down.

The company therefore made an employment retention agreement with the employee on a retention bonus that would be payable if the employee was employed full time at the time when the merger was completed. The employee would also be entitled to his retention bonus if the company dismissed the employee during the retention period.

However, the employee terminated his position before the employment retention period expired and believed that he was entitled to a proportionate share of the retention bonus under the Danish Salaried Employees Act. The Maritime and Commercial Court in Copenhagen agreed with the employee on this point.

The Supreme Court: No share of the bonus to the employee

The Supreme Court emphasised that the employee was remunerated in accordance with the applicable collective agreements that among other things provided for various pay supplements and the right to bonus on achievement of set objectives. Moreover, the retention bonus would be payable regardless of the employee's and company's performance. The purpose of the retention agreement was also to retain qualified staff in order to secure energy supplies.

Therefore, the Supreme Court concluded that the retention bonus was solely a rewarding of the employee to encourage him to stay with the company until the merger was completed. The retention bonus was not comparable to pay, and the employee was therefore not entitled to a proportionate share.

IUNO's opinion

With this decision, the Supreme Court has accepted the use of retention bonuses which are conditional on the employee not terminating his contract of employment for a specific period. It is, however, important to be aware of the very special circumstances of the case. The decision does not open up for a general acceptance of a retention bonus not being subject to the rule in the Danish Salaried Employees Act requiring payment of a proportionate share in case of termination of the contract of employment before expiry of the retention period.

It is therefore uncertain when a company may award a retention bonus which does not give the employee a claim for a proportionate share if the employee leaves the company before expiry of the period. It is important to be aware of this risk when using retention bonuses and drafting employment retention agreements.

[Supreme Court judgment of 30 January 2012, case no. 243/2009]