Transition remuneration

Based on article 7:673 of the Dutch Civil Code (DCC) an employer is obliged to pay a transition remuneration to the employee. The transition remuneration is applicable to every employment agreement with a duration of at least 24 months. The employer is only obliged to pay the transition remuneration if the employment agreement will terminate as a result of:

• the employer's initiative (notice to terminate the employment agreement, to request the sub district court to terminate the employment agreement, a termination of the employment agreement operational of law and the employment agreement has not been renewed). It should be noted that the employer is also obliged to pay the transition remuneration if the agreement is terminated after two years of illness/incapacity for work of the employee.
• the employee's initiative as a result of seriously culpable acts or omissions by the employer.

Exceptions

The employee is not entitled to a transition remuneration if:

• an employee voluntary decides to give up his job resign and the termination is not the result of seriously culpable acts or omissions by the employer;
• the dismissal is the result of seriously culpable acts or omissions by the employee (for example, stealing, committing embezzlement or violating rules of conduct that lead to a serious breach of trust);
• the employee under the age of eighteen and working less than twelve hours per week;
• the employee has reached the statutory retirement age (AOW) and as a result his employment agreement has been terminated;
• the payment of the full transition remuneration will put the continuity of the business at risk. In that case the amount of the remuneration can be reduced or set at nil at the request of the employer. For example, the employer who has been declared bankrupt or has been granted a moratorium. When the payment of the transition remuneration leads to unacceptable effects for the business operation, the remuneration can be paid in instalments;
• an employer with less than 25 employees terminates the employment agreement for economic reasons as a result of a critical financial situation. Until 1 January 2020, these employers are allowed to – on conditions to be determined by ministerial regulation – set aside the months prior to 1 May 2013 when calculating the duration of the employment agreement;
• a collective labour agreement is concluded by a trade union that exists for at least two years and the agreement deviates from the transition remuneration, as long as the arrangement is equal to the transition remuneration.

The employee is entitled to an additional (equitable) remuneration if:

• the employer has acted seriously culpable. This may be the case if the employer either fails seriously in the performance of his reintegration obligation, or puts forward a false reason for dismissal. In that case, the remuneration is not subjected to a maximum and will be determined by the court.

Calculation method

The transition remuneration is calculated as follows:

For the employee who earns more than 75.000 euro gross a year, this transition remuneration is maximised at one annual gross salary.

For employees who are at least 50 years old and work for at least ten years at the employer, and if the employer had more than 25 employees in the second part of the calendar year prior to the calendar year in which the employment agreement will be terminated or not renewed, a remuneration of 1/2 monthly salary for every period of six months is applicable.

The transition remuneration applies from 1 July 2015. However, there is a transitional period until 1 January 2020 in case of the following two situations:

1. Employers with less than 25 employees in the second part of the calendar year prior to the calendar year in which the employment agreement will be terminated or not renewed, can in case of dismissal on economic grounds (on conditions to be determined by ministerial regulation) calculate the transition remuneration based on a shorter duration of the employment agreement instead of the actual duration of the employment agreement. For these employers, the commencement date of the employment agreements can be set at 1 May 2013. As a result, the amount of the transition remuneration will be lower. From 1 January 2020, the general rules will also apply for employers with less than 25 employees.
2. For employees who are at least 50 years old and work for at least ten years at a company (see above). From 1 January 2020 the general calculation method will apply. It should be noted that this transitional period does not apply to employers with less than 25 employees.

Transitional law regarding temporary employees

When calculating the amount of the transition remuneration for temporary employees, like seasonal workers in for example the hospitality, recreation or construction industry, just the employment history from 1 July 2012 counts. This involves employment agreements which have succeeded each other with an interruption of at least three months, but no longer than six months. The purpose of this arrangement is to prevent that employers are no longer willing to hire seasonal workers. Moreover, the employer is not required to pay the transition remuneration in case he guarantees to rehire the employee within six months.

Subordinate legislation

The legislator has incorporated the provisions relating to the transition remuneration in a number of decrees and regulations.

Besluit loonbegrip vergoeding aanzegtermijn en transitievergoeding (11 December 2014) and Regeling looncomponenten en arbeidsduur (12 December 2014)

The Besluit loonbegrip vergoeding aanzegtermijn en transitievergoeding and the Regeling looncomponenten en arbeidsduur stipulate which wage components need to be considered as monthly gross wage when calculating the amount of the transition remuneration.

The monthly gross wage

Besluit voorwaarden in mindering brengen kosten op transitievergoeding (23 April 2015)

In the Besluit voorwaarden in mindering brengen kosten op transitievergoeding is stipulated which costs can be deducted from the transition remuneration. Furthermore, the Besluit stipulates which conditions must be met in that context.

Transition and employability costs can only be deducted from the transition remuneration if the employee has agreed thereto in writing, before the costs are being incurred. There is no agreement necessary for settling the costs if the mobility measures are agreed with the trade unions or the works council. When the employee does not utilise the employer's existing training facilities, this costs cannot be settled.

The explanation on the Besluit states that it is customary to prearrange a reduction schedule with the employability costs. Moreover, costs that are incurred more than five years prior to the expiry date of the employment agreement cannot be settled, unless the employer and employee have made different arrangements in writing.

Besluit overgangsrecht transitievergoeding (23 April 2015)

To prevent employers from paying the transition remuneration as an additional (collectively agreed) remuneration on top of the transition remuneration, the Besluit overgangsrecht transitievergoeding has been compiled. This Besluit only applies to employers who are bound by a collective labour agreement, redundancy package or individual agreements made prior to 1 July 2015.

As a result of this Besluit article 7:673b DCC now states that in principle the employer is not required to pay the transition remuneration when an equivalent facility, aimed at the prevention or reduction of the period of unemployment, is provided by a collective labour agreement. The Explanatory Memorandum to this provision states that it needs to be a facility in cash or in kind (or a combination of both) that constitutes an equivalent to the applicable transition remuneration.

This means that in case of collective agreements, the employer is not required to pay the transition remuneration, unless parties explicitly agreed to cumulate both remunerations. This transitional law applies until 1 July 2016.

In case of other individual (current) agreements the employee can choose between the transition remuneration or the other remunerations/facilities. In this context, the employer has a duty to inform the employee of his rights and the possibilities. The employer is obligated to point out to the employee that the employee has a choice, what the consequences of this choice will be, the applicable term(s), what the amount of the transition remuneration will be and to what other remunerations/facilities the employee is entitled. The employer is only obliged to pay the transition remuneration when the employee waives his right to remunerations/facilities out of current agreements in writing, within four weeks after the employer has fulfilled his duty of disclosure.

Practical pointers

• When renewing temporary employment agreements, please note that after 24 months of employment the employee is entitled to the transition remuneration. Since after 24 months of employment an employment agreement for an indeterminate period arises, it might be profitable to conclude one or more consecutive employment agreement for fixed term with a maximum total duration of 23 months. See for further details the article about the 'Total term of provisions on succession of fixed-term employment contracts significantly reduced'.
• To avoid that employees will go to court to claim an additional remuneration, the employer could consider including a 'golden parachute' in the employment agreement.
• Examine whether transitional law is applicable to the current individual and collective agreements.
• Under certain conditions, the costs for training and outplacement can be deducted from the transition remuneration. Please note that the consent of the employee is required to do so.
• Examine whether deviation by collective labour agreement is possible.
• Please note the freedom of choice/cumulation of the employee: inform the employee and take into account the period of four weeks.