Employees with a dormant employment contract are entitled to compensation if the employer does not want to end it with transition compensation. However, it had not been clear in all cases if employees had this right. In two rulings, the Supreme Court clarified who is and who is not entitled to the compensation.
The Supreme Court ruled that employees who requested termination of a dormant employment contract before 20 July 2018, are not entitled to compensation. Only employees who submitted such a request after the date do have the right. Even if, at the time the employment became dormant, there was no right to a transition compensation at all. What is the situation exactly?
If there is no prospect of recovery after two years of illness, the fully disabled employee no longer has to work and the employer no longer has to pay wages. If the employment contract is not terminated, a dormant employment contract is created.
Following the entry into force of the Work and Security Act (Wet werk en zekerheid) on 1 July 2015, employers must pay transition compensation upon termination of the employment contract at their initiative. Even if it concerns an employment contract with a sick employee, whose employer has continued to pay wages for two years. Only upon termination due to reaching the state pension age, no compensation has to be paid. Therefore, employers chose to keep the employment contract of employees who had been sick for more than two years dormant until the employee became entitled to state pension (AOW). This way, payment of transition compensation could be avoided.
As the government considered the situation undesirable, a compensation scheme was introduced. This scheme limits the compensation to the amount the employer would have to pay if the employer had terminated the employment immediately after two years of illness. However, transition compensation is determined based on the actual end date of the employment. If this is after the end date of the two-year waiting period in the event of illness, the transition compensation payable for the period thereafter will not be reimbursed. Therefore, quite a few employers did not want to terminate dormant employment contracts despite the existence of the compensation scheme.
Employees did not want to terminate the employment contract themselves, because in that case they were not entitled to transition compensation. So the compensation scheme did not solve the whole problem of dormant employment. The question was therefore how the employee could take the initiative to terminate a dormant employment contract and still be entitled to compensation.
The Supreme Court offered a solution to this. If the employee proposes to terminate the dormant employment contract and the employer refuses to pay transition compensation, knowing that they can get it compensated, the employer is not behaving as a good employer. In that case, the employee is entitled to damages. That compensation equals the amount the employer can be compensated, namely the transition compensation the employer would have to pay after the end of the two years of illness.
A clear ruling. However, there were still questions about who was and who was not entitled to compensation. Two of the questions have now been answered by the Supreme Court.
Are employees entitled to compensation if they requested termination of a dormant employment contract with transition compensation before the publication of the compensation scheme on 20 July 2018? After all, the compensation scheme applies to all dormant employment contracts after 1 July 2015.
The answer of the Supreme Court is no. The compensation is based on the violation of the standard of good employment practice. Employers did not violate the standard when they refused to pay compensation before they could not know they would be compensated. An employee who filed a request before 20 July 2018, did not repeat it at a later stage and has since retired, can thus not claim compensation.
As indicated, the right to transition compensation only arose with the entry into force of the Work and Security Act on 1 July 2015. Many jurists were therefore of the opinion that employees who had been ill for two years before that date could not receive compensation. After all, their right to transition compensation would have been € 0 after the waiting period ended. Therefore, the UWV does not need to compensate more than this.
The Supreme Court thwarts this reasoning. The compensation scheme aims at terminating dormant employment contracts. This also applies to employment contracts that had become dormant before 1 July 2015, but had not yet been terminated by that date. If the employee is not entitled to compensation in these cases, dormant employment contracts will remain in place. After all, the employee has no reason to terminate it, as the employee does not get compensation, whereas the employer has to pay transition compensation, which is not compensated. In short: Older dormant employment contracts should also be covered by the compensation scheme.
The usual rules apply for calculating compensation in these cases: transition compensation to which the employee would be entitled after two years of illness. The employer must therefore act as if there would have been an entitlement to transition compensation even before 1 July 2015. This then obviously applies to the UWV when it has to calculate compensation, but it is not a party to this ruling. We are therefore curious as to whether this will lead to proceedings over this compensation.
Is this the end of the discussion about dormant employment? No. Because there are still outstanding issues. For example, we previously asked the question whether there should not be a duty of information for employers. After all, they still have no reason to terminate dormant employment and can therefore quietly wait and see if employees come up with a request.
Do you as employer want to know whether you need to pay compensation to an employee upon termination of the employment, whether or not dormant? Our employment law specialists can answer your questions and give you advice. We will also be happy to help you with other employment law issues. Please contact us:
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