The transition payment is owed when an employment contract is ended at the employer’s initiative, and it accrues from the first day of employment. The calculation is one third of a month’s salary for each year of service, applied pro rata to parts of a year, with a statutory maximum that is indexed annually or, where the annual salary is higher, that annual salary.
Our general guide to severance pay in the Netherlands covers the basic entitlement. This article deals with the situations in which the ordinary rule does not apply – which is where most disputes about the payment actually arise.
When is no transition payment due?
Where the employee resigns, no payment is owed, unless the resignation is the result of seriously culpable conduct by the employer, in which case not only the transition payment but also fair compensation may be awarded.
Where the employee is dismissed for seriously culpable conduct of his own, the entitlement lapses. The threshold is high – considerably higher than a reasonable ground for dismissal – and a court can still award the payment in whole or in part where withholding it entirely would be unacceptable.
No payment is due where the contract ends because the employee reaches state pension age, or on the employee’s death. Where the employment ends by mutual consent in a settlement agreement, the entitlement does not arise by operation of law at all; it is a matter of negotiation, and in practice the transition payment is the floor from which that negotiation starts.
Fixed-term contracts
A fixed-term contract that simply expires without being renewed is an ending at the employer’s initiative for these purposes, and the transition payment is due. This is regularly overlooked by employers who assume that no payment can arise where no dismissal took place.
Long-term illness and the compensation scheme
An employee whose contract is terminated after two years of illness is entitled to the transition payment like any other. Because the employer will already have paid wages for two years, the law provides for compensation: the employer can apply to the UWV for reimbursement of the transition payment paid in that situation.
The application is subject to time limits, and employers lose the reimbursement by applying late rather than by not qualifying. There is also a compensation scheme for small employers who end their business because of retirement or illness.
Dormant employment
Some employers used to keep an employment relationship alive after two years of illness – no work, no pay, no termination – precisely to avoid the transition payment. That practice has been curtailed: an employer must in principle cooperate with a request to end such a dormant employment, paying the transition payment, and the reimbursement scheme means it is not out of pocket. An employee in this position should raise it rather than wait.
Frequently asked questions
Does the transition payment apply during the probationary period?
Yes. The entitlement runs from the first day of employment, so a dismissal during probation at the employer’s initiative gives rise to a payment, small though it will be.
Can we agree a lower amount in a settlement agreement?
You can agree anything, because the statutory entitlement does not arise on a consensual ending. Whether it is sensible for the employee to accept less is a different question, and usually the answer is no.
How long do I have to claim it?
A claim for the transition payment lapses three months after the end of the employment. That is a forfeiture period, not a limitation period: once it has passed, the claim is gone.
Advice
The most expensive mistakes here are procedural: a reimbursement application filed late, or a claim made after the three-month period. We advise employers and employees on entitlement, calculation and the compensation schemes. Please contact Law & More.
