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Arbitration Award: Dismissal Compensation and Tax Reinstatement

When an employee receives  termination compensation without valid reason by arbitration award, he or  she may choose not to declare this compensation as part of his or her overall income. However, the tax administration may contest this decision and decide to reinstate the corresponding amount into the employee’s taxable income.

Judicial nature of arbitral awards

The judges in this case affirm that the arbitrator did not act as an amicable mediator but rather rendered an award of a jurisdictional nature. Indeed, the role of the arbitrator is to resolve a dispute by applying the rules of the labor code. Thus, by assimilating arbitral awards to judicial decisions, judges exempt the compensation for revocation  without valid reason from income tax  .

Income tax exemption for severance pay

Considering the arbitration award as a binding and enforceable decision, the judges confirm the exemption of the severance pay from income tax. This follows recent case law and underlines the res judicata authority attributed to the arbitrator’s decision. Consequently, compensation paid in the event of dismissal without valid reason is not subject to income tax.

Forced execution and appeal of arbitral awards

The judges reaffirm that the arbitrator’s decision has the authority of res judicata, making it enforceable by compulsory execution. This means the decision can be legally enforced to ensure compliance. Additionally, the decision can also be appealed, allowing parties to challenge the award in specific circumstances.

Protecting employee rights 

The exemption of severance pay from income tax, confirmed by the judges, protects the rights of unfairly dismissed employees. By considering arbitration awards as having a judicial character, judges recognize the importance of these decisions in resolving labor disputes and guaranteeing fair remuneration for employees. The income tax exemption provides additional protection and financial relief to employees who are victims of unfair dismissal.

In conclusion, the recognition by judges of the jurisdictional nature of arbitration awards and their exemption from severance pay from income tax reinforces the importance of arbitration in labor disputes. By treating these awards as legally binding decisions, judges ensure that employees receive fair compensation in the event of unfair dismissal. The income tax exemption serves to protect the financial rights of employees and provides a fair solution to labor disputes resolved through arbitration. 


DAMY Law Firm .