Compensation for transition payment

In this case, however, the employer will have to pay the transition payment to the employee because the employee has been employed by the employer for more than 2 years. For many employers, particularly for employers in the small and medium-sized enterprise segment, this situation is scarcely feasible or complete infeasible financially; partly because they have already had to continue paying the wages for 2 years during the sickness. As a result, many employers have not terminated the employment relationship with employees who were sick for 2 years. The reason is that no transition payment will need to be paid in this case, as the dormant employment relationship continues. Although this situation was allowed by the courts, it was nonetheless considered to be undesirable.

Compensation for full transition payment

In order to end this practice of dormant employment relationships, the legislative proposal provides that employers will be compensated for the full costs of the transition payment after 2 years of sickness. This compensation is to be provided from the General Unemployment Fund (Algemeen Werkloosheidsfonds), for which the uniform contribution will have to be raised in such case.

When can the compensation scheme be invoked?

The employer can in the first instance invoke the compensation scheme if an employment contract with a sick employee is terminated by the employer. An employer requires a dismissal permit from the Employee Insurance Agency (UWV) for this termination, owing to long-term incapacity for work. 

The employer can also be eligible for compensation if an employment contract is terminated by the employer and the employee after 2 years of sickness by mutual consent. No permit from the Employee Insurance Agency or any other body is required for this process. What is required, however, is a settlement agreement in which it must be clearly agreed that the employee is no longer able to perform the stipulated work.

Is the amount of the compensation subject to any limits?

Compensation will not exceed the amount of the transition payment as it is applicable (and payable by the employer) when the obligation to continue paying wages expires after 2 years of sickness. In other words, no more will be compensated than the amount to which the sick employee is entitled at the time when they have been sick for 2 years. This stipulation serves to prevent dormant employment relationships being created for the sole purpose of receiving a higher payment. 

An additional limitation is that the compensation to be received by the employer will never exceed the total amount in wages that the employer was required to continue paying to the employee during the 2 years of sickness.

A final limitation relates to the possibility of a wage sanction. If the employer has failed to do enough for the reintegration of an employee, a wage sanction may be imposed on the employer. This wage sanction may entail that the employer must continue to pay the employee's wages for up to 1 additional year. The period in which the wage sanction was imposed is not counted for the purposes of calculating the amount of the compensation.

When will the legislative proposal become law?

The expectation and the intention is for the legislative proposal to become law in January 2019 (!), with the compensation scheme applying with retroactive effect from 1 July 2015. This fact means that employers will be compensated with retroactive effect for transition payments which they have made as from 1 July 2015 to employees suffering long-term incapacity for work.

The question is whether employers can or should already act now in anticipation of this legislative proposal by terminating employment relationships after 2 years and paying the transition payment. It is a fact that the amount of the transition payment increases the longer the employment relationship continues. Employers who are deliberately opting for a dormant employment relationship at present but who nonetheless wish to proceed to termination in the future need to be aware that the compensation to be received will be lower than the transition payment to be paid if the legislative proposal is approved in this form.

What are the advantages for both the employer and the employee?

If this legislative proposal becomes law, it will entail advantages for both the employer and the employee. The employer will be compensated for the transition payment that it is required to pay after 2 years of sickness. In turn, the employee is not captive in a dormant employment relationship and will receive a transition payment.