16 July 2025
The company is shutting down. This may be due to poor financial performance or because the sole owner is seriously ill or has passed away. However, ceasing operations and closing the doors does not mean that employment contracts with staff automatically end. So how does this work?
Termination of business operations, as UWV refers to it in its implementation guidelines, is one of the valid grounds for redundancy on economic grounds. This means that the owner or managing director must take action to formally end employment contracts. Employers must obtain prior permission from UWV to terminate employment due to business closure. Start this process on time, so the end of the contracts aligns with the actual closure of the business.
What should you pay attention to as an entrepreneur who is winding down? First and foremost, you have the freedom to close your business. Neither UWV nor a court can stop you from making that decision.
However, you must provide the reasons for closing down the business
UWV and potentially a judge may want this information to verify whether the business is truly being discontinued and not continuing elsewhere without the employees
By law, UWV cannot assess a redundancy request due to business closure against the prohibition on dismissal in the event of a transfer of undertaking (TUPE equivalent). As a result, UWV may grant permission to terminate contracts even when there clearly is a transfer of undertaking. In that case, the employee can initiate legal proceedings. In practice, UWV often rejects redundancy requests by arguing that the employer has not convincingly shown that the business activities are genuinely ending.
This issue arose in a case in late 2024 involving a company supplying medical and technical equipment. The company claimed to UWV that it was ceasing operations. However, UWV was not convinced that the activities would not continue elsewhere. The employer then turned to the subdistrict court to dissolve the employment contract due to business closure. The court did assess the prohibition on dismissal due to transfer of undertaking. In this case, the court found that IT services were still being used and purchased by customers and that the exploitation of the business had continued. All other operations had been taken over by another company. Based on UWV criteria, the court concluded that the business had not truly ceased operating and that a transfer may have taken place. Therefore, the court did not dissolve the employment contract.
In that case, the employer sought to terminate the employment of an employee on long-term sick leave. Normally, dismissal for economic reasons during illness is prohibited. However, this ban does not apply if there is a full business closure. The employer used this argument to justify the dismissal. While another economic ground such as partial closure may also have applied, the illness-related dismissal ban would have blocked that path.
The decision to close a business usually follows from financial or personal challenges faced by the owner. Nevertheless, employers must still pay a statutory severance (transition) payment when employment ends due to business closure. The only exceptions are if the company is declared bankrupt or if termination occurs through a settlement agreement. In the latter cases, it is customary for the employer to offer some form of severance.
In some cases, small business owners may be reimbursed by UWV for paid transition compensation. This compensation applies to businesses with fewer than 25 employees where closure is due to the owner reaching state pension age or death. There is no compensation if closure results from illness. Also, at least one employee must have received a dismissal permit from UWV.
The desire or need to close a business rarely comes as a surprise. Often, the timeline for ending business activities is already clear. It is important to start preparations early to arrange termination of employment contracts through UWV or settlement agreements. For assistance during this process, you are welcome to contact the specialists at GMW lawyers.
For guidance in this process or for other questions, please feel free to contact the specialists at GMW lawyers.
