Terminating the employment agreement of a long-term ill employee? Employers in the Netherlands now have the possibility to request compensation for the transition payment. New legislation came into effect on 1 April 2020, which provides reimbursement to employers. However, timing is crucial.
Compensation for transition payments
Since 1 July 2015, employees have been entitled to a statutory transition payment if the employment agreement is terminated on the initiative of the employer. As per 1 January 2020, transition payments are due as per the first day of service, instead of an entitlement only after two years of service. The transition payment equals one-third of the monthly gross salary including emoluments per year of service (or pro-rated if the employment term was shorter), with a current cap of EUR 83,000 gross or a yearly salary, if the calculation of the transition payment and the salary are higher than EUR 83,000 gross.
The requirement to pay salary to employees who are incapacitated to work in principle stops after 104 weeks of illness. After that period, if it is established that such an employee will not recover within 26 weeks and no alternative role is available, the employer has options to terminate the employment agreement. In the past, however, many employers decided not to terminate the employment agreement of long-term disabled employees since this would trigger the obligation to pay a transition payment. As a result, these employees often remained employed without being paid salaries under a dormant employment agreement.
To find a solution for this impasse, the Dutch parliament passed the Transition Payment Reimbursement Act. Under this Act, employers can ask the Dutch Employee Insurance Agency (UWV) to reimburse transition payments made to long-term disabled employees in light of the termination of their employment.
Under the Act, the employer requesting compensation must meet the following conditions:
- The employment agreement was terminated for reasons of long-term illness (after 104 weeks of sickness);
- The employee was entitled to a severance payment pursuant to Dutch law; and
- The employer paid the severance to the employee.
The employer must submit the following documentation to receive compensation:
- The dismissal permit from the UWV, a court decision or settlement agreement showing that the employment agreement has ended for reasons of long-term illness;
- Information to calculate the amount of the transition payment, including copies of relevant documents such as a salary slip showing the gross monthly salary; and
- Proof that the applicable transition payment was paid by the employer (e.g. a bank statement).
Timing is crucial
The Act applies retroactively from 1 July 2015 and the amount of reimbursement is limited to the transition payment the employee was entitled to after two years of illness. Employers who have terminated employment agreements with long-term disabled employees after more than two years of illness (e.g. because those employment agreements were kept dormant) can face partial reimbursement based on the Act.
Applications for compensation of transition payments paid between 1 July 2015 and 1 April 2020, must be submitted to the UWV ultimately on 30 September 2020.
Compensation for transition payments paid after 1 April 2020 should requested within six months after the pay date.
Can an employee force the employer to terminate the employment?
According to case law, an employer is obliged in principle to terminate a dormant employment agreement at the employee's request and pay the transition payment, unless the employer has a legitimate interest to continue the employment agreement, such as if there are re-assignment options available for the employee within the company.
Come into action
In conclusion, this new employment legislation in the Netherlands gives employers more options when dealing with long-term ill employees and dormant employment agreements. If the employer times it right, the full transition payment will be compensated by the UWV. For more information on how this might affect your business, contact your regular CMS advisor or local CMS experts.