Netherlands: Employers to be compensated for termination

In the Netherlands, employees are, in principle, entitled to the so-called statutory ‘transition payment’ if their employment agreement of two or more years is terminated or not prolonged at the initiative of the employer. In July 2018, the Chambers of the States General of the Netherlands accepted the Regulation on statutory compensation for the transition payment on the termination of employment for long-term incapacity to work (the ‘regeling compensatie transitievergoeding bij een einde van de arbeidsovereenkomst na langdurige arbeidsongeschiktheid’). Under this new scheme, employers may request compensation from the Dutch public employment service, the UWV, for the transition payment made upon dismissal of a employee who is unable to work due to long-term illness.

Compensation for transition payments made on terminating employment agreements going forward

The scheme will enter into force on 1 April 2020. From that moment, employers will be able to make a claim to be compensated for the transition payment made when employment agreements are terminated due to an employee’s long-term illness. This is, in principle, possible after two years of illness (known as the ‘waiting period’). The request for compensation must be filed within six months after full payment of the transition payment.

Compensation for transition payments already made

The scheme will be implemented with retroactive effect from 1 July 2015. This means that employers can file a request for compensation for dismissals that took place between 1 July 2015 and 1 April 2020. Employers will be permitted to file these requests until 30 September 2020.

Entering a request

An employer may file its request for compensation by means of a digital UWV form. With the form, the employer needs to provide the following data regarding the employee in question:

• the employment agreement;
• payslips for the employee providing proof of wages paid to the employee during illness;
• the underlying data used for the calculation of the transition payment;
• proof of payment of the transition payment;
• documents that show that the employment agreement has been terminated for reasons of long-term illness, such as a settlement agreement, the decision by the UWV in which the employer is granted permission to terminate the employment agreement, or a court ruling in which the employment agreement is dissolved;
• if the employment agreement has not been terminated for reasons of long-term illness after permission from the UWV: a statement from the employer that the employee was unfit for work at the moment the employment agreement was terminated, stating the duration of the employee’s illness and the name of the consulting company doctor.

The UWV will take a decision regarding the request within eight weeks of receipt of the form and supporting data. With regard to requests for compensation of transition allowances paid prior to the entry into force of the new scheme a different term applies: in such cases the UWV has six months to decide on a request.

Practical tips

This new scheme eliminates the need to prolong an employment agreement with an employee suffering from a long-term illness in order to avoid paying the transition payment (a strategy known as ‘slapend dienstverband’, dormant employment). Instead, employers will be compensated for the cost of terminating an employment agreement. The compensation is limited to the statutory transition payment that would have been owed where employment is terminated after the two-year waiting period. If an employer has an employee in their service with an employment agreement that is ongoing after the waiting period has expired, it would be advisable to terminate that agreement as soon as possible.

Finally, it is crucial that all data that must be submitted with the request is kept securely. This is especially important for requests relating to transition payments made prior to 1 April 2020.