European Court of Justice accepts lower compensation upon termination of employment for older workers

17 Dec 2012

<p>In a recent judgement, the European Court of Justice judged that a social plan that provides a lower level of compensation upon termination of employment for those workers approaching their pensionable age is not discriminatory. On the other hand, where a worker's retirement age has been lowered because he/she has a disability, it is indeed discriminatory to pay a lower amount of compensation based on such lower retirement age.</p>

In a judgement of 6 December 2012, the European Court of Justice (ECJ) evaluated a social plan concluded between a German company and its Works Council. The social plan determined that the compensation on termination of employment for the workers concerned was based on their seniority in the company and their age. However, an alternative calculation was used for workers older than 54; their compensation was equally calculated based on their age and seniority but lowered depending upon the length of time remaining until their pensionable age. The amount of compensation for the older workers was at least one half of the normal compensation awarded.

According to the ECJ, there was no discrimination on grounds of age. A social plan must, to the greatest degree possible, provide for a distribution of limited resources in order to alleviate the adverse consequences on workers. Thus, the aim of limiting the amount of compensation upon termination being claimed by persons who are not seeking new employment but who will receive a replacement income in the form of an occupational old-age pension must be considered as legitimate.

The Court judged that the alternative calculation for workers older than 54was not unreasonable, since a higher amount of compensation was granted based on age(as was the case in the normal calculation) and at least one half of the normal sum in compensation is guaranteed. Furthermore, the Court attached importance to the fact that a social plan was concluded between the social partners and a balance must be struck between the interests of employees and employers.

In the company concerned a worker had a lower retirement age because of a disability and was thus able to claim a retirement pension for disabled persons. The ECJ ruled that the reduction in compensation that was caused as a result of this lower retirement age for such individual was an unjustified indirect discrimination based on disability. After all, workers with a disability are having a hard time to reintegrate into employment, certainly when older.

This judgement is in contrast with a recent judgement of the Labour Appeal Court of Brussels. That Court was of the opinion that a woman approaching the pensionable age and who was obliged to perform during her notice period, unlike a man of the same age or a younger woman, who were paid an indemnity in lieu of notice, was discriminated against on grounds of age and sex, based on the Belgian anti-discrimination laws.

> Action point

Employers should pay attention to differences based on age and disability in social plans, and more in general with the allocation of compensation upon termination of employment.