Claiming Compensation for Long-Term Incapacitated Employees

The Labor Market in Balance Act (Wet arbeidsmarkt in balans, WAB) and other new laws that entered into force this year have triggered significant changes that affect the relationship between employers and employees in the Netherlands in a big way. For instance, the Transitional Compensation Fee Scheme, effective as of April 1, 2020, strengthens the position of employers by giving them the right to request compensation for transition payments paid after terminating the employment contracts of long-term incapacitated employees. This a big deal for employers, many of whom find it burdensome to pay wages for two years and then also pay transition compensation upon ending the contract. However, this compensation scheme is beneficial to employees as well, as it encourages Dutch employers to end dormant employment contracts and pay the requisite transition payments. Timing is crucial when it comes to claiming compensation for long-term incapacitated employees, so don’t want to speak to our lawyers.

Salary Requirements During Sick Leave

Employers in the Netherlands are not allowed the terminate the employment contracts of sick employees. Rather, they are obliged to continue making salary payments to employees during the first two years (104 weeks) of illness. During the sick-leave period, employees are entitled to a minimum of 70% of their most recent wage level for up to two years. However, after two years have passed, if it is evident that the employee will not recover within 26 weeks and there is no alternative position available for the employee, the employer has the option of ending the employment contract with authorization from the Employee Insurance Agency (Uitvoeringsinstituut Werknemersverzekeringen in Dutch, or UWV), the independent agency that oversees matters relating to employment and unemployment in the Netherlands.

Obligations During Sick Leave

Dutch employers have certain obligations they must fulfill during the sick-leave period. For instance, employers are required to take every reasonable measure to help ill employees return to work in as little time as possible. This may include assisting the ill employee with his or her health and recovery and developing a reintegration plan to eventually bring the employee back to work, even if that means finding suitable work for the employee within the company or elsewhere. Employees who are on sick leave in the Netherlands also have certain duties and responsibilities they must abide by during the sick-leave period. For instance, employees are obligated to cooperate with the employer’s reintegration efforts in order to return to work as quickly as possible. If they fail to do so, they could lose their right to wages.

Long-Term Illness and Dormant Employment Relationships

Under the old Dutch law, which was known as the Dutch Work and Security Act, employees in the Netherlands were only entitled to transition pay after having their employment contract terminated if they were employed for two or more years. Therefore, many Dutch employers who were required to continue salary payments during the first two years of sick leave avoided terminating employment contracts with long-term ill employees, in order to avoid triggering the transition payment requirement. After all, after two years, there was no longer an obligation on the part of the employer to pay the employee’s salary. At that point, the employee was eligible for incapacity, or disability, benefits and the employment relationship was considered dormant (slapend in Dutch).

Today, under the Labor Market in Balance Act, Dutch employees are eligible for transition pay from their very first working day, and the transition payment is equal to one-third of their gross monthly salary for each year they were employed, plus a pro-rated amount for each additional day, week or month short of a full year. The cap on transition pay in the Netherlands is currently set at €83,000, or the employee’s gross annual salary, whichever is higher.

Obtaining a Dismissal Permit from the UWV

Only after the two-year period of sickness has passed, can the employer begin the process of terminating the long-term ill employee’s employment contract. In this case, if the employer requests a dismissal permit from the UWV and the agency approves the permit, the employer can terminate the contract. However, if the UWV finds that the employer has failed to comply with his or her reintegration obligations, the agency may extend the employer’s obligation to pay the employee’s salary for another year.

Introduction of the Transitional Compensation Fee Scheme

The practice of keeping employment relationships dormant to avoid paying transition compensation was considered undesirable by the Dutch government, as it meant that long-term disabled employees remained employed without being paid a salary. To remedy this issue, the Dutch government accepted a new compensation scheme known as the Transitional Compensation Fee Scheme, which entered into force on April 1, 2020, and applies with retroactive effect from July 1, 2015. The purpose of this scheme is to allow employers to submit a request to be compensated for transition payments paid upon dismissal of long-term incapacitated employees. A right to compensation under the Transitional Compensation Fee Scheme exists not only for termination on the grounds of long-term illness with approval from the UWV, but also in case of termination by mutual consent (settlement agreement).

Conditions for Compensation

There are certain conditions that apply to a Dutch employer’s ability to receive reimbursement of the transition fee. Under the Transitional Compensation Fee Scheme, the following criteria must be met:

• The employment contract was terminated as a result of long-term illness (after two years of illness),
• The employee was entitled to transition pay upon dismissal pursuant to Dutch law, and
• The employer paid the employee transition pay.

In order to receive compensation from the UWV, the employer must submit the following documentation:

• A dismissal permit from the UWV, a court decision or a settlement agreement indicating that the employment contract has ended on the basis of long-term illness,
• Information to calculate the transition pay amount, including copies of salary slips showing the employee’s gross monthly salary, etc., and
• Proof that the transition payment was actually paid by the employer (i.e. a bank statement, etc).

Deadline for Pursuing Compensation from the UWV

The transition pay scheme (transitievergoeding) in the Netherlands was first introduced on July 1, 2015, under the Dutch Work and Security Act. As such, under the Transitional Compensation Fee Scheme, employers are permitted to request compensation for transition payments made upon dismissal of long-term incapacitated employees dating back to July 1, 2015. However, there is a deadline for recovering compensation for transition payments made before April 1, 2020, and it is sooner than you might think. The Transitional Compensation Fee Scheme states that compensation for such payments must be claimed before October 1, 2020. For transition payments paid to employees who are unfit for work due to long-term illness or disability after April 1, 2020, employers must submit their request within six months of the payment being made. Or, in the case of partial payments, compensation must be claimed within six months of the final installment. In principle, the requests should be handled by the UWV within a period of eight weeks.

Maximum Compensation Employers Can Receive

Dutch employees who are terminated on the basis of long-term illness or disability are entitled to transition pay for their total duration of employment. However, employers in the Netherlands are only entitled to recover compensation for the amount of transition pay as calculated after the two-year period of illness or disability. If the transition payment an employer pays is higher because the employment contract drags on and is terminated after, say, three years, the excess transition pay paid out by the employer will not be compensated by the UWV. This is true even if the employer is ordered to pay the employee’s salary during that third year of disability due to his or her failure to comply with the requisite reintegration obligations.

Are Employers Obliged to End Dormant Employment Relationships?

The result of this new Transitional Compensation Fee Scheme is that employers in the Netherlands no longer have any legitimate reason to delay terminating dormant employment contracts with employees who have a long-term illness. As a result, many Dutch employers have terminated employment contracts with long-term incapacitated employees, paid the transition payment and applied for compensation from the UWV. Others are wondering if the new law means they have to. Dutch employers are obliged in principle to end a dormant employment relationship and pay the employee the requisite transition payment, unless there is a re-assignment option available for the employee within the company or the employer has some other legitimate reason to continue the employment relationship.

A Knowledgeable Employment Law Attorney Can Help

Labor laws in the Netherlands are constantly changing and it can be difficult to remain abreast of what exactly the law requires of Dutch employers and employees with regard to employment contracts, termination of employment contracts, transition pay and other related matters. For more information about how to properly handle long-term incapacitated employees in the Netherlands or how to ensure that the full amount of transition pay is compensated by the UWV, contact our knowledgeable Dutch labor and employment law attorneys as soon as possible. There is a deadline on pursuing reimbursement for transition pay, so don’t hesitate to call.