Transitional compensation in case of long-term disability is being overhauled

By Mr. Tjeerd Hoekstra, CMS

Normally, the Budget Memorandum contains a healthy dose of measures that aim to stimulate the labour market. This year, this dose was relatively limited. The Bill on the Balanced Labour Market Act (WAB) had already been adopted by the Senate before the summer recess – namely on 10 July 2018 – and was therefore known in substance. The measures of the WAB were therefore mainly repeated in the Budget Memorandum.

However, there is one part of the WAB that many people were eagerly awaiting. That part concerns a compensation scheme for the transition payment to be paid by the employer in the event of dismissal of an employee on the grounds of long-term incapacity for work. This obligation was, and still is, a thorn in the side of many employers.

Before the Work and Security Act came into effect (on 1 July 2015 – WWZ), the employer could terminate the employment contract – with a dismissal permit from the UWV – after two years of incapacity for work. In this case, the employer was not obliged to pay compensation to the employee. Only in cases where the employee believed that the dismissal was manifestly unreasonable, could the employee request compensation from the court.

Transition payment

With the entry into force of the WWZ, the transition payment was introduced. The transition payment results from the system of the law and is due in all cases in which the employer takes the initiative to terminate and the employer has not acted seriously reprehensibly. The transition payment is therefore also due in the event that the employer terminates the employment contract after two years of incapacity for work. For many employers, this feels like a double burden, because during the two years of incapacity for work, the salary has already been paid and (if all goes well) intensive reintegration efforts have been made.

This objection in particular has led to the Minister including a compensation scheme in the WAB. The starting point is that the employer first pays the transition payment himself and then appeals to the compensation scheme, whereby the following conditions apply.

The employer is only eligible for compensation of the transition payment paid if the employment contract has been terminated after two years of incapacity for work, because the employee is no longer able to perform the agreed work due to illness or disability. The compensation will be provided by the UWV from the General Unemployment Fund, which will be offset by an increase in the premium. The compensation will not be higher than the transition payment to which the employee would have been entitled in the original situation. In this respect, the employability costs and the transition costs that the employer has paid and that can be deducted from the transition payment will be compensated up to a maximum of the amount of the transition payment.

Compensation scheme

The compensation scheme will apply retroactively to situations in which the employment contract ended on or after 1 July 2015. The compensation scheme does not distinguish between the nature of the employment contract. The proposed period within which the application for compensation must be submitted is six months after the employer has paid a transition payment. Further implementation rules can be established by ministerial regulation.

The intended date on which this measure will enter into force is 1 April 2020. From that moment on, employers can apply to the UWV for compensation for employment contracts that ended after 1 July 2015. When applying, the employer must submit the dismissal permit and/or the letter of termination or a termination agreement showing that the employment contract has been terminated due to long-term incapacity for work. In addition, it must be demonstrated that the transition payment has actually been paid. The conclusion is therefore that the employer will have to have its administration in order in order to be able to use the compensation scheme. It is not yet clear how the bill will be implemented in practice, but this will undoubtedly be announced at a later date.