Labour law: 10 facts about the transition payment compensation scheme in the Netherlands

In recent months we have often been asked by employers whether we already knew if / when they would be compensated for the transition payment in case of dismissal due to long-term disability. Until recently our answer was invariably that there was a good chance that this would indeed be the case from 1 April 2020. Nevertheless, many employers do not yet dare dismiss an employee who has long been unfit for work. Just to be on the safe side, employment contracts were kept 'dormant'.

It is now clear that the compensation scheme will definitively take effect from 1 April 2020. Reason therefore to discuss ten important facts concerning the compensation of the transition payment in the event of dismissal due to long-term disability…

The compensation applies to employers who, on or after 1 July 2015, have made a transition payment to an employee who has been disabled for more than two years.
A right to compensation exists not only for termination on the grounds of long-term disability via a dismissal permit from the Employee Insurance Agency / Uitvoeringsinstituut Werknemersverzekeringen (UWV), but also in case of termination by mutual consent via a settlement agreement. This settlement agreement will then have to clearly state, among other things, that the long-term disability is the reason for the termination and that there is no prospect of recovery within the foreseeable future.
The compensation is equal to the amount of the transition payment as calculated after the expiry of the two-year period of disability. This therefore means that if the transition payment is higher because the employment contract is only terminated after, for example, three years of disability, the excess transition payment calculated after two years of disability (1/3 month’s salary in this example) will not be compensated. Even if, for example, the employer is ordered to continue to pay an employee’s salary during the third year of disability because of its failure to comply with the reintegration obligations, the transition payment accrued in that third year will not be compensated.
There is also a cap on the compensation up to the amount of salary paid to the employee during the two years of disability. This concerns the gross salary, without employer’s charges.
The compensation is financed from the General Unemployment Fund (GUF), to which employers contribute. The GUF premium for 2019 has already been increased by 0.75%, to be followed by an annual increase of 0.1%.
The UWV implements the compensation scheme and has drawn up a transition payment compensation scheme explaining how employers can claim compensation.
Requests for compensation must be submitted via a digital application form, in which the employer is guided through the application process step by step. This will probably resemble the way in which a dismissal application must currently be submitted to the UWV.
Compensation of transition payments to long-term disabled employees before 1 April 2020 can be applied for until 1 October 2020. Compensation for transition payments after 1 April 2020 must be claimed within six months of payment (or within six months of the last instalment thereof, in the case of a partial payment).
It may take some time for the UWV to decide on the requests, especially for transition payments made before 1 April 2020. The UWV strives to decide on this by 1 April 2021 at the latest, with an extension until 1 January 2022. Requests for compensation of transition payments made after 1 April 2020 will in principle be handled within a period of eight weeks.
Documents that should in any case be retained to be eligible for compensation from 1 April 2020 include: documents showing that the employment contract has been terminated and the reason for this, documents showing the calculation of the transition payment and proof of payment of the transition payment.

Expectation for the near future

Now that the compensation scheme will definitely be introduced next year, it is expected that dormant employment contracts of long-term disabled employees will be the exception rather than the rule in the near future. However, the fact that it will take another year before the scheme actually comes into effect and that it may still take some time before the amount paid has actually been compensated by the UWV, places employers in a difficult dilemma.

Termination of employment and transition payment in the near future?

Making a (sometimes substantial) transition payment in the near future to an employee who has been disabled for two years provides the certainty that this full amount will be compensated in 2021. However, this does mean that the employer may have to ‘prefinance’ the (sometimes substantial) transition payment for nearly two years.

Keeping employment contracts dormant for the time being?

Employers with long-term disabled employees who, for that reason, decide to keep the employment contract dormant for the time being do not run that risk and will not have to wait as long for the compensation in the event of termination after 1 April 2020. The disadvantage of this, however, is that the transition payment then made will not be fully compensated. This compensation is limited to the transition payment calculated after expiry of the two-year period of disability.

There is something to be said for either strategy. We are, of course, willing to advise you on this matter – please get in touch if you have any questions.