Refund of paid income taxes due to breach of the principle of good employment practices
Principle of good employment practices
According to our civil code, both the employee and the employer have an obligation to act in accordance with the principle of good employment practices. This principle covers, inter alia, the equal compensation of employees for the same kind of work (obligation of the employer) or the obligation of the employee to accept the reasonable request by an employer to perform different work which is appropriate due to the e.g. abolishment of certain positions within a company.
Pension contribution and withholding of income tax
The employer and the employee agreed via the labour contract that the employee would receive as part of its salary a contribution from his employer to his pension plan. The pension plan itself was drafted by an insurance company months after the employee started working. The employer eventually signed for the application of the pension which contained the clause that the employer would pay the pension contribution directly to the insurance company. The employee would then be exempted from paying (income) tax.
About nine months after the start of the labour agreement, the employer decided, unilaterally, to pay the pension contribution to the employee directly as compensation (‘toeslag’) and not as a pension payment. The consequence of this was that income tax was withheld from this part of his salary.
After later mutually agreeing to the end of the labour agreement, the employee requested the refund of the taxes he paid, namely, because he received less than was agreed upon, at the start of the labour relationship, due to the tax deductions.
The employer refused to pay back the withheld income tax and stated that it was all due to the fault of the employee that the pension plan did not come into effect. The employer stated that it was therefore obligated to pay the pension contribution directly, so that it could comply with its obligation according to the labour agreement and also obligated to withhold taxes from this payment.
Decision of the Court
The Court in First Instance of Sint Maarten disagreed with the employer and stated that out of the principle of good employment practices an obligation of the employer arises whereby he/she must ensure that the contribution to the pension plan is done correctly and the payment done to the right person/entity, especially because of the well-known tax rules and principles. The court further motivated that the employer had even the possibility, pursuant to article 6:59 of the Civil Code of Sint Maarten, to reserve the pension contribution, or, to discuss the change of payment of the pension contribution with the employee but failed to do so. The employer was ordered to pay out the income tax that the employee paid for the duration of the labour agreement.
This case-law reiterates the rule that an employer cannot always unilaterally decide on certain things which could eventually lead to less beneficial outcomes for an employee. This could also result in a breach of the principle of good employment practices. As this case proves, an employer can be then ordered to refund previously withheld income taxes to the employee.
Article By mr. Dagmar Daal