A dormant employment relationship is an employment contract that has not been terminated after 104 weeks of employment disability, even though the employee is no longer doing any work and no further wages can be paid. Many employers did not appreciate that after continuing to pay wages during illness for two years, they would still have to pay a transitional payment. They thought that by keeping the employment relationship dormant (the employee is still formally employed but is no longer working), they would not then have to pay the transitional payment.

The legislature felt it was undesirable for employment relationships to be kept in this dormant state and accordingly approved the Transition Payment (Refunds) Act (“Wet compensatie transitievergoeding”) in July 2018. This allows employers to terminate employment contracts after the employee has been affected by employment disability for 104 weeks and pay a transitional payment to the employee, which they can then reclaim from the UWV (Dutch Employee Insurance Agency) with effect from 1 April 2020. This refund scheme has retroactive effect for employment contracts with employees affected by employment disability that came to an end on or since 1 July 2015. The refund scheme does not therefore apply if the 104 weeks of employment disability ended before 1 July 2015. From 1 April 2020, the employer can submit applications to the UWV for a refund for ending dormant employment relationships, using a specially developed application form to pay the employee a transitional payment, which will be available on the employers’ portal at uwv.nl from 1 April 2020. The UWV will only refund the transitional payment if it has, in turn, been paid in full to the employee. If the transitional payment is paid to the employee in instalments, the employer must first of all pay the final instalment to the employee before it can submit an application for a refund.

Despite this refund scheme having been well publicised, employers retained a lot of employment relationships on a dormant status and there were various court rulings on whether this was permissible. The Dutch Supreme Court held on 8 November 2019 that if an employee submits an application for the amicable termination of his employment contract after 104 weeks of employment disability, the employer would have to agree to this under the rules of ‘good employer practices’, and would therefore also be due to pay the employee a transitional payment. This is the case even if the employee is getting close to his retirement date after the end of the 104 weeks of employment disability. Only exceptional circumstances would alter this position, for instance if the employee still has realistic prospects of reintegration.

The Supreme Court’s decision created some lack of clarity on the question of what amounts the employer would now have to pay and what amounts would qualify for a refund from the UWV. Wouter Koolmees, Dutch Minister of Social Affairs & Employment, issued a lengthy letter on 13 December 2019, elaborating on the Supreme Court’s decision. A lot of the Minister’s explanation is legally technical. This Newsletter is not the place to go into great detail on the exact ins and outs, as doing so would require an extensive explanation of the Supreme Court’s decision. What is important, however, to round off this part of the Newsletter, is the Minister’s advice to terminate dormant employment relationships before 1-1-2020, thereby retaining the high level of refund. We would certainly go along with that advice.

Please contact Bart de Vroe or Anna Görgün  for more information or advice on this subject.

This article was published in the Newsletter Vestius of January 2020