Compensation for transitional fee for long-term illness

1 oktober 2018

We had already announced the possible introduction of this regulation in previous news reports. However, we were not sure if it would continue and how its details would be regulated. both the Second and the Upper House of Parliament in the Netherlands approved a Bill this summer to regulate the transition fees that an employer must pay in compensation when terminating an employee’s contract due to long-term illness.

Dutch law states that if a staff member has been incapacitated for more than 104 weeks, employers are permitted to end their employment contracts. But many hesitate to do so because of the steep price tag attached in the form of a transition fee. The use of so-called ‘sleeping contracts’ is often the result: a contract when employer pays no salary and employee doesn’t actually work, but actually the contract still exists.

The government now wants to remove this threshold though, which means that from April 2020, employers will be compensated, at least partially, for this fee on a retrospective basis. Here is how the new legislation will work:

Retrospective compensation

Although employers will not be able to apply for compensation from the UWV Employee Insurance Agency until 1 April 2020, the scheme will apply retrospectively to 1 July 2015 - the moment when the government first introduced its statutory transition payment.

As of 1 April 2020, the UWV must assess all applications within six months of an employer paying out a transition fee. But employers must submit their compensation applications covering the period from 1 July 2015 to 1 April 2020 no later than 1 October 2020.

Size of compensation

In an earlier news edition we explained the calculation for the height of the transition fee. In reality, there will be some disparity between the fee itself and the amount paid out in compensation by the UWV.  Employers will receive a sum that covers the transition fee or the wages paid to an employee during their sickness absence. The compensation is only the lowest sum in this situations.

According to the new legislation, this is because, while an individual’s wage might have been relatively low, their transition fee could end up being relatively high because of the number of years they worked. The compensation amount in this instance would include elements of the employer’s other costs, such as contributions to social security and healthcare.

Moreover, the UWV bases its compensation figure on the transition allowance that was applicable for a sickness period lasting 104 weeks. If an employer chooses to effect the dismissal at a later date, they will not be compensated for the difference.

Documents required when making a claim

When assessing the application, the UWV requires the following information:

• Copy of the individual’s employment contract;
• Proof of the contract’s termination due to illness;
•  Evidence of ongoing wages (pay slips);
• Proof of how much the transition payment amounts to;
• Evidence of this compensation having been paid.
• Proof of payment of this compensation.

It is important to retain all of this information in your records as a matter of priority because a failure to produce them will lead to a failed claim – and the loss of a serious amount of money. 

Advice

If you have paid out for a transition fee during the period covered by the legislation, it makes sense to claim the compensation owing to you - and to terminate any ‘sleeping contracts’ at the same time. It may even be possible to agree a lower transition fee with the employee concerned in order to cut your costs (as the compensation does not cover everything).

But be aware that if you pay the termination fee now, you will need to wait for a considerable period to receive compensation as it is not due until the second half of 2020. So another alternative is to wait until April 2020 because this will make the compensation period considerably shorter.

The disadvantage of taking this tack though is that the accrual period for the transition fee will increase and may lead to a jump in the size of the transition fee itself when the accrual element is not actually eligible for compensation. Therefore, it is important for employers to weigh up the pros and cons of each approach.

Company closure or commercial dismissal

The new Bill also stipulates that no transition fee is payable should an employee be dismissed due to company closure or redundancies. But this situation only applies if collective labour agreements (Cao) offer a replacement for the transition fee policy.

If an alternative is not provided in Cao-regulation, or should there be no Cao at all, employers will only be required pay a transition fee in the event of a dismissal in the above-mentioned situations without any right of compensation.

Whatever the situation though, it makes sense in general terms to negotiate transition fees with any staff members who have been dismissed as it tends to be a less expensive way of doing things.

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