The Netherlands: Summary of Compensation Schemes and Transition Payments after 2 years of Sick Leave

Summary of Compensation Schemes and Transition Payments after 2 years of Sick Leave under Dutch law –

Compensation for transition payment after 2 years of sick leave

From April 1, 2020 onwards, employers can apply for compensation, if they make an employee redundant who has been on sick leave for more than 2 years.

Compensation scheme prevents additional costs for employer

An employer has to carry on paying the wages of an employee who is on sick leave. If the employee has been ill for more than 2 years, then the employer can apply to the UWV (the Dutch Employee Insurance Agency) to have the employee made redundant. The sick employee is then entitled to a transition payment. The employer can apply to the Regeling compensatie transitievergoeding (the Scheme to compensate for transition payments) in order to reclaim the transition payment he has paid out. In this way, the Dutch central government prevents employers from being faced with an accumulation of costs after having continued to pay the wages of ill employees for 2 years. In addition, the scheme ensures that employees do not have to endure an excessive period of uncertainty. The cost of a transition payment often means that employers do not end the employment relationship after 2 years of sick leave, choosing instead to keep the employment relationship dormant.

Conditions for being compensated for transition payment

From April 1, 2020 employers can submit an application to the UWV to receive compensation in the event that an employee is made redundant after long-term illness. The compensation scheme for employers applies for transition payments paid on or after July 1, 2015. The following conditions must be met for employers to qualify for compensation:

• the ill employee has been made redundant due to long-term illness;
• this employee was entitled to a transition payment under the law;
• the employer paid this employee the transition payment.

Courts have issued contradictory judgments about transition payments paid in dormant employment relationships

At the present time, it is unclear to what extent the compensation scheme means that employers are obliged to end the employment relationship after 2 years of sick leave. Lower courts have issued contradictory judgments on this issue. The likelihood is that in the near future, the Dutch Supreme Court will be asked to issue a preliminary ruling on this matter.