What will change as a result of the bill to limit the compensation scheme for transition payments in the event of dismissal due to long-term incapacity for work to small employers?
According to the government's proposal, from 1 July 2026 onwards, only small employers, subject to conditions to be specified, will be eligible for compensation for the transition payment paid in the event of dismissal due to long-term incapacity for work.
On 5 December 2025, the cabinet agreed to submit the bill to the House of Representatives. On 10 December 2025, the bill containing this amendment was submitted. The bill provides for an amendment to Section 7:673e of the Dutch Civil Code.
The reason for the restriction of the compensation scheme is that medium-sized and large employers can be expected to have sufficient financial capacity to pay the transition payment themselves in the event of dismissal. The financial result of this proposed amendment will bring no less than €380 million per year into the treasury. The bill and accompanying documents can be read here.
In this article, we will first discuss the scheme that currently applies, and then we will discuss the (possible) future situation from July next year onwards.
Current regulations regarding termination of employment after two years of illness
Since 2015, employers have been obliged under Section 7:673 of the Dutch Civil Code to pay a transition payment if the employment contract is terminated, dissolved or not renewed on the employer's initiative. The employer is also obliged to pay a transition payment if the employment contract is terminated due to long-term incapacity for work.
In practice, this obligation met with objections, because employers are already obliged to continue paying wages for two years in the event of illness and to make efforts to reintegrate the employee. In some cases, this led to so-called 'dormant employment contracts', whereby the employment contract remained formally in force, while the employee no longer performed any work and the employer was no longer obliged to continue paying wages.
Ultimately, preliminary questions on this matter were submitted to the Supreme Court in 2019. One of those questions was whether an employer is obliged to agree to the proposal to terminate the employment contract after two years of an employee's incapacity for work, with the award of a transition payment. In its ruling in the Xella case, the Supreme Court ruled that employers are obliged, partly on the basis of good employment practices (Section 7:611 of the Dutch Civil Code), to cooperate in the termination of the employment contract after two years of illness of the employee, with the award of the statutory transition payment. The Supreme Court argued at the time that, with the entry into force of the Transition Payment Compensation Act on 1 April 2020, the employer would be compensated (also retroactively) by the UWV for the transition payment to be paid and that an employer may not maintain a dormant employment contract.
The full ruling of the Supreme Court in the Xella case can be read here.
Consequences of future legislation
The aforementioned bill removes the reason cited by the Supreme Court in 2019 for medium-sized and large employers to cooperate in terminating a dormant employment contract with an employee. Larger employers are expected to be able to bear the costs of the transition payment themselves. This means that there will no longer be any compensation and there seems to be no reason for the employer to cooperate in the termination of a dormant employment contract.
In practice, this could mean that the problem of dormant employment contracts at medium-sized and large employers will resurface. We know from past experience that employers sometimes prefer to allow a dormant employment contract to continue after two years of illness rather than having to pay the statutory transition payment. This is because compensation for the transition payment paid may no longer be available in the future, and continued payment of wages during illness was already costly for the employer.
Furthermore, it is unclear what exactly is meant by "small employers". In the past, an employer was considered "small" if it had fewer than 25 employees, at least under the old law (Section 7:673a(2) of the Dutch Civil Code (old)) regarding the obligation to pay a higher transition payment. The bill now refers only to Section 36(2) of the Social Insurance Funding Act (Wfsv) for the definition of a small employer. That section then refers to Section 2.19d of the Wfsv Decree, which provides a definition of a small employer, namely:
"... the employer who, in the second calendar year preceding the calendar year for which the contribution is determined, has incurred a contributory wage as referred to in Article 2.5(1) that is equal to or less than 25 times the average contributory wage per employee, as referred to in Article 2.5(2), in that calendar year."
This means that the contribution-liable wage incurred by the employer in the two calendar years preceding the contribution year is taken into account. If that wage is equal to or less than 25 times the average contribution-liable wage per employee in that year, the employer is classified as a small employer.
In short, whether an employer is classified as 'small' depends on the total wage bill in the reference year, compared to a statutory threshold based on the average wage per employee.
In the aforementioned paragraph, the small employer is defined by reference to Article 2.5, first paragraph, of the same decree. This means that new employers seem to be automatically classified as small employers in the first two calendar years, because no wage data is available for that period. The answer to the question of whether an employer is a 'small employer' therefore requires a search through a series of legal references. This makes it complex.
It is currently unclear how this will work in practice if the bill is passed by the House of Representatives and the Senate. Our employment lawyers will, of course, keep a close eye on this for you.
Are you unsure about the options for terminating employment after two years of illness?
At SPEE advocaten & mediation, we have many years of experience in employment law and assist both employers and employees with legal issues surrounding (the calculation of) transition payments and the termination of employment, including after two years of illness. Please feel free to contact our employment lawyers for expert advice. Contact page SPEE advocaten & mediation..