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Transition compensation for an employment contract: How does it work?

Under certain circumstances, an employee whose employment contract ends is entitled to a legally determined compensation. This is also referred to as transition payment, which is intended to facilitate the transition to another job or for possible training. But what are the rules regarding this transition payment: when is the employee entitled to it and how much is the transition payment exactly? The rules regarding the transition payment (temporary contract) are discussed successively in this blog.

Right to transition payment

Pursuant to art. 7:673 paragraph 1 of the Dutch Civil Code, an employee is entitled to a transition payment, which may also be used for non-work-related purposes. Art. 7:673 BW specifies in which cases an employer is obliged to pay this.

* The employee is only entitled to a transition payment if this is the result of seriously culpable acts or omissions on the part of the employer. This is only the case in very serious cases such as sexual harassment and racism.

Exceptions

In some cases, however, an employer does not owe a transition payment. The exceptions are:

  • the employee is younger than eighteen and has worked less than twelve hours a week on average;
  • the employment contract with an employee who has reached retirement age is terminated;
  • the termination of the employment contract is the result of seriously culpable acts by the employee;
  • the employer has been declared bankrupt or in a moratorium;
  • the collective labor agreement stipulates that instead of a transition payment, you can receive a replacement provision if the dismissal took place for economic reasons. This replacement facility is of course subject to certain conditions.

Amount of transition payment

The transition payment amounts to 1/3 of the gross monthly salary per year of service (from the 1st working day).

The following formula is used for all remaining days, but also for employment that has lasted less than a year: (gross salary received on the remaining part of the employment contract / gross monthly salary) x (1/3 gross monthly salary /12 ).

The exact amount of the transition payment therefore depends on the salary and the duration that the employee has worked for the employer. When it comes to the monthly salary, the holiday allowance and other allowances such as bonuses and overtime allowances must also be added. When it comes to working hours, the employee’s successive contracts with the same employer must also be added to the calculation of the number of years of service. Contracts of a successive employer, for example if the employee initially worked for the employer through an employment agency, must also be added up. If there has been an interval of more than 6 months between two employment contracts of the employee, the old contract is no longer included in the calculation of the number of years of service worked for the calculation of the transition payment. The years that the employee has been ill are also included in the number of years of service worked. After all, if an employee has been ill for a long time with wage payment and the employer dismisses him after two years, the employee is still entitled to a transition payment.

The maximum transition payment that an employer must pay is € 84,000 (in 2021) and is adjusted annually. If the employee exceeds this maximum amount based on the above calculation method, he will therefore receive only €84,000 transition payment in 2021.

As of 1 January 2020, it no longer applies that the employment contract must have lasted at least two years for a right to transition payment. From 2020, every employee, including an employee with a temporary contract, is entitled to a transition payment from the first working day.

Are you an employee and do you think you are entitled to a transition payment (and have you not received it)? Or are you an employer and are you wondering whether you are obliged to pay your employee a transition payment? Please contact Law & More by telephone or e-mail. Our specialized and expert lawyers in the field of employment law are happy to help you.

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