Supreme Court of Denmark Holds Employer Cannot Set Off Sickness Benefits Reimbursement Against Worker’s Salary

The Supreme Court of Denmark has decided a case in which an employer was unable to claim a refund of sickness benefits from the municipality because the employee had failed to complete forms required by the municipality.

The case concerned a salaried employee who was on sick leave due to stress and mental problems. During the sick leave, the local municipality requested the employee to fill out a form for the purpose of payment of sickness benefits. The employee failed to complete the form, which resulted in the lapse of rights to sickness benefits.

The Supreme Court held that the employer’s loss of refund of sickness benefits was caused by the employee’s failure, which the court considered a failure to observe her duty of loyalty in connection with the employment relationship. The employer’s claim for damages for loss of refund of sickness benefits was therefore potentially covered by Section 23(3) of the Liability in Damages Act. Despite this finding the Supreme Court refused to order the employee to compensate the employer for its loss in the specific case. The Supreme Court gave weight to the fact that the employee had neither deliberately nor by gross negligence set aside her duty to participate loyally in the municipality’s follow-up, even though she should have been aware of it. The Supreme Court was also influenced by the fact that the employer had neither guided the employee nor offered her any help to fulfil the requirements of the Sickness Benefit Act (No. 563 of 2006).

The Supreme Court made a statement of principle establishing that if an employee has been subject to liability in damages under Section 23(3) of the Liability in Damages Act for not having fulfilled the requirements of the Sickness Benefits Act, thereby causing a loss for the employer, the employer would generally be entitled to set off the loss against the employee’s salary because the claims arise out of the employment relationship. However, a set-off may not take place in such a way that it deprives the employee of “… what is necessary to maintain a modest standard of living ….”

Comment

The Supreme Court has reasoned that it is part of the employee’s duty of loyalty to the employer to fulfil the local municipality’s requirements for dealing with sickness benefits—irrespective of whether this is specified in internal guidelines. At the same time, the ruling illustrates that employers may want to clearly communicate the need for an employee to take the steps required to obtain a refund of sickness benefits if the employer wants to be able to set off consequential losses as a deduction from salary if the employee does not comply.

Marianne Lage of Horten and Roger James of Ogletree Deakins

© 2020 Horten and Ogletree, Deakins, Nash, Smoak & Stewart, P.C.