In the Esko case regarding Restricted Stock Units (RSUs) granted by a US parent company to certain employees of its Belgian subsidiary, the Belgian Supreme Court overturned the Ghent Labour Court of Appeal’s decision of 20 April 2020 that the RSUs were “at the charge of the Belgian employer” and sent the case to the Antwerp Labour Court of Appeal to be heard again. In a 20 November 2023judgment, the Antwerp Labour Court of Appeal has now ruled that, taking into account the specifics of the case, the RSUs are not to be regarded as salary and therefore not subject to the payment of social security contributions.
Does this mean that equity-based incentives such as RSUs can now be paid by a foreign parent company to the employees of its Belgian subsidiary without any social security contributions being due? We evaluate this question in light of the Antwerp Labour Court of Appeal’s new ruling and the Supreme Court’s previous case law in the Sisley case.
What happened before: Esko and Sisley – two cases, two different angles
The question of whether equity-based incentives granted by a foreign parent company to the employees of a Belgian subsidiary are to be considered as “salary” subject to the payment of social security contributions has occupied international groups and HR lawyers for years.
Indeed, the Esko case is not the first case to address this question. Previously, there was also the Supreme Court’s Sisley case of 2 May 2019. Both cases, Esko and Sisley, highlight a different aspect of the “salary” concept.
In the Sisley case, on 2 May 2019 the Supreme Court confirmed that if salary benefits (in that case, ‘commissions’, but it can also be applied to equity-based incentives) are granted “as a counterpart for the work performed”, then they are in any case “salary” subject to social security contributions, even if granted by a third party and without it being necessary to check whether the employees have a right to the benefits “at the charge of the employer”.
However, if it can be demonstrated that the benefits (e.g. RSUs) are not the counterpart for the work performed (e.g. they are not performance-related), then the Supreme Court’s judgment in the Sisley case leaves room to argue that these benefits are not automatically subject to social security contributions. In such a case, a second assessment needs to be made, namely whether or not the employees have a right to these benefits “at the charge of the employer”.
In the Esko case, the focus was on this “at the charge of the employer” notion.
Indeed, if not the counterpart for the work performed (see the Sisley case), a benefit will be salary subject to social security contributions if the benefit is granted as a result of the employment of the employee, who is entitled to this benefit, either directly or indirectly, “at the charge of his/her employer” (Article 2 Salary Protection Act).
Traditionally, the granting of a benefit was considered to be “at the charge of the Belgian employer” and thus subject to social security contributions, if either (i) the Belgian employer ultimately bore the financial burden, or (ii) the Belgian employer acted as a “point of contact” to which its employees could turn if they did not receive the benefit.
However, in the Esko case, in a ruling of 20 April 2020, the Ghent Labour Court of Appeal gave a very broad interpretation of this “at the charge of the employer” notion. The court held that:
(i) the RSUs were to be considered as being granted to the employees by the Belgian employer because the incentive plan equated employees of the parent company and employees of the subsidiary; and
(ii) that since the incentive plan stipulated that nothing contained in the plan constituted an employment contract between the Belgian employee and the US parent company, this implied that a Belgian employee could only address his or her Belgian employer for an entitlement to the benefit, e.g. if the employee believed that he or she would wrongly be ineligible for the RSUs.
The Ghent Labour Court of Appeal had thus very rapidly decided on the basis of the plan, almost as a matter of course, that the RSUs were granted “at the charge of the employer” and were therefore subject to social security contributions.
In a judgment of 5 September 2022, the Belgian Supreme Court overturned this ruling of the Ghent Labour Court of Appeal, stating that (emphasis added):
“the benefit to which an employee is entitled by virtue of his employment, for which it has not been established that it constitutes the counterpart for the work performed in execution of the employment contract, is only covered by the broadened salary concept of Article 2 of the Wage Protection Act when that right is borne by the employer (i.e. “at the charge of the employer”). This is the case when the employer made the legal commitment to grant the benefit, and the benefit has thus been granted by the employer to the employee.”
