Transitional compensation for older employees can be considerable. Does it matter whether older employees have almost reached pension age?
Employers are allowed to terminate the employment of employees due to reaching state pension (AOW) age. This is laid down in most employment agreements by including containing an employment termination at retirement age clause. In the event of termination because of reaching AOW age employers do not have to provide severance pay.
However, if an employee is dismissed before reaching the AOW age, the employer has to pay transitional compensation in the event the employment contract was for a minimum period of two years.
Besides, until 1 January 2020, employees of 50 years or older who have been employed for a minimum period of 10 years with an employer employing more than 25 people, are entitled to one month’s salary per year of service for the period after reaching the age of 50 instead of one-third or one half of a month’s salary. Because of this transitional payment may be very high.
Before entry into force of the Work and Security Act, for the calculation of the transitional payment the amount of transitional payment was assessed in relation to the loss of income up to the retirement date. In case the loss of income incurred was lower, the loss of income incurred up to pension date was taken for the calculation of the severance pay.
A recent decision by the Den Bosch Court of Appeal shows that the loss of income is no longer relevant for the calculation of the transitional payment. Not even if the amount of transitional payment and the loss of income incurred differ widely:
In this particular case the transitional payment was EUR 73,514.42 and the loss of income incurred about EUR 6,000.
Upon reaching AOW age, the transitional payment is at once EUR 0. Is this a matter of age discrimination? This was one of the questions the Utrecht Subdistrict Court submitted to the Supreme Court. It is expected that this question will be answered at the end of 2017 or beginning of 2018. We will gladly keep you informed!
Older employees who have been employed for a long period and have not (yet) reached AOW are entitled to high transitional compensation. Are you considering dismissing such an employee, for instance, due to long-term incapacity to work? In this case it might be worthwhile delaying dismissal for a few months and/or keeping the employment contract dormant until the employee has reached AOW age. As in this event no transitional payment is due.
Our advice is to carefully consider the date of the termination. This also applies in case of shorter periods of employment. Engage a lawyer to gain advice. In the event of an employment termination at retirement age (clause) make sure to keep in mind the changing AOW age.
Would you like to learn more about the timing of a dismissal, or transitional payment? Or are you looking for advice about employees who have (almost) reached AOW age? Please contact:
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