Compensation transition fee after two years of illness

THE NETHERLANDS - Compensation transition fee after two years of illness

June 2019

In the Netherlands, during the first two years of illness the employer is not allowed to terminate the employment contract of a sick employee and is obliged to continue salary payments. After these two years, the employer is in principle allowed to end the employment contract with the permission of the Employee Insurance Agency (UWV).

According to Dutch law, an employee who is employed for more than two years is entitled to a transition fee in case the employment contract is terminated. Therefore, many employers do not terminate the employment contract with an employee who has been ill for two years, in order to avoid payment of the transition fee. After all, there is no obligation to pay salary anymore as the employee is entitled to incapacity benefits. The employment relationship is then dormant (‘slapend’).

The government considers this situation undesirable and has accepted a new compensation scheme (‘Regeling compensatie transitievergoeding bij een einde van de arbeidsovereenkomst na langdurige arbeidsongeschiktheid’ or Law on compensation transition fee when ending an employment contract after long-term illness). This compensation scheme shall enter into force on 1 April 2020 and will be implemented with retroactive effect from 1 July 2015.

Based on this scheme, the employer may file a request for compensation of the transition fee. The conditions for obtaining the compensation are, among others, that the transition fee has been paid in connection to the termination of the employment contract because of long-term illness.

As a result of this compensation scheme, the reason for the employer to continue the (dormant) employment contract with the sick employee has been nullified. In the coming months, it is expected that many employers will terminate employment contracts with the employees in question, however the employer is not (yet) obliged to do so, even when desired by the employee.

The High Council has recently been asked to decide whether an employer is obliged to end the employment contract with these employees and pay them the transition fee. The court has not made a final decision on this topic yet.

Corina Roks

Didi Beuvery-Rinkel