The Supreme Court rejected the very broad interpretation of the “at the charge of the employer” concept of the Ghent Labour Court of Appeal (see above) and sent the case to the Antwerp Labour Court of Appeal to be heard again.
The Antwerp Labour Court of Appeal’s judgment
Taking into account the legal framework outlined by the Supreme Court that a benefit is “at the charge of the employer” if the employer made the legal commitment to grant the benefit, the Antwerp Labour Court of Appeal examined the specific facts of the case and ruled that, in the case at hand, the RSUs granted by the US parent company were not “at the charge of the employer” since:
(i) the financial cost of the RSUs was not borne by the Belgian employer;
(ii) the Belgian employer did not make any legal commitment to grant RSUs, issued by the parent company, to its employees as the granting of the RSUs was not embedded in the employment contract or in any other written document of the Belgian entity, but only in the parent company’s Stock Incentive Plan.
The only legal commitment to grant RSUs was taken up by the parent company who decided which subsidiaries and which foreign employees were eligible for RSUs and who could unilaterally change the Plan’s terms;
(iii) the only contractual link for the grant of RSUs is one between the beneficiary employees and the parent company through the grant letter/agreement to which the Belgian company is not a party and is not even aware of its content. If the parent company takes the decision to discontinue the plan, then the Belgian employees can only address the parent company and not the Belgian employer, who is thus not a point of contact;
(iv) the parent company had its own contractual ground for the grant: the direct cause of the grant of the RSUs is not the performance of the employment contract, but the parent company’s decision to have certain group employees participate in the group’s capital, thus tying them to the group in the longer term.
In this respect, the Antwerp Labour Court of Appeal also referred to the Sisley judgment where, according to the court, the facts were different in the sense that the ‘third party’ in this case had not put forward a proper contractual ground (cause) for the granting and payment of the benefits, whereas in the Esko case, the parent company did have a separate contractual ground for the grant, unrelated to the performance of the employment contract with the Belgian employer. This may be somewhat surprising since the Antwerp Labour Court of Appeal makes this comment when assessing the criterion of “at the charge of the employer”, while this criterion was not at issue in the Sisley case (since the benefits were granted as “a counterpart for the work performed”).
Remarkably, and good news for foreign parent companies wishing to grant equity to employees of their Belgian subsidiaries, the Antwerp Labour Court of Appeal in its judgment also addressed what should be considered as benefits granted “as a counterpart for the work performed”. This too may be somewhat surprising since this criterion was not addressed in the Supreme Court’s referring judgment.
The Antwerp Labour Court of Appeal ruled that, in the case at hand, the grant of the RSUs did not constitute the counterpart for the work performed based on the following considerations that are closely linked to its considerations for the evaluation of the “at the charge of the employer” criterion:
(i) The Belgian subsidiary did not express its will to include the RSUs granted by the US parent company as salary for the work performed. The mere existence of an employment contract between the Belgian subsidiary and the beneficiary Belgian employees is insufficient to assume that the benefit was granted as “a counterpart for the work performed”.
(ii) Although the Supreme Court decided that the fact that a third party grants a benefit does not rule out that it can still be “salary” within the meaning of the Employment Contracts Act, according to the Antwerp Labour Court of Appeal, this does not mean that all benefits paid by a third party are “salary” by definition.
According to the Labour Court of Appeal, a distinction should be made between (i) the situation where a third party pays part of the salary owed by the employer, which would be “salary”, and (ii) the situation where the third party has a different cause for the payment of the benefit and fulfils a proper obligation that is not linked to the employment contract and not linked to the employer’s wage obligation. In the latter case, there is no “salary” as “a counterpart for the work performed”, unless the employer would then include this benefit again in the employment contract, which is not in this case.
In the Esko case, the grant of the RSUs by the US parent company took place on the basis of the parent company’s own decision that was not related to the performance of the employment contract, but was based on its intention to allow the beneficiary employees to participate in the group’s capital with the intention of binding them to the group.
