Compensation to employers for dismissal costs (“transition compensation”) in the event of termination due to long-term illness

After two years of illness many employers choose to leave the employment contract intact, albeit dormant (after two years there is in principle no longer a prohibition of termination and the employer is no longer under an obligation to pay the salary), in order to avoid the statutory obligation to pay transition compensation. Dormant employment contracts are not without risk. The employer cannot continue its efforts to reintegrate the employee. In addition, employers must allow the employee to resume his/her work, and thereby pay salary if and when the employee (partially) recovers.

Since many employers are unhappy about having to pay transition compensation after two years of illness of the employee (during which salary payments have continued) and in order to avoid the growing tendency of employers to let the employment contract remain intact, albeit dormant, Minister Asscher has drafted a new Bill. The new Bill states that long-term ill employees are still entitled to transition compensation, but employers will be compensated for the costs of transition compensation in the event of termination of employment due to long-term illness. This compensation will be funded by the UWV from the General Unemployment Fund (in Dutch: Algemeen Werkloosheidsfonds or AWF). The AWF premium shall therefore further increase.

In the Bill no distinction is made as to the manner in which the employment contract is terminated. The amount of compensation is in principle equal to the amount of transition compensation.

Minister Asscher has indicated that the measure will take effect from 1 January 2019 but will have retro-active effect as of 1 July 2015. The Bill has been submitted to the Council of State for advice and the Council of State has asked critical questions. The Council of State queries why the Bill does not simply abolish the entitlement to transition compensation in the event of termination due to long-term illness altogether, instead of compensating the costs for transition compensation. The advice of the Council of State is not binding. In view of this, it is not certain if the Minister will amend the Bill before it is introduced in the Lower House of the Dutch Parliament. Having said this, since the general election on 15 March 2017 the Cabinet has resigned (in anticipation of the formation of a new Cabinet) and it is therefore questionable whether the Bill will be dealt with in the Lower House (in its current form).