The compensation scheme for the transitional compensation for employees with long-term illness enters into force on 1 April 2020. The scheme does not include a sanction for employers who still wish to keep the employment contract dormant in the period following. Recent judgements indicate that in such cases judges will grant the employee a transitional compensation nevertheless.
Upon termination of the employment contract with an employee, transitional compensation must be paid, even if the employee has been unfit for work for a long period. Therefore, many employers keep the employment contract with an employee, who has been ill for a period of two years, dormant. After all, in that situation there is no obligation to pay wages anymore as the employee is entitled to incapacity benefits. As the government considers this situation undesirable, a compensation scheme has been established. Although this scheme will not enter into force until 1 April 2020, it is applicable to all transitional compensation that has been paid after the introduction of the Work and Security Act on 1 July 2015 in the event of dismissal of an employee who has been ill for more than two years.
The compensation does not apply to:
No sanction has been imposed for keeping the employment dormant after the scheme has entered into force. What can employees do to get transitional compensation nevertheless?
The employee with a dormant employment contract who wants a transitional compensation has to request the court to terminate his employment contract with the award of transitional compensation. To this end, the employee will have to demonstrate that the employer is seriously culpable. However, up to now, keeping the employment contract dormant solely to avoid payment of the transitional compensation has not been considered sufficiently culpable to speak of ‘serious culpability’. The employee therefore received a termination of the employment contract but no transitional compensation. Will the introduction of the compensation scheme change this?
In a judgement of 21 March 2019, the subdistrict court judge in Almelo that an employer’s refusal to pay transitional compensation to an employee who is unfit for work for a long term might possibly be seriously culpable once the compensation scheme has come into effect. After all, the employer is compensated for the payment of the transitional compensation to his employee.
This was of no help to the employee in this case as he will be retired before the compensation scheme will enter into force and the employer would therefore have to advance the transitional compensation. The employer indicated that this was not possible as the compensation would have to be paid to other employees as well, and the financial reserves were insufficient for this.
The judge in preliminary relief proceedings in The Hague gave a different judgement on 28 March. The employer did have to pay a transitional compensation here. An important difference with the case from Almelo is that the employer had not invoked its own limited financial resources, but had referred only in general terms to the additional costs which payment of the transitional compensation would entail in the form of an increase in the insurance contributions and to the uncertainty as to the implementation of the compensation scheme.
In addition, the terminally ill employee was dismissed as a director under the articles of association. In contrast to what is usual with the dismissal of a director under the articles of association, the employment relationship was maintained solely for the purpose of avoiding transitional compensation. The judge in preliminary relief proceedings considered this to be in violation of the legal standard of good employment practice.
Both judgments raise the expectation that after the compensation scheme comes into force, judges will be inclined, at the request of the employee, to terminate the employment contract and to grant a transitional compensation if the employment contract is kept dormant simply to avoid a transitional compensation. By making use of the standards of good employment practice and serious culpability, the employee will be entitled to a compensation even if the employer does not wish to pay it despite of the compensation scheme. After all, the scheme does not include an obligation for the employer to terminate the employment contract. However, it is still not clear whether this approach will be shared by the courts of appeal and the Supreme Court.
The Supreme Court has decided that a dormant employment contract after two years of illness must be terminated on request of the employee and that in that event the transition compensation must be paid by the employer.
Would you like to learn more about the transitional compensation in the event of long-term illness? Or do you have any other questions about severance payment or illness of employees? Please contact us.
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