Netherlands: Compensation for Irregular Termination Exceeds Maximum Severance Pay WNT
The purpose of the Nomination of Top Income Act (hereafter: WNT) is to prevent excessive remuneration and severance payments at institutions in the (semi) public sector. Based on the WNT, a maximum compensation of EUR 75,000 can, in principle, be paid in the event of termination.
This summer, however, the Court of Appeal of ‘s-Hertogenbosch has ruled that an employee to whom the WNT applies is entitled to a higher severance payment because of the fixed compensation for irregular termination. Read below to find out how the court came to its decision.
What was involved here?
Since 1 January 2016, the employee concerned has worked as a statutory director of a foundation that aims to help clients improve or maintain their own lives as much as possible. In mid-2021, the foundation’s finances began to deteriorate, and criticism of the director’s performance started to appear. On 12 April 2022, the director received a letter informing him that his employment would be terminated effective 1 May 2022.
The director believes that he is entitled to fixed damages of €101,228.88 because the agreed six-month notice period was not observed. The employer, on the other hand, argues that he is only entitled to a maximum amount of €75,000 under the WNT, as this compensation is related to the termination of the employment agreement.
Decision of the Court of Appeal
The Court of Appeal is of the opinion that the director is in fact entitled to a fixed compensation in the amount of EUR 101,228.88. Although the WNT provides for a maximum severance payment of EUR 75,000, there are exceptions for payments based on a general provision of a collective bargaining agreement or a statutory provision. The fixed compensation in the event of an irregular termination is based on a statutory provision and is therefore an exception to the fixed maximum of EUR 75,000. It is important to note that in this case, the court considered that there was no trick to avoid the WNT, as there was a clear case of conflict between the employer and the employee.
Key Action Points for Human Resources and In-house Counsel
If the WNT applies, a long notice period could result in compensation exceeding the statutory maximum under the WNT. Bear this in mind when the WNT applies to the dismissal of an employee, but also in relation to the agreement for a longer notice period.
- The Court of Appeal of ‘s-Hertogenbosch ruled that an employee covered by the WNT is entitled to a higher severance payment due to fixed compensation for irregular termination.
- The WNT sets a maximum compensation of EUR 75,000 for termination, but the fixed compensation for irregular termination is an exception to this limit.
- The case involved a statutory director of a foundation whose employment was terminated. He/she claimed fixed damages of €101,228.88 due to the failure to observe the agreed notice period.
- Employers should be aware that a long notice period can result in compensation exceeding the WNT’s statutory maximum.