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25 April 2019 

Compensation for the transition fee in the event of dismissal after illness

Both the House of Representatives and the Senate have approved the bill, which regulates the compensation of the transition fee in the event of dismissal after long-term incapacity for work due to illness.

The bill sets out the conditions under which transition fees paid by employers since 1 July 2015 qualify for compensation.

This makes it clear to employers when they will be compensated for a paid transition fee and up to what amount. This is because the employer is not always entitled to full compensation of the transition fee.

Below I will first discuss the law and then its consequences.

When compensation of the transition fee

Employers are entitled to compensation of the transition fee if the employee is dismissed because he or she was no longer able to perform the stipulated work due to illness or disability.

Regardless of whether this dismissal took place by dissolution, by giving notice or by entering into a termination agreement.

Even in the case of a termination agreement, the transition fee paid will therefore be compensated. This is despite the fact that the transition fee is then not formally due.

In the event of dismissal by dissolution, by giving notice or by entering into a termination agreement, it is required that the dismissal took place after the expiry of the period in which the prohibition of termination during illness applied.

Furthermore, the employer is entitled to compensation of the transition fee if the employment contract has ended by operation of law and the employee was not able to perform the stipulated work at that time due to illness or disability.

In all cases, i.e. in the event of termination by dissolution, by giving notice, by the conclusion of a termination agreement and by operation of law, the employer is only entitled to compensation of the transition fee if all the conditions for the payment of the transition fee have been met.

These are the conditions referred to in Section 7:673 of the Dutch Civil Code, but also the further conditions referred to in Sections 7:673a, 7:673c and 7:673d of the Dutch Civil Code. It should be noted that Sections 7:673a and 7:673d of the Dutch Civil Code will lapse with effect from 1 January 2020.

Furthermore, with effect from 1 January 2020, compensation will only take place for the transition fee if there is at least two years’ incapacity for work due to illness. This ensues from the Labour Market Balancing Act.

Until 1 January 2020, the employer is also entitled to compensation of the transition fee in situations where a fixed-term employment contract ends by operation of law and the employee became occupationally disabled shortly before. This has to do with the fact that until 1 January 2020 the right to transition fee only arises after an employment contract of at least two years.

With the introduction of the Labour Market Balancing Act on 1 January 2020, entitlement to transition fee will arise from the commencement of the employment contract. If the employer would also be entitled to  compensation of transition fees in situations in which a fixed-term employment contract ends by operation of law and the employee has fallen ill just before, a large number of cases might arise in which a relatively short period of continued payment of wages and a small amount of transition fee is involved.

This is not considered desirable. For this reason, from 1 January 2020, an additional requirement is that the employee must have been incapacitated for work due to illness for at least two years.

As explained above, there is one exception to the main rule that the transition fee must be payable. Namely, if no transition fee is due, because the employment contract has been terminated by means of the conclusion of a termination agreement.

In that case, compensation takes place if there is a situation in which if the employment contract had been terminated by the employer by giving notice or dissolved at the employer’s request, a transition fee would have been due.

Consequences of transitional law

It may be that no transition fee was due under the transitional law of the Work and Security Act. This is the case, for example, if the notice was given before 1 July 2015 and the employment contract ended after 1 July 2015.

This is also the case if there was a collective labour agreement (CLA) on the basis of which the employee was entitled to another compensation. If, in that case, a transition fee was agreed upon, the obligation to pay it does not derive from the law and there is no right to compensation.

It is currently possible to include an equivalent provision in a CLA or arrangement by or on behalf of a competent administrative body, which will replace the transition fee. Regardless of the ground for dismissal.

From 1 January 2020, it will only be possible to agree on a provision for the ground for dismissal for business economis reasons, which will replace the transition fee.

However, equivalent provisions, which are currently included in a current CLA or scheme by or on behalf of a competent administrative body, will continue to apply for the duration of that CLA or scheme.

If the employer has provided the employee with an equivalent provision on the basis of the above, the employer is also entitled to compensation of the transition fee. That compensation shall be at most equal to the amount of the transition fee that an employer would have owed if there had not been an equivalent provision.

