On Friday 8 November 2019, the Supreme Court finally gave its answer in the ‘sleepers case’. The Supreme Court considers dormant employment contracts to be a form of poor employership. In this article we describe the five most important points of attention regarding the termination of dormant employment contracts.
Keeping employment contracts dormant (employees who are no longer actually working for the employer due to permanent incapacity for work and whose continued salary payment has stopped) is regarded as poor employership, since this deprives employees of their right to a transition payment.
For these employees, it is now, as of 8 November 2019, definitively the starting point that an employer, on the basis of good employership within the meaning of art. 7:611 of the Dutch Civil Code, is obliged to agree to a proposal from the employee to terminate the employment contract by mutual consent. This is subject to the employee being granted a severance payment equal to the statutory transition payment.
An exception to this starting point must be accepted if – on the basis of circumstances to be put forward and, where necessary, proven by the employer – the employer has a legitimate interest in maintaining the employment contract. Such an interest may, for example, lie in real reintegration possibilities for the employee. Such an interest cannot lie in the circumstance that the employee, at the time he makes his termination proposal, has almost reached retirement age.
With this ruling in hand, the expected hundreds if not thousands of employees who are still in a dormant employment contract will now request termination of their employment contract from their employer.
When such a request lands on the doormat, there are five points of attention for employers.
- How does the employer terminate the employment contract due to long-term incapacity for work?
Via the UWV portal, the employer can simply request digital permission for termination of the employment contract due to 104 weeks of incapacity for work. For this you do need to have applied for the ultra-modern eHerkenning, and that takes some time. This has been required since 1 November 2019 when using the UWV portal. Fortunately, at most UWV departments you can still submit the application by fax or by post. Two extremes in terms of submission method, but there aren’t any more flavours available at the UWV. By email is unfortunately not an option. That has to do with cybersecurity.
Of course, you can also terminate the employment contract by mutual consent via a settlement agreement. That may save time and costs, but it does give the employee room to still negotiate the amount of the compensation. Ask your legal adviser for support.
- Which severance payment must the employer pay to the employee?
If an employee makes a request for termination, they will initially claim damages. Subsequently, through negotiation, this will result in a request to terminate the employment relationship by mutual consent. The employee will initially demand a severance payment calculated on the basis of the date of termination of employment, lying in the future. However, the employer is not legally required to pay more in severance than what would have been owed in transition payment on the day after the day on which the employee could have been dismissed due to incapacity for work. As a rule, that is therefore 104 weeks after the first day of incapacity for work. Via the route of mutual consent, employees may also try to obtain compensation for other items, such as damage due to not being able to enjoy the transition payment earlier, the statutory increase normally owed on wage claims, or statutory interest, etc. up to the legal end date of the employment contract. The extent to which the employer goes along with this all depends on the negotiations and the employer’s wish to avoid the UWV route. - Does the UWV compensation differ from the severance payment?
Yes, that can happen. The compensation to be obtained by the employer may, under (exceptional) circumstances, be lower than the amount of transition payment to which the employee would be entitled upon termination of the employment contract at the employer’s initiative. This is the case, for example, if the total amount of gross salary that the employer paid during the period of incapacity for work is lower than the statutory transition payment (art. 7:673e paragraph 2 of the Dutch Civil Code). This will only be the case with employees who have had a very long employment contract.
The objective of the compensation scheme (art. 7:673e of the Dutch Civil Code) is, after all, to prevent the continued salary payment and the payment of the transition payment added together from amounting to too much for entrepreneurs. That is why the compensation amount is linked to the wage sum that was paid, provided this is not higher than the amount of the transition payment owed upon termination of the employment contract (directly after 104 weeks of illness).
The Supreme Court has therefore also ruled that the amount of the (to be agreed) severance payment stands separate from and does not necessarily have to align with the amount of the compensation that the employer can recover from the UWV. And therefore the employee will of course argue that the transition payment must be calculated independently of that, according to the statutory formula. In doing so, they will try to stretch the end date to the actual date on which the employment contract is terminated, and to obtain compensation for other items as well. See point 2.
- May a payment arrangement be made because there is insufficient liquidity to pay the severance payments?
From 1 April 2020, pursuant to art. 2 of the Transition Payment Compensation Scheme Regulation, an application under the Transition Payment Compensation Act requires that the full payment has been made to the employee, which obliges the employer to provide advance financing. When submitting the compensation application, the employer will therefore also have to be able to provide a payslip showing that the transition payment has been processed.
The Supreme Court has however indicated that if the employer makes it plausible that this advance financing leads to serious financial problems, the court has the freedom to decide that payment to the employee takes place in instalments or is postponed until after 1 April 2020. The only question is whether the UWV will comply with that. In that respect it may be better, after 1 April 2020, to make such arrangements via a settlement agreement that this does not stand in the way of the compensation application. Ask your legal adviser for advice on this. - Will the incapacity-for-work insurers that covered employers’ continued salary payment go on to claim the compensation?
This is a question that may be relevant if the employer had covered the continued salary payment of the sick employee with an incapacity-for-work insurance policy. Strictly speaking, the UWV compensates the continued salary payment during illness and not the transition payment. That compensation is capped at the amount of the transition payment, so that it looks as if the transition payment is being compensated. That is why it is a relevant question whether the insurer will exercise recourse against that compensation for the continued salary payment, because they had covered 70% of that continued salary payment at the time.
The answer will probably lie in the policy conditions under which the benefits were paid to the employer at the time. It is important to make sure that the incapacity-for-work insurer has not reserved the right to claim the UWV’s compensation. Ask your insurance intermediary for further advice on this. They should be able to answer this.
If you have any questions about the foregoing or need legal support in the field of employment law, please contact us.
