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Manifestly unreasonable dismissal

2009 November 30

Court: Netherlands Supreme Court

Date: November 27, 2009

LJN Number: BJ6596

Case: If an employment contract is terminated by the employer on notice subsequent with
permission of the Dutch Employment Authority (CWI), the dismissal may nevertheless be manifestly unreasonable under Article 7:681 of the Dutch Civil Code.
A dismissal may be manifestly unreasonable if the consequences of the termination
are unreasonably harsh for the employee when compared to the interests of the
employer. This may be the case if no or minimal redundancy payment is made by the
employer. If the Court indeed finds that the dismissal was manifestly unreasonable, it will award the employee reasonable compensation. The court is free to determine the size of that compensation. To avoid uncertainty about the amount of severance pay, some courts applied the Cantonal Court Formula, a formula designed to calculate a compensation in case of a termination of the emploment contract by the Court (which is one of the ways one can end employment contracts in The Netherlands).

The Court of Appeal in The Hague decided on 2 December 2008 that a certain dismissal, given with permission of the Dutch Employment Authority (CWI), was manifestly unreasonable. The Appeal Court awarded a compensation to the employee. To determine the extend of the compensation, the Appeal Court used the Cantonal Court Formula and applied a general deduction of 30%.
Four other Appeal Courts of The Netherlands use a different formula to calculate the compensation in cases like the one at hand. The case in The Hague, was to first to be referred to the Netherlands Supreme Court.

Held: The Netherlands Supreme Court puts first that a compensation based on article 7:681 DCC will only be awarded if it is decided first that – based on all the circumstances of the case – the dismissal is manifestly unreasonable. The sole fact that the employer has not awarded a compensation to the employee is not in itself reason enough to deem the dismissal manifestly unreasonable. According to the Supreme Court the Cantonal Court Formula can not be applied in cases of manifestly unreasonable dismissal. The compensation based on manifestly unreasonable dismissal has a different character than the compensation that the Cantonal Court can award in cases of judicial rescission of the employment contract for changes in the circumstances.

The compensation in rescission cases is a compensation in fairness, but the compensation in unreasonable dismissal is a compensation for damages of the employee as a result of the dismissal. The damages relate to the nature and the gravity of the breach of obligation by the employer. Whether there is manifestly unreasonable dismissal must be decided by the court in proceedings where the normal rules of evidence apply and the damages must be assessed in accordance with the applicable rules. The court must therefore, in cases of unreasonable dismissal, base its decision on the circumstances of the specific situation and must also properly explain his decision. A general formula, such as the Cantonal Court Formula, is not suitable for the legal requirements of these proceedings. The same goes for a general deduction.

The predictability of judicial decisions about the compensation with manifestly unreasonable dismissal is mainly dependent of the manner in which the courts provide an insight to the factors that play a role in their decision. It is conceivable that a certain harmonization of judicial decisions is possible by clearly stating the factors that are of importance in cases like these and make it understandable what financial consequences are attached to each factor.

The decision of the Appeal Court of The Hague is therefore reversed and the Appeal Court of Amsterdam must decide the case anew with observance of this decision of the Netherlands Supreme Court.

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