Level of compensation of the transition fee

The compensation shall be equal to the transition fee that the employer has provided to the employee in connection with the termination or non continuation of the employment contract, plus any transition costs and employability costs deducted therefrom.

After all, an employer may deduct these costs from the transition fee if the conditions as set out in the Decree on Conditions for Deducting Transition Allowance are met.

If the transition fee paid by the employer were not increased by these costs, deducting these costs from the transition fee would result in a lower compensation. It would mean that the employer would have to bear these costs itself.

This could mean that employers might be less inclined to incur such costs for employees. As this is considered undesirable, these costs will also be compensated.

In two situations, the fully paid transition fee is not compensated.

Compensation capped at salary during incapacity for work due to illness

The transition fee paid is not fully compensated if the transition fee is higher than the amount of wages during the period of incapacity for work due to illness.

In that case, the transition fee is compensated up to the amount of the continued payment of wages during the period of incapacity for work due to illness.

Pages 4, 5 and 14 of the Explanatory Memorandum to the Bill show that the amount of the salary should be based on the gross salary as referred to in the Wages and Salaries Tax Act excluding employer’s costs.

The period of continued payment of wages during incapacity for work due to illness is determined on the basis of the period in which there is normally an entitlement to continued payment of wages.

The period of continued payment of wages may be extended. For example, because the employer receives a wage sanction in connection with non-compliance with the reintegration obligations.

Any period of extension does not count towards the calculation of the amount of compensation.

During the employer’s notice period, wages are generally no longer due. At least, not on the grounds of the obligation to continue to pay wages during illness, as included in Section 7:629 of the Dutch Civil Code.

After all, the notice is given after the period in which the obligation to continue to pay wages has expired. Therefore, the notice period is not taken into account when determining the period of continued payment of wages.

If there are several periods of illness, the periods of illness that follow each other with an interruption of less than 4 weeks or connect to a period of maternity leave are added together to determine the period of continued payment of wages.

With regard to connecting to a period of maternity leave, aggregation does not apply if the periods of illness cannot reasonably be deemed to stem from the same cause.

Aggregation also comes into play if there are several consecutive fixed-term employment contracts with the same employer and there has been a period of illness during the term of two or more of those employment contracts.

Examples of multiple periods of illness

Suppose an employee is incapacitated for work due to illness for one week, then becomes capacitated for work again, and then – after eight weeks of being capacitated for work again – becomes long-term incapacitated for work due to illness until the employment contract ends by operation of law.

In that case, only the last period of incapacity for work counts for determining the period of continued payment of wages during illness. After all, the interruption has lasted longer than 27 days.

Suppose that an employee is unfit for work due to illness for one week, then becomes fit for work again, his fixed-term employment contract ends by operation of law one week after that and immediately afterwards receives a new fixed-term employment contract with the same employer and becomes unfit for work due to illness for a long period of time within one week after that and remains ill until the moment that the employment contract ends by operation of law.

In that case, both periods of incapacity for work count when determining the period of continued payment of wages during illness as the interruption lasted less than four weeks.

Suppose an employee is unfit for work due to illness prior to her maternity leave, is still unfit for work due to illness after her maternity leave and remains so until the employment contract ends by operation of law.

In that case, only the last period of incapacity for work counts for determining the period of continued payment of wages during illness if the cause of her incapacity for work after the end of her maternity leave was other than the cause of her incapacity for work prior to her maternity leave.

If the cause of her incapacity for work after and prior to her maternity leave were the same, both periods of illness shall be taken into account for determining the period of continued payment of wages.

Suppose an employee is unfit for work due to illness prior to her maternity leave, her fixed-term employment contract ends by operation of law during her maternity leave and she immediately returns to the same employer with a fixed-term employment contract and she is still unfit for work due to illness after her maternity leave and this continues until the employment contract ends by operation of law.

In that case, only the last period of incapacity for work shall count for determining the period of continued payment of wages during illness if the cause of her incapacity for work after her maternity leave was other than the cause of her incapacity for work prior to her maternity leave.