(iii) Finally, the Labour Court of Appeal made a distinction between the “salary” concept under social security law, on the one hand, and under tax law, on the other hand, and ruled that the fact that the Belgian employer was required to withhold taxes on the RSUs granted does not necessarily imply that these benefits must be considered as “a counterpart for the work performed”.
Conclusion
Whether or not equity-based incentives granted by a foreign parent company to the employees of its Belgian subsidiary will be considered as “salary” subject to social security contributions is highly factual.
However, based on the Antwerp Labour Court of Appeal’s new ruling of 20 November 2023 and on the current state of jurisprudence,[1] it seems possible for international groups to argue that no social security contributions are due on share-related benefits granted by the parent company to employees of its Belgian subsidiary, if the following cumulative conditions are met:
- the share-related benefits are not granted “as a counterpart for the work performed” (e.g. they are not performance-related), but are granted with the intention of increasing the employee’s involvement within the group;
- the parent company has its own contractual ground for the grant, i.e. the direct cause of the grant of the share-related benefits is not the performance of the employment contract, but the parent company’s decision to have the Belgian employees participate in the group’s capital, thus tying them to the group;
- the Belgian employer has not taken up any legal commitment to grant the share-related benefits, i.e. not in the employment contract or in any other document, nor has the Belgian employer expressed any will to include the benefits granted by the parent company as salary for the work performed;
- the granting of the share-related benefits is only included in a ‘granting letter’ issued by the parent company and the decision to grant the benefits is solely taken by the parent company who also determines the modalities of the grant;
- the parent company is the only one who can take the decision to discontinue the plan and the Belgian employees can only address the parent company and not the Belgian employer;
- there is no financial ‘charge back’ of the cost to the Belgian employer.
Impact on the obligation to include share-related benefits in the calculation basis of the salary to determine the indemnity in lieu of notice
The question rises whether the Antwerp Labour Court of Appeal’s judgment of 20 November 2023 also has an impact on the discussion whether or not share-related benefits granted by a “third party” (the parent company) to the employees of its Belgian subsidiary should be included in the calculation basis for the salary to calculate the indemnity in lieu of notice.
In a recent judgment of 3 October 2022, the Supreme Court ruled that the fact that the share-related benefits (in this case ‘phantom’ shares) were not granted by the employer, but by a “third party” (the parent company), does not exclude that they can be considered as “salary” for the purpose of calculating the indemnity in lieu of notice.
However, this does not alter the fact that to be included in the calculation basis of the salary for the indemnity in lieu of notice, the benefits, whether they were granted by the Belgian subsidiary or by the parent company, must still comply with the labour law concept of “salary”, i.e. they must be granted as a counterpart for the work performed.
In our view, the Antwerp Labour Court of Appeal’s ruling has an impact on this aspect.
Indeed, in its judgment of 20 November 2023, the Labour Court of Appeal even refers to the judgment of the Supreme Court of 3 October 2022 regarding the indemnity in lieu of notice and states that it is a ‘bridge too far’ to deduce from this judgment that “anything” paid by a third party is by definition to be considered as salary. The benefits must still comply with the labour law concept of “salary” and therefore be granted as “the counterpart for the work performed”, which is not the case, according to the Labour Court of Appeal, when the grant of share-related benefits is based on the third party’s own decision, which is unrelated to the performance of the employment contract and which is rather based on its intention to make the employees participate in the capital and bind them to the group.
Therefore, this Antwerp Labour Court of Appeal judgment also seems to provide support for employers to try to argue that share-related benefits granted by the parent company to bind the Belgian employees to the group, depending on the concrete circumstances of the case, do not constitute “salary” for the purpose of calculating the indemnity in lieu of notice.
[1] Although it cannot be excluded that a new appeal before the Supreme Court could be initiated by the National Social Security Office against the judgment of the Antwerp Labour Court of Appeal on other legal grounds.
Philippe DeWulf
Esther Soetens
