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New employment law: Severance pay

Publication date: 25 June 2015
As from 1 July 2015, a new type of severance pay will be introduced: the so-called ‘transition compensation’. The transition compensation will replace the current severance pay based upon the subdistrict court formula.

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Transition compensation

Due on dismissal by employer

In the event the employment contract is terminated on the employer’s initiative (termination, setting aside of the contract by the subdistrict court), the employer, in contrast to the current situation, must pay the transition compensation to the employee unless one of the exceptions mentioned under ‘No or lower compensation’ will apply. This applies to fixed-term employment contracts and also to employment contracts for an indefinite period. If the employee terminates the employment contract as a consequence of imputable acts or omissions of the employer, the employer must also pay a transition compensation.

Calculation of transition compensation

The amount of the transition compensation depends on the length of employment (1/3 of the monthly salary per year of service over the first ten years of service and one-half a month’s salary over the subsequent years). The transition compensation is subject to a maximum of EUR 75,000 or one year’s salary if that is higher. By or pursuant to order in council it can be determined that the costs incurred for finding another job (for instance, training costs or outplacement) can be deducted from the transition compensation.

No or lower transition compensation

The employer does not have to pay a transition compensation if the employment contract expires before the age of 18 years or when the pensionable age has been reached. No transition compensation at all or a lower transition compensation is due in the event the employment contract comes to an end as a consequence of imputable acts or omissions of the employee. In addition, the transition compensation is not due if the employer has been declared bankrupt, has been granted moratorium or has been allowed to participate in a debt management scheme for natural persons.

Exception for older employees

Up until 1 January 2020, there will be transitional arrangements for older employees entitling them to higher transition compensation. Employees 50 years or older with an employment contract of 10 years or longer with the same (or successive) employer, are entitled to one month’s salary per year of service over the period following their 50th birthday (the maximum of EUR 75,000 will remain effective though). These transitional arrangements do not apply to employers with less than 25 employees.

Transitional arrangement for SME-employers

Up until 1 January 2020, there will be a transitional arrangement for employers with less than 25 employees. Upon termination of the employment contract due to a bad financial situation of the employer, the years of service before 1 May 2013 will not be considered for the calculation of the length of the employment contract. If the employment contract is terminated for other reasons, the transitional arrangement will not apply and the years of service before 1 May 2013 will be considered for the calculation of the length of the employment agreement.

Deviations by way of collective bargaining agreement (CAO)

Deviations from the transition compensation are possible by way of collective bargaining agreements on the condition that said CAO includes a regulation on grounds of which employees can make use of a provision to prevent unemployment or to shorten the period of unemployment. Such a provision can be in money or in kind (or a combination of both) and must be equivalent to the transition compensation.

Fair compensation

Imputable acts or omissions

If the dismissal is due to imputable acts or omissions of the employer, the court can award the employee a fair compensation in addition to the transition compensation. The subdistrict court is free to determine the amount of fair compensation that has to be paid.

More information

Would you like to know more about the new employment laws? Or do you have any other questions regarding the right way to hire and dismiss personnel? Please contact:

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