If the cause of her incapacity for work after and prior to her maternity leave were the same, both periods of illness shall be taken into account for determining the period of continued payment of wages.

Compensation capped at the earliest possible moment of dismissal

No more compensation is paid than the amount of transition fee to which an employee would be entitled at the time when the obligation to continue to pay wages normally ends during incapacity for work due to illness.

This is in fact the earliest possible moment at which dismissal could take place.

As mentioned above, the period of continued payment of wages can be extended. For example, because the employer is subject to a wage sanction in connection with non-compliance with the reintegration obligations.

In that case, the period in which the termination prohibition applies during illness will also be extended and dismissal cannot yet take place.

The extension may mean that the transition fee is higher than it would have been without this extension.

The transition fee that is higher as a result of this extension is not compensated.

Submission of request for compensation

The employer must submit it’s request for compensation of the transition fee to the UWV. This can be done at the earliest from 1 April 2020. The UWV needs time to adapt its ICT systems to this.

The application can only be submitted after the full transition fee has been provided to the employee.

If an employer has paid the transitional fee in instalments in accordance with Section 7:673c of Book 7 of the Dutch Civil Code, the employer can only submit an application for compensation after payment of the last instalment.

For applications relating to transition fees, which are provided by the employer on or after 1 April 2020, the compensation can be applied for a maximum of six months after payment of the full transition fee.

The moment of payment is the moment when the transition fee has been debited from the employer’s account.

Applications for compensation provided by the employer prior to 1 April 2020 must be submitted by 30 September 2020 at the latest.

This has been opted for, so that a period of six months also applies to these reimbursements for the submission of the application, but then from the entry into force of the scheme.

In this way, a difference is avoided between employers who pay a transition fee shortly before and shortly after 1 April 2020 in the event of dismissal after long-term incapacity for work due to illness.

Applications that are submitted prematurely are rejected.

The UWV will make an application form available in due course, which shows which data must be submitted.

Examples of when to submit an application

For reimbursements, which have been provided in full by you as an employer prior to 1 April 2020, it is best to submit your request for compensation as soon as possible after entry into force.

In other words: on 1 April 2020 or shortly afterwards. In any case, you must ensure that you have submitted them by 30 September 2020 at the latest.

If part of the tranistion fee was provided by you before 1 April 2020 and part after that date, you will have to wait until the last part of the transition fee has been provided to the employee before submitting the request.

Suppose you pay the last instalment on 13 May 2020. In that case, you cannot submit the request before 13 May 2020 and you will have to submit the request no later than 13 November 2020.

If you provide the transition fee in full as from 1 April 2020, you will have to wait until the employee has been provided with the full transition fee before submitting the application.

Suppose you provide the allowance in one go on 16 June 2020. In that case, you will not be able to submit the application before 16 June 2020 and you will have to submit the application no later than 16 December 2020.

If you provide the transition fee in parts as from 1 April 2020, you will have to wait until you have provided the employee with the last part of the transition fee before submitting the request.

Suppose you pay the transition fee in three parts: one on 28 April 2020, one on 27 May 2020 and one on 29 June 2020. In that case, you will not be able to submit the application before 29 June 2020 and you will have to submit the application no later than 29 December 2020.

Data to be provided

The UWV will have to assess whether there is a right to compensation for the transition fee.

In principle, the employer will have to enclose the following information with the request for compensation:

  • the employment contract with the employee concerned;
  • the salary specifications, showing how much salary the employer has paid to the employee during the period of incapacity for work due to illness;
  • the data used to calculate the amount of the transition fee;
  • proof of payment of the transition fee. If payment has been made in instalments, proof of payment of all instalments must be submitted. If transition costs and/or employability costs have been deducted from the transition fee, proof of payment must also be submitted.

The employer does not have to attach the above information to the request for compensation under all circumstances. Sometimes an employment contract is missing. For example, if the employee has been employed by the employer for a very long time.

In that case, the absence of an employment contract does not have to be a reason for not being eligible for compensation for the transition fee. In principle, the existence of an employment contract will then also be assumed if it can be demonstrated in another way. For example, by means of years of payroll administration.

