Changes to Transition Payments in 2020
When it comes to protecting the rights of employees, the Netherlands has some of the strictest laws, compared to other parts of Europe and the rest of the world. There are many rules and regulations in the Netherlands that are aimed at guaranteeing workers’ rights to safe working conditions, decent wages and fair financial compensation upon dismissal. With the implementation of the Labor Market in Balance Act (Wet arbeidsmarkt in balans inDutch, or WAB) at the beginning of 2020, people working under an employment contract that is governed by Dutch labor laws are even more protected. Workers in the Netherlands have the right to fair dismissal procedures and, when their employment contracts is terminated or not extended on the employer’s initiative, they are entitled to transition compensation. If your employer in the Netherlands has terminated your employment contract (fired you) for any reason other than your own culpable behavior, it is in your best interest to consult an experienced Dutch employment law attorney. Our skilled lawyers can review your case and ensure that you understand how the new Dutch employment law affects your right to transition pay.
- Understanding Transition Payments
- A Brief History of Transition Pay
- The 2020 Labor Market in Balance Act
- Who is Entitled to Transition Pay Now?
- How is the Transition Fee Amount Calculated Now?
- Introduction of a New Ground for Dismissal
- Transition Payment Arrangements
- Transitional Compensation Fee Scheme
- Our Knowledgeable Employment Law Attorneys Can Help
Understanding Transition Payments
Transition pay, also known as transition compensation, is a one-off payment that qualifies as compensation upon dismissal from employment in the Netherlands. As the name suggests, the payment is meant to aid dismissed employees during the transition period between jobs. Any employee whose employment contract is regulated by Dutch labor laws may be eligible for transition pay if they are fired or if their fixed-term contract expires and is not renewed on the employer’s initiative. Dutch employees may also be entitled to transition pay if they resign due to seriously culpable actions (or omissions) on the part of the employer. In the Netherlands, the amount of the transition payment an employee is entitled to receive upon dismissal is based on two main factors:
- The duration of service or the length of the employment contract, and
- The employee’s gross monthly wages, including holiday allowance and bonuses.
A Brief History of Transition Pay
Transition payment law first came into effect on July 1, 2015 with the implementation of the Dutch Work and Security Act. This law required Dutch employers to pay a transition allowance to employees who were dismissed from employment, so long as they had been in service for at least two years, even under temporary contracts. Under the Dutch Work and Security Act, the transition payment was calculated based on the number of half-years of service an employee had at the company. In other words, an employee who was dismissed from employment after two or more years was entitled to one-sixth of his or her gross monthly wages for every six months of service. However, this calculation only applied to the first 10 years of service. For every six months of service beyond 10 years, dismissed employees were entitled to one-quarter of their monthly salary. Employees 50 years of age and older were entitled to half of their monthly salary after 10 years of service.
The 2020 Labor Market in Balance Act
Within just a few years of the Dutch Work and Security Act entering into force in the Netherlands, it attracted a great deal of criticism, due in part to provisions that failed to adequately protect employees. For instance, some employers were in the habit of offering temporary employees contracts for 23 months so they could avoid paying transition compensation when the contract ended. Upon acknowledging this and other shortcomings, legislators began revising the law to bring better balance to the Dutch labor market, and in May 2019, the Labor Market in Balance Act was approved by the Dutch Senate. The Act, which took effect from January 1, 2020, introduced significant changes in terms of dismissal law, temporary employment contracts, transition pay, and other areas of Dutch employment law.
Who is Entitled to Transition Pay Now?
The thresholds and conditions for determining eligibility for transition pay in the Netherlands were modified a great deal by the WAB. As of January 1, 2020, Dutch employees are no longer required to have been in employment for at least two years to qualify for transition compensation. They are entitled to transition pay from their first day of work. There are some situations in which employees are not entitled to transition pay, however. This includes the following circumstances:
- The termination came after the employee reached retirement age
- The employer is bankrupt, has a moratorium, or a debt restructuring arrangement
- The termination is a result of serious culpable acts or omissions on the part of the employee
- The employee is under 18 years of age and worked for a maximum of 12 hours per week on average
- Both the employee and the employer agree on a new contract before the current contract has expired
- The employer offers to renew an employee’s temporary contract while it is still valid, regardless of whether the employee accepts or not
- The collective labor agreement has provisions that allow deviation from the transition payment rule when an employee is dismissed for economic reasons
How is the Transition Fee Amount Calculated Now?
While the duration of the employment contract and the employee’s monthly wages are still the two main factors that determine the amount of transition compensation a dismissed employee is owed, the WAB has changed the way transition pay is calculated. Today, Dutch employees whose employment contracts are terminated or not renewed on the initiative of the employer are eligible to receive one-third of their gross monthly salary for every year they worked. In the event that an employee has been in service for a term less than one year, the transition payment will be pro-rated. The WAB effectively eliminates the variation in payment for the first 10 years of service and the years after 10, as well as the higher transition payment for employees aged 50 and over.
Introduction of a New Ground for Dismissal
As you know, transition compensation is paid out to Dutch employees who are dismissed from their jobs for reasons other than their own culpable behavior. Before the Transition Payment in Case of Dismissal After Illness Labor Market in Balance Act came into force, the Netherlands had eight reasonable grounds for dismissal that an employer could use to justify a termination from employment. These included:
- Economic reasons
- Long-term illness or disability
- Regular sickness/disability absence
- Culpable acts on the part of the employee
- Failure to work due to conscientious objections
- Disturbed employment relationship
- Other grounds that are such that an employer cannot be reasonably expected to allow the working relationship to continue
In addition to these grounds, the WAB has introduced a new cumulative ground for dismissal. This allows an employer to dismiss an employee based on two or more grounds (between c and h, only), which may not be sufficient on their own to justify a dismissal. This new dismissal ground may make it easier for Dutch employers to terminate employment contracts. However, employees who are dismissed from their job on the basis of the cumulative ground may be awarded an additional severance payment of up to 50% of the applicable transition payment on top of the statutory transition payment.
Transition Payment Arrangements
Under the Labor Market in Balance Act, employers who are not in a financial position to pay transition compensation right away to dismissed employees are permitted to make partial payments for a period not exceeding six months. However, Dutch employment laws require employers who opt for this payment arrangement to pay interest on top of any transition pay that the employee has not received starting one month after dismissal.
Transitional Compensation Fee Scheme
The Labor Market in Balance Act has also introduced a new plan to compensate employers for transition compensation paid to employees who are dismissed from employment due to long-term illness or disability. As of April 1, 2020, employers in the Netherlands can pursue compensation from the UWV (Employee Insurance Agency) for transition compensation paid to employees who are dismissed after two or more years of illness or disability. Furthermore, the so-called Transitional Compensation Fee Scheme can be retroactively applied from July 1, 2015, when the transition payment law was first introduced in the Netherlands. Employers who paid transition compensation to employees for a dismissal due to long-term illness that took place between July 1, 2015 and March 31, 2020 have until October 1, 2020 to submit a request for reimbursement.
Our Knowledgeable Employment Law Attorneys Can Help
If you have been dismissed from work for reasons that are out of your control, or if your fixed-term employment contract was not renewed on your employer’s initiative, you may be entitled to transition pay in accordance with Dutch employment law. Our reputable attorneys understand the intricacies of labor and employment laws in the Netherlands and we can assist you in calculating how much transition pay you are owed by your employer. Our legal team is committed to protecting the rights of Dutch employees and we are ready to offer any employment law advice or assistance you need. Call us today so we can review your case.