The Supreme Court recently ruled on whether hired personnel were entitled to a company bonus on an equal footing with permanent employees and apprentices in the company in which they were hired pursuant to the equal treatment rule in Section 14-12a of the Working Environment Act (WEA).
For several years, a staffing company had hired out two employees to an oil company. The oil company had a performance-based bonus scheme for its employees. The two hired employees claimed that according to the equal treatment rules in Section 14-12a of the WEA, they were entitled to a bonus from the staffing company on an equal footing with the oil company's employees.
Pursuant to Section 14-12a of the WEA, staffing companies must ensure that hired employees receive the conditions that would apply if they had been employed by a hiring company in terms of:
- the length and location of working hours;
- overtime;
- the duration and placement of breaks and rest periods;
- night work;
- rights relating to holidays; and
- salary and cost coverage.
Section 14-12a of the WEA does not explicitly mention bonus schemes. Therefore, the question in this case was whether the oil company's bonus scheme was to be covered by the concept of pay in Section 14-12a of the WEA.
The two hired employees stated that the bonus was remuneration for work and did not differ significantly from their fixed salary. Further, the hired employees stated that the concept of pay had to be understood broadly to prevent any circumvention of the principle of equal treatment. Therefore, in the opinion of the hired employees, the bonus scheme fell under the concept of pay in Section 14-12a of the WEA.
The staffing company highlighted that the bonus could not be regarded as salary according to Section 14-12a of the WEA as it was not related to the individual employee's work performance or work performance, but to the company's goals, achievements and results. The bonus was calculated based on basic pay, which meant that all employees in the same category and with the same seniority received the same bonus. It was stated that the purpose of the scheme was to promote employee loyalty and that the bonus scheme was not part of the oil company's pay system.
The Supreme Court unanimously concluded that:
- the bonus was covered by the concept of pay in Section 14-12a of the WEA; and
- the hired employees were entitled to a bonus from the staffing company corresponding to the bonus that they would have received if they had been employed by the oil company.
As a starting point, the Supreme Court took a linguistic approach to the concept of pay. The Supreme Court stated that pay is linguistically linked to "remuneration that an employer pays to an employee for ongoing personal work effort". The term as such provides no direct answer as to whether the bonus should be regarded as pay. However, the Supreme Court highlighted that it is natural for a bonus to be covered by the concept of pay if it is "intended to provide compensation for work effort".
Further, the Supreme Court placed considerable emphasis on the equal treatment rule's aim. The provision must be seen in connection with the WEA's main rule in Section 14-9 that employees will be employed permanently. The purpose of the equal treatment rule is to ensure:
- that the working conditions for hiring do not undermine the goal of a labour market with the primary emphasis on permanent and direct employment; and
- actual equality between permanent employees and hired employees with regard to pay.
The possibility of reduced wage costs should not serve as a motivation for hiring labour.
The Supreme Court then referred to the starting point in the preparatory work stating that "all remuneration for work shall be covered by the concept of pay". This includes both fixed remuneration and irregular supplements, regardless of the form in which the benefit takes place. Following the preparatory work, individual bonus schemes, based on the specific circumstances, may be covered by the equal treatment rule.
In the Supreme Court's assessment, the preparatory work does not exclude that bonus schemes at a group or company level may also be covered by the provision if the benefit constitutes remuneration for work. The Supreme Court also highlighted that the need for a clear and controllable concept of pay means that no distinction should be made between individual and more community-oriented bonus schemes.
The staffing company claimed, among other things, that if the concept of pay were considered to include bonus schemes, this would lead to major practical problems, significant costs and administrative burdens – the same reason why pensions are not covered by the requirement for equal treatment.
The Supreme Court agreed that a concept of pay which includes bonus schemes will entail a certain amount of additional work for the staffing companies, but that this could not be of vital importance.
The Supreme Court concluded by highlighting that the core of the concept of pay is whether the benefit is a consideration for work, possibly for a result or a performance for which employees have been responsible. Bonus schemes will also be covered if it concerns remuneration for work. This applies whether it is individual bonus schemes or schemes at a group or company level.
After a specific assessment of the oil company's bonus scheme, the Supreme Court concluded that this scheme was:
- a reward scheme at a company level for the employees' total efforts in the previous year, and;
- part of the overall system for remuneration for work in the oil company.
Thus, the bonus scheme had to be characterised as salary according to Section 14-12a of the WEA.
The Supreme Court's decision stipulates that hired employees will be entitled to a bonus from staffing companies on an equal footing with employees also in the case of bonus schemes at a group and company level that are not directly linked to an individual employee's work effort.
As the bonus is generally paid in arrears, this could present some practical problems for staffing companies regarding offers and pricing of hired labour. As the Supreme Court highlighted, staffing companies in their offer to hiring companies should make a reservation that any obligation to pay a bonus in accordance with later information from the company that hires the labour will be taken into account and calculated afterwards.
Companies that hire employees must provide the staffing company with the information necessary for it to be able to meet the requirement for equal treatment. This also includes information about the company's bonus schemes. Companies that hire employees must also be aware that, on specified terms, they will be jointly and severally liable for payment of wages (including any bonus), holiday pay and any other remuneration in accordance with demands for equal treatment from the hired employee (ie, Section 14-12c of the WEA).