In the event of dissolution of the employment contract, the dissolution decision of the court will have to be submitted, showing that the employment contract has been dissolved due to long-term incapacity for work due to illness.

If the employment contract has been terminated by giving notice, the UWV’s decision must be submitted, which shows that the UWV has granted permission to terminate the employment contract on account of long-term incapacity for work due to illness.

If the employment contract has been terminated by means of a termination agreement, the termination agreement must show that it has been terminated by mutual consent after the period to which the prohibition of termination applied during the period of incapacity for work due to illness and that the employment contract has been ended by mutual consent because of long-term incapacity for work due to illness.

Whether the employer will have to demonstrate that the employee was incapacitated for work due to illness at the time the dismissal took place and/or that the prohibition of notice no longer applied during illness depends on the circumstances.

After all, the UWV can often determine this on the basis of the data already included in its ICT system.

For example, the ICT system will include a dismissal permit for long-term incapacity for work due to illness if permission has been requested to terminate the employment contract.

It will also often include a WIA decision or, if the employment contract is terminated by operation of law, a decision on whether or not to grant sickness benefit under the Sickness Benefits Act.

If this information is not included in the ICT system, the employer must demonstrate this by means of a statement, which must include the date of dismissal, the date of commencement of the incapacity for work and the name of the attending company doctor.

Incomplete data

In the event of an incomplete application, the employer will be given the opportunity to supplement it.

The UWV (Employee Insurance Agency) will, as a rule, apply a period of two weeks for transition fees granted on or after 1 April 2020. For transiton fees provided prior to 1 April 2020, the UWV will apply a period of four weeks to supplement the incomplete application.

If an incomplete application has been submitted within the period of six months after payment of the allowance or the scheme comes into effect, but the incomplete application has been supplemented within the recovery period set by the UWV, the application will be deemed to have been submitted on time.

UWV decision period

In principle, the UWV has to decide within 8 weeks after receipt of the (complete) application for compensation. If it fails to do so, the UWV will have to inform the employer within that period and when the decision will follow.

For applications relating to compensation that were submitted prior to 1 April 2020, it is not feasible to make a decision within the 8-week period because it is expected that a large number of applications will be submitted in the first six months after 1 April 2020.

Therefore, the UWV has six months from the date of receipt of the (complete) application to decide on applications that relate to fees issued prior to 1 April 2020.

Objection and appeal

An application for compensation of the transition fee falls under the General Administrative Law Act. The decision of the UWV on the application is therefore a decision against which objection and appeal are possible.

Where is this being regulated?

The compensation of the transition fee is regulated in Section 7:673e of the Dutch Civil Code, which will come into effect on 1 April 2020.

The fifth paragraph of Section 7:673e of the Dutch Civil Code refers to rules relating to the application for and provision of the compensation. These rules are laid down in the Transition Compensation Scheme.

The fact that the Scheme has retroactive effect to 1 July 2015 is regulated in Section VI(2) of the Act on Measures relating to Transition Compensation in the event of dismissal due to business economic circumstances or long-term incapacity for work due to illness.

Paragraph 3 of Article VI of the Act containing measures relating to transition fee in the event of dismissal due to business economic circumstances or long-term incapacity for work due to illness also regulates that compensation for transition fee also applies to the equivalent provision.

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About the author
Ilma van Aalst started working as a Dutch employment law attorney at the beginning of 2000 and thus works as a Dutch employment law attorney for more than 19 years now. Ilma first worked as a Dutch employment law attorney for more than ten years at Poelmann van den Broek in Nijmegen and Eversheds Sutherland in Rotterdam. In 2010, Ilma started 7 Laws of Persuasion. Since 2007, Ilma has been a member of the Dutch Employment Attorneys Association (Vereniging Arbeidsrecht Advocaten Nederland, VAAN), the association that received the quality mark logo for employment law specialists from the Dutch Bar Association. Since the beginning of 2016, she has been an intervision moderator recognised by the VAAN. She is also a member of the Rotterdam Employment Attorneys Association. In addition to her work as a Dutch employment law attorney, Ilma has also been working as a Dutch employment law lecturer since 2008.
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