Netherlands: Supreme Court rules on Compensation for Statutory Transition Payment of Long-Term Sick Employees
The Netherlands have a strong protection of ill employees: employers are obliged to continue paying wages during a maximum of two years of illness. After that, the employer has the possibility to request for termination of employment(under certain requirements). In case of termination of employment, the employer is required to pay the statutory transition payment.
In practice, employers chose to keep the employment in place after those two years (instead of terminating the employment), to avoid paying the transition payment. After two years of illness, the employers is no longer required to pay the salary anyway. This phenomenon became known as ‘dormant employment’ (i.e. long-term disabled employees, who do not work and do not receive salary). This caused quite the public uproar; sick employees requested termination of employment after two years of illness with payment of the transition payment but employers refused.
As a solution, a compensation scheme (from the government) was introduced for employers in 2018: employers can request for reimbursement of the transition payment in case it is paid further to termination of the employment after two years of illness.
In 2019, the Supreme Court ruled that further to this compensation scheme, employers were now required to accept a request from the employee to terminate a dormant employment, with compensation equal to the transition payment. As the employers were able to claim compensation they were held to accept such requests on the basis of good employment practice.
There was however another complexity: because the right to statutory transition payment was only introduced on July 1, 2015, there was discussion whether compensation could only be claimed for employees that had obtained a dormant employment after July 1, 2015. The question was then for a long time whether employers were also required to accept termination requests with payment equal to the transition fee of employees that had obtained a dormant employment before July 1, 2015.
The discussion is now settled. On November 11, 2022, the Supreme Court ruled that an employer whose employee obtained a dormant employment before July 1, 2015 is also obliged to agree to a termination request from the employee including compensation equal to the transition payment (provided that this request is done after July 2018).
Summarised: employers in the Netherlands no longer have a valid reason to keep dormant employment relationships in place. Employers can request for compensation of the transition payment for employees that obtained a dormant employment, even beforeJuly 1, 2015. Further to that, employers are obliged to accept termination requests of long-term disabled employees that include compensation equal to the statutory transition payment.
An action point is therefore to identify whether there are dormant employment contracts in your company and to terminate these employment contracts with payment of the transition payment, which can be reclaimed from the government.
Source: Supreme Court 11 November 2022, ECLI:NL:HR:2022:1575 & Supreme Court 11 November 2022, ECLI:NL:HR:2022:1576
