Dormant employment and retirement
Employers do not always dismiss employees who have been ill for more than two years, for example because they expect the person will recover or be able to perform suitable work within a short time. This situation is referred to as “dormant employment”. In its judgment last November, the Supreme Court of the Netherlands determined that the employer must terminate the employment contract at the request of a long-term sick employee, with payment of a transition allowance. The court recently ruled that this obligation also applies to an employee who has reached retirement age during their illness.
The employee in question had been employed since 2008 and became incapacitated for work in 2015. In 2018, three years after the start of their illness, the employee proposed to the employer to terminate his employment contract by granting the transition allowance.
The employee also referred to the compensation scheme that enables employers to receive compensation for the transition allowance paid. However, the employer reacted negatively to this proposal and maintained dormant employment. In 2019, the employee reached retirement age, so their employment ended by operation of law.
The employee then went to court to request a transition payment. The court ruled that the employer should have agreed to the employee’s proposal to terminate dormant employment. The employee was ill for a long time (more than two years) and there were no reintegration options.
The employer did not have any other legitimate interest in maintaining employment until the employee reached retirement age. The court took into account that employers can claim compensation for the transition allowance paid. Despite the fact that the employment contract had ended by operation of law, the employer had to pay compensation to the employee. In light of the judgment of the Supreme Court, the court decided that it is contrary to good employment practices to maintain dormant employment until the employee retires.
Because the employment in question had ended due to retirement, the employer did not have to pay a transition allowance, but they had to pay an allowance equal to that amount. In this situation, the employer could no longer claim from the compensation scheme. The opportunity to claim compensation would have existed if the employer had agreed to the employee’s proposal to terminate the employment.
Do not maintain unnecessary dormant employment contracts
The argument that employers are forced to incur costs through their obligation to terminate dormant employment contracts is no longer applicable. Since 1 April 2020, employers can apply for compensation from UWV if they dismiss a long-term sick employee. This means that they will receive the transition compensation retroactively for employment contracts that ended on or after 1 July 2015. However, employers must demonstrate that the employee has been dismissed for long-term illness. In addition, the transition payment due to the employee must be paid out in accordance with the law.
If you as an employer have an interest in continuing the employment, you can maintain the dormant employment. This may be the case with a reintegration option. The fact that the employee has almost reached retirement age is of no importance. If there is no interest in continuing the employment, it is advisable to agree to the sick employee’s proposal to terminate the employment. This also applies when retirement is in sight. This will prevent you from having to pay compensation to the employee afterwards and from being unable to claim the compensation scheme.
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This article originally appeared in Rendement.
The Hague Court of Justice, February 4, 2020, ECLI (abbreviated): 146
Seliz works as a lawyer within the Employment & Pension law section of GMW lawyers. She advises both national and international employees and employers. Seliz is called in to assess settlement agreements, non-competition clauses, dismissal and for drafting tailor-made employment contracts.