Dutch Court Declares Employment Contract Null and Void due to Breach of Bonus Cap Rules
Importance of Compliance with Dutch Regulations on Remuneration Policies
A recent ruling by a Dutch court has highlighted the importance of compliance with Dutch regulations on remuneration policies. The court declared an employment contract between a bank and its employee null and void due to the breach of bonus cap rules.
Breach of Bonus Cap Rules
According to the court, the employee’s variable remuneration exceeded the allowed percentage of shares and was not subject to a sufficient retention period linked to the bank’s performance. Additionally, the deferral period for a considerable portion of the variable remuneration was not met. The court relied on the following regulations in making its decision:
- Dutch Financial Supervision Act (Wet financieel toezicht)
- Remuneration Requirements Regulation (Remuneratievereistenregeling)
- European Banking Authority’s (EBA) Guidelines on Sound Remuneration Policies
Strict Enforcement of Compliance
The ruling demonstrates that the courts will strictly enforce compliance with remuneration regulations, which aim to ensure that employees are incentivized to manage risk effectively and that banks are stable and resilient.
Employee Seeking Compensation
The employee is seeking compensation for lost benefits and damages. The bank has appealed the decision, citing the complexity of the matter and the need for further clarification on the application of the bonus cap rules.
Lessons Learned for Employers
This case serves as a reminder to employers in the financial sector to ensure compliance with Dutch remuneration regulations, particularly in relation to:
- Identification process of identified staff
- Tasks and responsibilities of the remuneration committee
- Pay-out processes for variable remuneration
Failure to comply may result in nullity of employment contracts or other legal consequences.
Increased Scrutiny by AFM
In related news, the Dutch Financial Markets Authority (AFM) has announced plans to increase its scrutiny of banks’ remuneration policies and practices in light of this ruling and growing concerns about risk management in the financial sector.