The Work and Social Security Act (in Dutch: Wwz) entails major changes to employment law. One of these modifications relates to the introduction of the transitional termination payment. In principle, an employee who has been employed for more than two years, will always be able to claim this “severance pay” as soon as the employment contract is terminated. 

Right to a transitional termination payment

Entitlement to a transitional payment arises as soon as employment has lasted for at least 24 months and ends:

  • after termination / application for dissolution / non-renewal of a temporary contract by the employer;
  • after termination / application for dissolution / non-renewal of a temporary contract by the employee if the employer has acted in a seriously culpable manner (e.g. sexual harassment, discrimination or fraud by the employer).

Seriously culpable conduct employee

The entitlement to the transitional payment does not exist if the employment contract is terminated by the employer due to an employee’s seriously culpable conduct (such as failure to cooperate with re-integration, being structurally late, violence, fraud or theft by the employee) unless not awarding such a compensation is unacceptable according to the standards of reasonableness and fairness.

No right to transitional termination payment

There are also a number of special cases where no compensation is due. An employee who is dismissed because the retirement age has been reached (dismissal due to retirement) cannot claim a transitional payment. The transitional payment is also not due if a contract with a minor employee expires and if the average duration of the work performed by the employee is twelve hours or less per week. Finally, no transitional payment is due if the employer is in financial difficulties and a bankruptcy, suspension of payment or debt restructuring is involved.

Main rules in calculating compensation

  • During the first 120 months (10 years) of employment, the compensation per full six months amounts to 1/6 of the monthly salary.
  • After an employment of 120 months (10 years), the compensation increases. From that moment on a compensation of 1/4 of the monthly salary is payable per full six months that the employment lasts over 10 years.
  • As of 1 January 2016 the transitional payment may never exceed €76,000.00 or (if that is more) the total of one year’s salary.

Exceptions to the main rules

  • Until 1 January 2020 a temporary exception for older employees of large companies (25 employees or more) is in place. If the employee is 50 years or older on the date of termination and the employment has lasted more than 120 months (10 years), that employee is then entitled to a compensation equal to half a month’s salary for any six-month period thereafter that the employee is 50 years or older.
  • Until January 1, 2020 a temporary exemption is made for small businesses (fewer than 25 employees) that terminate the employment of an employee as a result of the poor financial situation of the employer. In that case, the months of employment before 1 May 2013 may be disregarded in calculating the transitional payment. This will be further worked out in subordinate legislation.

Duration of employment

When calculating the duration of employment different employment contracts between parties that succeed each other with intervals not exceeding six months are added together. Periods in between successive employment contracts are not counted when calculating the transitional payment. If a successor employer (i.e. temporary employees that are employed by hirers, transfer of undertaking, restart etc.) is involved, the duration of employment with the previous employer is also taken into account. There is an exception for young employees with a holiday job. The months in which a minor (under 18) worked up to 12 hours per week on average, are disregarded when calculating the duration of employment.

Definition wages

Lower legislation prescribes what is to be understood under monthly salary.

  • In calculating the transitional payment, the gross monthly salary, the holiday allowance and the fixed year-end bonus are to be taken into account.
  • In addition, fixed salary components such as shiftwork allowance and overtime compensation that have been earned in the twelve months prior to the termination are to be included.
  • Finally, structural bonuses and dividends that have been awarded in the three calendar years prior to the termination should be included.

Deviation by a collective labour agreement (CLA)

A collective labour agreement may exclude the right to a transitional termination payment. This is only the case if the CLA has been negotiated by qualified labour unions. Instead of the transitional payment the CLA can provide an equivalent compensation with job mobility as objective. A CLA may of course designate a higher transitional payment to the employee.

Payment in installments

The compensation can be paid conditionally in installments if the transitional termination payment leads to unacceptable consequences for the employer.

Fair compensation

In exceptional cases, the employee may claim payment of a fair compensation in addition to the transitional payment.

Expiry

The transitional termination payment must be paid no later than one month after the end of employment. If the employer fails to pay, the employee has three months to legally claim payment of this compensation. If the employee does nothing, then the right to a compensation expires after this period has lapsed.