Reorganization, moral damages and the Supreme Court

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Date:
15 Oct 2010

<p>Based on a company-level collective bargaining agreement governing the reorganization of the firm, a company had paid moral damages to certain employees. The individuals concerned had accepted to be dismissed on a voluntary basis in order to save the jobs of other employees. As compensation, they received moral damages on top of the regular severance indemnities.</p>

Based on a company-level collective bargaining agreement governing the reorganization of the firm, a company had paid moral damages to certain employees. The individuals concerned had accepted to be dismissed on a voluntary basis in order to save the jobs of other employees. As compensation, they received moral damages on top of the regular severance indemnities.

In its judgment of 1 April 2009, the Labour Court of Liège judged that the indemnity paid to compensate moral damages is not a part of the salary in the meaning of the Act of 12 April 1965 on the protection of salary. In fact, the Labour Court clarified that this indemnity is not the counterpart of work and that it is not allocated as a result of the employment relationship. Thus, it is not subject to social security contributions.

The National Social Security Office (RSZ/ONSS) did not agree with this judgment and started proceedings before the Supreme Court.

The Supreme Court repeated the principle that a severance indemnity paid as a result of the employment relationship is subject to social security contributions for that reason. The Court then verified the motivation for the allocation of moral damages. According to the Court, the justification which had convinced the Labour Court to exempt the moral damages from social security contributions was clearly insufficient. The fact that these volunteers should be considered to be victims who had sacrificed themselves to allow the other employees to keep their job and as a result incurred a certain damage in comparison to these employees, means that the allocated indemnities were related to the employment relationship.

In the Court's opinion, the indemnity compensating such moral damages must necessarily result from the existence of the employment relationship and is therefore considered to be salary.

With this decision, the Supreme Court has strictly limited the possibility to pay additional moral damages free of social security contributions. Clearly, an employer will need very good arguments to avoid the payment of social security contributions.