The subject of this article on the Balanced Labour Market Act (WAB) is the new rules regarding dismissal and the transition payment. The WAB introduces a new ground for dismissal that will probably make it easier to dismiss employees on personal grounds. In addition, the transition payment changes in the event of involuntary departure. In this article we would like to bring you up to date and give you practical tips.
Change 1: introduction of a new ground for dismissal
At present, a petition procedure for dissolution of an employment contract must still be based on at least one fully substantiated ground for dismissal. This is often difficult for the employer to demonstrate because it has not been sufficiently documented, or too few steps have been taken in the file, even though the employment relationship has already been completely ruined. The WAB has addressed this by introducing a new ground for dismissal. This is the so-called ‘i-ground’, on the basis of which employers will soon be able to combine several incomplete grounds for dismissal. Those incomplete grounds together carry such weight that continuation of the employment contract can no longer reasonably be required of the employer and/or employee. Dissolution of the employment contract via the subdistrict court is therefore expected to become easier as a result.
Application of the ground for dismissal in practice
The new ground for dismissal is, however, already raising a lot of questions. For example, in the case of underperformance, does an improvement plan still need to be started, or is it sufficient that the underperformance has merely been discussed? In the event of a disturbed working relationship, does a mediation process still need to be started, or is dismissal already possible once it is established that the relationship between the parties is completely disturbed? After all, mediation would then be a sham and would invariably lead to an exit mediation (mediation is then not used to restore the employment relationship, but to choose the conditions under which the parties part ways)?
The government has probably deliberately chosen to once again give the court a little more freedom to rule on matters of this kind. The i-ground in fact closely resembles the dismissal law from before the WWZ, when dissolution was possible on the basis of the open standard: “changes in circumstances of such a nature that the employment contract should in fairness be terminated”.
Tip #1: Although an incomplete ground for dismissal no longer stands in the way of being able to terminate the employment relationship, it remains important to have a properly documented personnel file with plenty of written documents to demonstrate the combination of two incomplete grounds for dismissal. This will be of great importance for the i-ground. It is therefore still wise to send written warnings, properly document complaints from customers and/or colleagues, keep records of conversations, etc.
Change 2: higher compensation for dismissal based on the i-ground
Since dissolution of the employment contract via the i-ground means that there is no fully substantiated ground for dismissal, the court can, in addition to the mandatory transition payment, award an extra payment of 50% of the transition payment. The court will look at the facts and circumstances to assess to what extent that incompleteness can be attributed to the employer, and will accordingly also decide which percentage it applies, which could therefore also be 25% or 10%.
Future case law
However, exactly how courts will deal with this is still completely unclear. It therefore remains to be seen to what extent a predictable and fair system will emerge from this. The introduction of the transition payment under the WWZ (replacing the subdistrict court formula) was in fact intended to create a more equal and transparent dismissal system. This new type of compensation may perhaps undermine that again, unless the subdistrict courts come up with some kind of guideline, formula or points system. So that remains to be seen.
Change 3: new formula and conditions for the transition payment
The right to a transition payment under the WWZ arises when the employer terminates (or has caused the termination of) the employment contract and the employee has been employed for 2 years or longer. The calculation of the transition payment currently looks as follows:
- 1/3 month’s salary per year of service for the first ten years of service. This is rounded to half years of service.
- Special scheme for long employment contracts: 1/2 month’s salary per year of service after the tenth year of service. This is rounded to half years of service.
- A special scheme for those aged 50 and over: 1/2 month’s salary per half year of service from the age of 50e. This applies from the first full period of 6 months after the employee has turned 50.
New formula
From 1 January 2020, a simpler formula will apply directly: every employee will then receive 1/3 month’s salary per year of service. The payment under the WAB will henceforth be calculated on the basis of the number of days that the employment contract has lasted, and will no longer be rounded to half years. The special schemes for long employment contracts and for those aged 50 and over will lapse.
With most online tools for the transition payment, you can already see how the transition payment will work out in the new year, and it will therefore turn out considerably cheaper for the longer employment contracts of 10+ years with employees aged 50 and over.
There is one important change that will turn out unfavourably for employers:
Temporary employees are also entitled to a transition payment
Under the current law, the employer only owes a transition payment if the employment contract has lasted two years or longer. With the introduction of the WAB, all employees will soon be entitled to a transition payment if the employer terminates the employment contract. Even employees who are dismissed during their probationary period.
Tip #2: Bear in mind that a transition payment will soon have to be paid to every employee who does not leave voluntarily. You still cannot make an accounting provision for this because it concerns an uncertain liability. This makes temporary staff more expensive, especially now that an additional unemployment insurance (WW) premium of 5% also applies for temporary staff.
Tip #3: Check whether ongoing dismissal files involving longer employment contracts, with older employees, can be postponed until after 1 January 2020. Due to the introduction of the new calculation method, the discount can amount to as much as 40%.
Change 4: introduction of compensation schemes for the transition payment
Transition payment for long-term sick employees
From 1 April 2020, employers can apply for compensation from the UWV if they have paid a transition payment due to the dismissal of a long-term incapacitated employee. This applies retroactively to transition payments paid since 1 July 2015.
There are limits to the compensation, however. The compensation is namely at most the amount of transition payment that would have been owed at the moment the obligation to continue paying salary ends after 104 weeks of illness. So if you have kept the employment contract dormant since 1 July 2015 and thus waited with the payment, the transition payment will be higher because there are more years of service. However, you will not be reimbursed for that part.
#Tip 4: If the Supreme Court confirms this month (October 2019) that the dormant employment contract (a sick employee who, after 2 years of illness, is still formally employed but no longer actually works for you) is contrary to good employership, then you can expect damage claims from those employees. Note that this only applies to cases of illness in which the obligation to continue paying salary stopped from 1 July 2015 onwards. In that case, we recommend that you seek advice on the best course of action from your employment law lawyer. Wait until the employee comes forward with a damage claim (via a legal expenses insurer or lawyer), or take the initiative yourself to terminate the employment relationship anyway and pay the transition payment so that this payment does not increase any further.
Compensation for small employers
In addition, from 2020, director-owners of small companies (25 or fewer employees) who end their business due to incapacity for work or reaching retirement age can claim compensation for the costs of the transition payment. The legislator’s reasoning is that this way they do not bear disproportionately heavy burdens and will hopefully sooner offer employees a permanent contract. This compensation can also be applied for at the UWV.
In summary:
Dismissal of permanent employees should become somewhat simpler and cheaper, but it remains to be seen how the extra compensation under the i-ground for dismissal will work out financially in practice. Dismissal of temporary employees, on the other hand, becomes more expensive. In addition, be aware of the risks of dormant employment contracts and proactively consider whether applying for the compensation scheme is an option for you.
We previously discussed the most important changes under the WAB for temporary employment contracts and for on-call contracts & payrolling.
Help from TLC
Contact us if you need advice on pragmatic and legally sound solutions regarding dismissal and the transition payment.
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