Minister Koolmees: an end to dormant employment contracts by 1 January 2020

op 2020-12-18

In a letter of 13 December 2019 to the House of Representatives, the minister writes that compensation based on the current transition payment arrangements is only paid to employers who have made a termination payment to an employee with a long-term illness whose employment contract is dormant if the termination agreement was concluded before 1 January 2020. Thus, the employer may suffer financial detriment if a termination agreement is concluded after 31 December 2019.

Dormant employment contract

Since the introduction of the wet werk en zekerheid (Dutch work and security act) on 1 July 2015, an employer who terminates an employment contract with an employee who is on long-term sick leave must pay the statutory transition payment to the employee. Because of this, rather than terminating their contracts, many employers kept employees suffering long-term illness ‘on the books’, despite payment of their salary having ceased after two years (‘dormant employment contract’).

Employer compensation for benefit paid by UWV

On 1 April 2020, an act came into force which provides for the employer to be compensated by the employee insurance agency UWV for a termination payment made to an employee with a long-term illness, up to the amount of the statutory transition payment. This is based on the transition payment payable if the employee’s contract had been terminated after exactly 104 weeks (since there are a number of other legal requirements, it is essential to obtain a proper analysis of the situation).

Retroactive effect

Compensation can also be sought with retroactive effect to 1 July 2015. Therefore, if an employer has terminated the contract of an employee who has a long-term illness and made a payment to that employee after 1 July 2015, that employer can apply for compensation from the UWV after 1 April 2020, in an amount not exceeding the transition payment. However, the application must be submitted before 1 October 2020. Compensation can also be sought if a settlement agreement has been concluded.

The Supreme Court: principle of a ‘reasonable and fair’ employer dictates that employer must accept employee’s proposal

In a judgment of 8 November 2019 the Dutch Supreme Court found that, when an employee who has been unable to work for more than 104 weeks makes an offer to the employer to terminate their employment contract subject to payment of the transition payment, it is unreasonable for the employer to refuse this, because the employer can obtain compensation for the allowance from the UWV. In the Supreme Court’s view, the employer has an obligation to accept the employee’s proposal, in line with the principle of being a ‘reasonable and fair’ employer (this is also the principle of reasonableness and fairness, as laid down in the employment contract).

In its judgment, the Supreme Court was clear that the imminence of an employee’s retirement date is immaterial. Even if the employee is about to retire, the employer must accept a reasonable proposal to terminate a dormant employment contract with payment of the transition payment.

Trimming back the transition payment from 1 January 2020

The Supreme Court’s judgment raised many questions, such as how the UWV will assess termination settlement agreements concluded prior to, or after 1 January 2020 – when the statutory formula for calculating the transition payment is being tightened up as a consequence of the Wet arbeidsmarkt in balans (Dutch balanced labour market act, WAB). This enters into force on 1 January 2020. Specifically, employees with an employment contract of more than 10 years’ duration and/or who are aged 50 or over can expect a lower transition payment if their contract ends after 1 January 2020 than if their dormant employment contract had ended prior to that.

Letter from Minister Koolmees dated 13 December 2019

This prompted Minister Koolmees, in a letter dated 13 December 2019 to call on employers to conclude a termination agreement before 1 January 2020, if they wanted to still get compensation for a termination payment for a dormant employment contract based on the more favourable statutory formula that applies up to and including 31 December 2019.

Rules on compensation for transition payment

Minister Koolmees’ letter also mentioned that the rules on compensation for transition payments are to be revised. The now-published rules stipulate that the transition payment paid in ‘old cases’ (i.e. based on completion of the 104-week waiting period after 1 July 2015) must be paid, in full, by 1 April 2020. Let’s hope it will soon become clear how this will work with the revised formula.