An employee whose employment contract has been terminated for a business reason or reason of incapacity, is entitled to a severance payment. The amount depends on the number of (full) years of service with the employer (including the employment with the employer’s legal predecessors). The basis for calculation is the average monthly salary, which the employee has received or would have received if working in the last three months prior to the end of employment.
Severance pay is calculated as follows:
- 1/5 of the average monthly salary for each year of employment with the employer if the duration of the employment is between one and ten years; or
- 1/4 of the average monthly salary for each year of employment with the employer if the duration of the employment is between ten and 20 years; or
- 1/3 of the average monthly salary for each year of employment with the employer if the duration of the employment exceeds 20 years.
The amount of the severance payment may not exceed ten times of the average monthly salary received in the final three months preceding the termination unless an applicable collective bargaining agreement stipulates otherwise.
In the event of termination of the employment contract for a fixed period concluded for one year or less, generally with few exemptions, the employee is entitled to severance pay in the amount of 1 / 5 of the base (base being the employee’s average monthly salary for full-time in the last three months, or during the working period prior to the termination). If the contract is concluded for a period longer than one year, the severance pay increases proportionally.
The same provisions regarding severance payment as above apply to workers whose employment contract has been terminated in a bankruptcy / liquidation / winding down of the employer or compulsory settlement proceeding. In a compulsory settlement proceeding, however, the employer and worker may stipulate in writing the manner, form or reduction of the severance payment if a greater number of jobs with the employer would be jeopardised by a full payment.
When the employment agreement is terminated via the Employee Insurance Agency (UWV) or the court, a mandatory severance payment (i.e. transition payment) is due. The amount of the transition payment depends on the seniority of the employee and is equal to:
- One-third of the monthly salary for each calendar year.
In 2020, the maximum transition payment is EUR 83,000 gross and for employees who earn more than EUR 83,000 gross a year, the transition payment is maximised at one annual gross salary.
In the situation where an employment agreement is terminated on the basis of the cumulated dismissal ground, the sub-district court can grant, in addition to the transition payment, a severance of up to half of the transition payment.
The employee is entitled to additional (reasonable) compensation if the employer has acted in a seriously culpable way. In that case, the remuneration is not subject to a maximum amount and is determined by the court. Case law shows an increase in the amounts awarded to employees.
If the agreed or statutory notice period is not observed, the termination of the employment agreement is deemed ‘irregular’. An irregular termination does not affect the validity of the termination itself, but it entitles the other party to claim statutory damages or compensation for the damages actually incurred.