The New Transition Allowance in the Netherlands

The New Transition Allowance in the Netherlands

For many people, job loss is a devastating, life-altering event, one that can have a significant impact on the employee’s emotional and financial well-being, as well as that of his or her loved ones. Fortunately, there is a system in place in the Netherlands that distributes compensation to employees who have become involuntarily unemployed, to provide financial support during the period of transition between jobs. Known as transition pay, or transitievergoeding in Dutch, this allowance is available to most permanent employees in the Netherlands whose employment contracts have been terminated and temporary employees whose fixed-term contracts have not been renewed on the initiative of the employer. If you have been dismissed from your job in the Netherlands for reasons other than your own culpable behavior, it is likely that you are entitled to some amount of compensation through the Dutch transition pay scheme. To learn how much transition pay you are eligible to and to ensure that you receive it in a timely manner, contact our Dutch labor and employment law attorneys today.

What is Transition Pay?

Transition pay is a type of compensation available to employees in the Netherlands who have lost their jobs, either because their company downsized and made them redundant, because their fixed-term employment contract ended and was not renewed on the initiative of the employer, or for some other reason that is not their fault. Fortunately for Dutch employees, the Netherlands has some of the most attractive employment laws in the world, including those that regulate transition payments. First introduced as part of the Dutch Work and Security Act, which entered into force in July 2015, Netherlands’ transition pay scheme underwent significant changes this year with the introduction of the Labor Market in Balance Act (Wet arbeidsmarkt in balans, WAB).

Who is Entitled to Transition Pay?

Labor laws in the Netherlands have established strict regulations pertaining to the termination of employment contracts, and under these laws, Dutch employers are not permitted to dismiss their employees without proper cause. Moreover, any time an employer terminates a permanent employee’s contract for a reason that is not related to the employee’s conduct, or fails to extend a temporary employee’s contract on his or her own initiative, a transition allowance must be paid. When the transition pay scheme was first introduced under the Dutch Work and Security Act, only employees who had been in service at their place of work for two years or more were eligible for compensation. An unintended consequence of this law was that employers in the Netherlands began offering their employees 23-month, fixed-term contracts so they could avoid paying transition compensation at the contract’s end. The new transition pay provisions set forth in the Labor Market in Balance Act seek to change that. As of January 1, 2020, Dutch employees are now entitled to transition pay from their first day of employment.

Dismissal on the Basis of Long-Term Illness or Disability

Another transition payment-related issue that existed under the Dutch Work and Security Act had to do with employees who were unable to work due to a long-term illness or disability. Dutch labor laws generally prohibit employees from dismissing employees who are on sick leave. However, after two years of prolonged illness, Dutch employers can submit a request for dismissal based on the ill employee’s continuing incapacity for work. If the request is granted and the employee’s contract is terminated, the employee is entitled to collect a transition payment.

Unfortunately, this led some employers to draw out the employment contracts of employees who were disabled for more than two years as a result of illness (dormant employment contracts), in an effort to circumvent the transition compensation requirement. To address this issue, Dutch lawmakers introduced the Transitional Compensation Fee Scheme, which entered into force on April 1, 2020 and applies retroactively to July 1, 2015, when the Dutch transition pay system was first established. Under this plan, employers can apply to the Dutch Employee Insurance Agency (Uitvoeringsinstituut Werknemersverzekeringen, or UWV) for reimbursement of transition payments made to long-term ill employees after two years.

The amount of reimbursement Dutch employers can collect under the Transitional Compensation Fee Scheme is limited to the amount of transition pay the employee was eligible to receive after two years of illness. This provision is meant to encourage employees to end dormant employment contracts with permission from the UWV or by settlement agreement and pay the requisite transition payment, when the employer does not have a legitimate interest to continue the contract, such as a reasonable likelihood of rehabilitation.

When it Transition Pay Not an Option?

Although transition pay is available in most cases of involuntary employment in the Netherlands, there are some situations in which you, as an employee, may not be eligible for such an allowance, for instance:

• If you resign from your job on your own initiative,
• If your employer offered to renew your temporary contract and you rejected the offer,
• If your contract is ending because or after you reached pension age,
• If you are younger than 18 and worked for a maximum of 12 hours per week on average,
• If the employer is bankrupt,
• If your contract is ending by mutual agreement, or
• If your contract has been terminated as a result of seriously culpable conduct or negligence.

How is Transition Pay Calculated?

Among other things, the Labor Market in Balance Act made the method of calculating transition payments for Dutch employees far less complicated. Prior to this law, there were a number of things that factored into transition pay, including the employee’s age, monthly salary and total duration of service. Under the new law, calculating transition pay is much simpler. The payment is based on one-third of the employee’s gross monthly salary for each year of employment, plus a pro-rated amount for any additional days or months, across the board. There is no longer any change in the amount of transition pay an employee receives for the first 10 years of employment compared to the years after 10, nor is there an increase in compensation for employees older than 50 who have served a minimum of 10 years. The current cap on transition pay in the Netherlands is €83,000, unless the employee’s annual salary is greater than €83,000, in which case the payment will equal one year’s gross salary.

Fixed-Term vs. Indefinite-Term Contracts

One of the main principles of the new employment legislation in the Netherlands involves bringing the labor market into balance, which it seeks to do by reducing the differences in risks and costs associated with permanent employment contracts and flexible contracts. Dutch labor and employment laws seek to keep employees employed and therefore make it difficult for employers to terminate permanent employment contracts unless they have a valid reason (ground) for dismissal, such as bad economic circumstances (a-ground), long-term illness (b-ground), poor work performance (d-ground) or culpable behavior by the employee (e-ground). And even then, in order for the dismissal to be legal, employers generally either need the employee’s consent or permission from the UWV or the court to proceed with terminating the contract.

Compared to indefinite-term contracts, fixed-term contracts have a set end date and will end on the agreed upon date unless the contract is extended or renewed by the employer. Whether the employer plans to renew the contract or not, he or she must give the employee notice at least one month in advance of the contract’s set end date.

Pursuing Fair Transition Compensation

The right to transition pay upon dismissal is guaranteed by law in the Netherlands. For employees whose employment ends unexpectedly, transition pay can be used for education or training, or to make the transition to their next job easier. Unfortunately, some employers try to avoid paying dismissed employees the transition compensation they deserve, in which case it is in the employee’s best interest to seek legal advice from an employment law attorney. If you have been laid off from your job in the Netherlands, or if your employer has threatened to terminate your employment contract, we recommend consulting a knowledgeable employment law attorney right away to discuss your legal options.

Contact Our Employment Law Attorneys for Legal Help

There has been a growing trend of temporary, contract employment in the Netherlands in recent years and a corresponding decline in permanent employment contracts, which employers tend to view as riskier and more costly than temporary contracts. Unfortunately, temporary or flexible jobs tend to be the first ones cut when a company encounters a crisis, such as the ongoing coronavirus pandemic. Employees in the Netherlands have been entitled to transition pay since 2015, and the reforms to the transition pay scheme implemented under the 2020 Labor Market in Balance Act have only served to better protect employees, both permanent and temporary. If you have lost your job in the Netherlands and you think you may be entitled to transition pay, do not hesitate to contact our firm. Our lawyers specialize in all matters relating to Dutch employment law, dismissals and transition payments, and we can help you collect the transition compensation you deserve following a layoff or job loss in the Netherlands.