Watch our webinar! “Tricky sickness issues”

Transitional compensation after two years of illness no longer seems avoidable

Publication date: 9 April 2019
The compensation scheme for the transitional compensation for employees with long-term illness enters into force on 1 April 2020. The scheme does not include a sanction for employers who still wish to keep the employment contract dormant in the period following. Recent judgements indicate that in such cases judges will grant the employee a transitional compensation nevertheless.

slapend dienstverband zieke werknemer

Compensation for transitional compensation after two years of illness

Upon termination of the employment contract with an employee, transitional compensation must be paid, even if the employee has been unfit for work for a long period. Therefore, many employers keep the employment contract with an employee, who has been ill for a period of two years, dormant. After all, in that situation there is no obligation to pay wages anymore as the employee is entitled to incapacity benefits. As the government considers this situation undesirable, a compensation scheme has been established. Although this scheme will not enter into force until 1 April 2020, it is applicable to all transitional compensation that has been paid after the introduction of the Work and Security Act on 1 July 2015 in the event of dismissal of an employee who has been ill for more than two years.

The compensation does not apply to:

  • Expenses paid by the employer which the employer should have deducted from the transitional compensation
  • Payments in excess of the statutory transitional compensation
  • Transitional compensation for the period the employment contract was kept dormant

No sanction has been imposed for keeping the employment dormant after the scheme has entered into force. What can employees do to get transitional compensation nevertheless?

Is it allowed to keep the employment contract dormant?

The employee with a dormant employment contract who wants a transitional compensation has to request the court to terminate his employment contract with the award of transitional compensation. To this end, the employee will have to demonstrate that the employer is seriously culpable. However, up to now, keeping the employment contract dormant solely to avoid payment of the transitional compensation has not been considered sufficiently culpable to speak of ‘serious culpability’. The employee therefore received a termination of the employment contract but no transitional compensation.  Will the introduction of the compensation scheme change this?

No transitional compensation yet

In a judgement of 21 March 2019, the subdistrict court judge in Almelo that an employer’s refusal to pay transitional compensation to an employee who is unfit for work for a long term might possibly be seriously culpable once the compensation scheme has come into effect. After all, the employer is compensated for the payment of the transitional compensation to his employee.

This was of no help to the employee in this case as he will be retired before the compensation scheme will enter into force and the employer would therefore have to advance the transitional compensation. The employer indicated that this was not possible as the compensation would have to be paid to other employees as well, and the financial reserves were insufficient for this.

Transitional compensation

The judge in preliminary relief proceedings in The Hague gave a different judgement on 28 March. The employer did have to pay a transitional compensation here. An important difference with the case from Almelo is that the employer had not invoked its own limited financial resources, but had referred only in general terms to the additional costs which payment of the transitional compensation would entail in the form of an increase in the insurance contributions and to the uncertainty as to the implementation of the compensation scheme.

In addition, the terminally ill employee was dismissed as a director under the articles of association. In contrast to what is usual with the dismissal of a director under the articles of association, the employment relationship was maintained solely for the purpose of avoiding transitional compensation. The judge in preliminary relief proceedings considered this to be in violation of the legal standard of good employment practice.

Can the transitional compensation still be avoided?

Both judgments raise the expectation that after the compensation scheme comes into force, judges will be inclined, at the request of the employee, to terminate the employment contract and to grant a transitional compensation if the employment contract is kept dormant simply to avoid a transitional compensation. By making use of the standards of good employment practice and serious culpability, the employee will be entitled to a compensation even if the employer does not wish to pay it despite of the compensation scheme. After all, the scheme does not include an obligation for the employer to terminate the employment contract. However, it is still not clear whether this approach will be shared by the courts of appeal and the Supreme Court.

Update

The Supreme Court has decided that a dormant employment contract after two years of illness must be terminated on request of the employee and that in that event the transition compensation must be paid by the employer.

Our advice

  • Consider whether, with a view to the forthcoming compensation scheme, it might be wise to terminate the dormant employment contract of an employee who has been unfit for work for a long term. After all, you must pay the transitional compensation for the period that the employment contract is kept dormant yourself.
  • Employees have to ask for termination of the employment contract and request transition compensation.

More information

Would you like to learn more about the transitional compensation in the event of long-term illness? Or do you have any other questions about severance payment or illness of employees? Please contact us.

    Share on social media

    • Employment law and dismissal

    1 April 2020: Transition Payment Compensation Scheme for employers in the event of dormant employment

    1 April 2020

    From 1 April 2020, the Transition Payment Compensation Scheme will be in force. It applies to allowances paid on termination of a dormant employment contract. What do employers have to do to take advantage of this? Are they compensated for everything?

    read on
    • Employment law and dismissal

    Dormant employment contract must be terminated after two years of illness

    12 November 2019

    Employers are no longer allowed to keep the employment contract with employees dormant after two years of illness to avoid the payment of transition compensation. That’s what the Supreme Court decided recently. What does this mean for employers?

    read on
    • Employment law and dismissal

    Three important topics to include in your employment contract under Dutch, US and UK law

    15 July 2021

    In the last issue of Stare Decisis, Priscilla de Leede of Russell Advocaten, Mary Edenfield of Mateer Harbert and Ed Belam of Marriott Harrison discuss the most important topics to include in your employment contracts regarding the termination of the contract. There are some important differences to take into account!

    read on
    • Employment law and dismissal

    Dismissal of sick statutory director

    18 June 2021

    A sick employee may not be dismissed. However, an employee who knows of imminent dismissal, cannot avoid this by reporting sick. But when does the employee know that this is the case? This question was central to the court case concerning the dismissal of a CFO of Volksbank.

    read on
    • Expats
    • Employment law and dismissal

    17 June 2021: Employment Webinar “Tricky sickness issues”

    17 June 2021

    If your employee reports sick, this may raise many difficult questions. What are your reintegration obligations during the sick leave period? What are you allowed to record about your sick employee with regard to the privacy legislation? We answered these and other questions during a webinar. Watch the video!

    read on
    • Employment law and dismissal

    Be careful with the employer’s statement!

    14 June 2021

    Before obtaining a mortgage or rental contract, banks or landlords often ask for an employer’s statement. Such a statement can sometimes have unintended consequences for the employer. What do you need to be aware of?

    read on
    • Employment law and dismissal

    Statutory minimum wage as of 1 July 2021

    2 June 2021

    As of 1 July 2021, the statutory minimum wage and minimum youth wage will be increased. What are the new amounts of the minimum wage?

    read on
    • Works Council
    • Employment law and dismissal

    Works council

    4 May 2021

    Is there already a works council in your company? Are you a member of your company’s works council? What are the advantages of having a works council in your company? Jan Dop and Priscilla C.X. de Leede explain the role of the works council and give an overview of the works council’s most important rights.

    read on