Damages on top of the legal notice period and severance indemnity?

In case of dismissal, the employer must pay the compensation and benefits during the notice period as well as the severance indemnity (indemnité de départ). However, the financial cost of a dismissal for an employer could be higher than those predictable and well-defined amounts.

Upon request of the employee, the employer must provide the reasons of the dismissal within one month.

Should the Labour court not consider these reasons are real, serious, described in an accurate fashion and proven, the dismissal would be considered as an unfair dismissal. In such case, the employee will receive damages for compensation of the material and moral damage suffered.

The compensation of the employee, victim of an unfair dismissal should be as comprehensive as possible and only damage that is directly related to the dismissal is compensable.

In this respect, the losses are to be considered only if they relate to a period which reasonably should be sufficient to allow the employee to find a job roughly equivalent, given that the employee is obliged to make all efforts to obtain an alternative job.

On this basis, the Court defines a reference period of usually between 6 to 12 months, depending on the employee’s age, qualifications and sector.

The material damages will be computed as the difference between the employee’s new compensation and benefits and what his financial situation would have been if the employment contract had been maintained. For example, it has been decided that an employee with a previous salary amounting to 3,000 euros per month with unemployment allowances amounting to 2,400 euros per month shall be indemnified in an amount of 600 euros multiplied by six (months of reference period).

Moral damages depends mostly on the age/grade of the employee and the way the dismissal occurred. Those damages will compensate how the employee was personally and psychologically affected by the dismissal.

Determining which amount of damages (material and moral) could be anticipated is not an easy thing!

The estimate of this hidden cost of the dismissal for the employer or additional compensation for the dismissed employee is key.

Depending on the amount anticipated by both parties, either they will be able to settle quickly or the employee will file a lawsuit against the employer.

Tips in order to mitigate the financial risk for the employer

First, let us examine whether there are means for an employer to avoid or to mitigate the risk of unfair dismissal.

It is very important to recall that every employer should comply with certain rules before proceeding with a dismissal.

The reasons of the dismissal should exist and be documented. The reasons could relate either to the employee’s behavior or professional aptitude or to justified economic reasons.

Upon request of the employee to be provided with the reasons, the employer should seek assistance of a professional in order to draft very carefully the reasons. Those reasons must be described in a very precise fashion and sent by registered letter at the latest one month after the reception of the employee request.

The employer’s letter specifying the reasons is a key document as the court would only take those reasons into account as well as the parties’ evidence in this respect.

A calculation method in order to anticipate the damages? 

As a complement to the case-law data bank «Legiwork» exists a damages calculator.

This tool for the human resources officers and legal counsels is a statistic tools which deals with previous Luxembourg Labour court decisions sentencing an employer to pay damages.

Based on the dismissed employee’s age, length of service, compensation and benefits, the calculator will provide a rough estimate of the damages that could be anticipated based on previous decisions in similar cases.

Even if such tools is very useful for HR, a professional assistance is needed as there are specificities in each case and because of the low number of decisions in some cases. In addition, the damages granted by the Labour court might vary in a substantial amount for cases that appear similar.

Good news for dismissed middle aged employees in the Grand Duchy of Luxembourg!

In a very recent case, a company was ordered to pay to one of its former highly-skilled employee, an exceptional amount of more than one million euros for compensation of unfair dismissal.

In this case, the company decided to dismiss the employee after 20 years of career. Meanwhile, the middle aged employee has decided to start his own business. However, the former employee suffered a material damage, which has been recognized by the Luxembourg court.

The first months following his dismissal, the employee has bounced back by creating his own structure. The Court of appeal ruled this cannot be held against the employee who chose to create his own structure rather than seeking a new similar job to deny him compensation for material damage.

This exceptional and substantial amount shows how the employers should be cautious before dismissing a highly-skilled employee with a high position and valuable compensation and benefits.

Maybe this new case could somehow increase the settlement indemnity negotiated by highly-skilled employees in order to avoid any legal action for unfair dismissal.

For Collin Maréchal

Benoit Maréchal