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Providing compensation for employers

Updated: Aug 9, 2023

From April 1, 2020, an employer can apply for compensation from the Dutch UWV (Institute for Employee Insurance) if the employer has to make a transition payment.


When does an employer have to make a transition payment?


In the Netherlands, an employee is owed a transition payment if the employee has worked for the employer for at least two years and: 1) the termination of the employment contract was initiated by the employer or 2) the employer has decided not to extend the duration of the employment contract.


Having said that, there are three exceptions. An employee is not owed a transition payment if:

  1. The employee has been fired due to seriously culpable conduct;

  2. At the time of termination of the employment contract, the employee has not yet reached the age of 18 and has worked for a maximum of 12 hours per week;

  3. The termination of the employment contract stems from the employee reaching the age for retirement.

If an employee suffers from a long-term disability, the employer can fire the employee after two years with the permission of the Dutch UWV. Because the employee has worked for two years, the employer has to make a transition payment. A lot of employers cannot afford the payment, because they already had to pay the employee for the last two years.


Dormant employment


Consequently, many employers decide not to terminate the employment contract. This way, the employer does not have to make the transition payment. Even though the courts allow for this practice, it is an undesirable situation for all parties involved.


To end this so-called dormant employment, the Dutch government has created a bill called the "Wetsvoorstel compensatie transitievergoeding bij ontslag langdurig zieke". In this bill, measures are being taken to compensate the employer who has to make a transition payment. The compensation for the employers is provided from the Dutch Algemeen Werkloosheidfonds (Unemployment Fund).


On July 10, 2018, the Dutch First Chamber voted in favor of the bill. The Dutch Second Chamber already voted in favor of the bill on July 5, 2018. The bill is expected to enter into force on April 1, 2020. Employers are retroactively being compensated for making a transition payment starting from July 1, 2015.


Procedure


An employer can apply for compensation after the transition payment has been made. After payment, the employer has six months to apply for compensation from the Dutch UWV. If an employer makes the transition payment in parts, the six months term starts the moment the employer has made the very last payment.


The Dutch UWV has eight weeks to make a decision. Employers who have made a transition payment between July 1, 2015, and April 1, 2020, have to apply for compensation before September 30, 2020. The Dutch UWV has six months to make a decision.


Termination of a dormant employment


A transition payment is only owed after termination of the employment contract. In case of long-term disability of the employee, an employment contract can be terminated by applying for a dismissal to the Dutch UWV. As soon as the dismissal is granted, the employment contract can be terminated. Of course the employer still has to take into account the agreed upon notice period. Depending on this period, it may be wise to apply for a dismissal in the fall of 2019. After that, the transition payment can be made. Then, the employer has six months to apply for compensation from the Dutch UWV. If the application was submitted after April 1, 2020, you can expect a timely response from the Dutch UWV.


Want to know more?


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