Compensation to employers for dismissal costs (“transition compensation”) in the event of termination due to long-term illness

After two years of illness, many employers choose to leave the employment contract dormant (after two years there is in principle no longer a prohibition of termination and the employer is no longer under an obligation to pay the salary) in order to avoid the obligation to pay transition compensation. Dormant employment contracts are not without risks. The employer cannot continues to make efforts to reintegrate the employee. In addition, employers must allow the employee to resume their work, and thereby pay salary when the employee (partially) recovered.

As a consequence of this, Minister Asscher drafted a new Bill.The new Bill states that long-term ill employees are still entitled to transition compensation, but employers will be compensated for the costs of transition compensation in the event of termination of the employment contract due to long-term illness. This compensation will be funded by the UWV from the General Unemployment Fund (in Dutch: Algemeen Werkloosheidsfonds or AWF). The AWF premium shall therefore further increase.

In the Bill, no distinction is made as to the manner in which the employment contract is terminated. The amount of compensation is in principle equal to the amount of transition compensation.

Asscher has indicated that the measure will have taking effect from 1 January 2019 and that the measure is to be implemented retro-actively as of 1 July 2015. The Bill has been submitted to the Council of State for advice and the Council of State has asked critical questions. The Council of State queries why the Bill does not simply abolish the entitlement to transition compensation in the event of termination due to long-term illness altogether, instead of compensating the costs for transition compensation. The advice of the Council of State is not binding. In view of this, it is not certain if the Secretary of State will amend the Bill before it is introduced in the Lower House. Having said this, since the general election on 15 March 2017 the Cabinet has resigned (in anticipation of the formation of a new Cabinet) and it is therefore questionable whether the Bill will be dealt with in the Lower house (in its current form).

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