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1 Apr 2019 Dormant employment contracts and the right to a transition allowance; the battle is far from decided!

The subject of dormant employment contracts remains hotly debated. Until recently, it was still common practice in jurisprudence to find against employees bringing proceedings against their dormant employment status. Yet in the wake of the latest legislative developments and comments by the minister responsible, courts are beginning to rule that a ‘dormant employment contract’ is inconsistent with the requirement to act as a reasonable and fair employer (see our previous articles on this subject). However, not all judges share this view, as evidenced by a recent ruling of the court in Overijssel.

In this case, the employee had asked the court to terminate the employment contract on the grounds that the employment relationship had broken down, and also sought the award of a transition allowance. The employee in question was on long-term sick leave and had been in receipt of an IVA (Income Provision [Fully Disabled Employees] Regulation) benefit since 16 August 2016. The employee feared that the employer was intending to wait until April 2020 to terminate the employment contract, by which point the employee’s entitlement to the allowance would have lapsed, as he reached retirement age in 2019.

Although the employer did not contest the requested termination of the employment contract, it did contest the employee's application for the transition allowance, arguing that an employer being in an employee's bad books for not paying said employee the allowance is not tantamount to a breakdown in the employment relationship. Further, the employer argued, allowing an employment relationship to become dormant does not run counter to ‘acting as a reasonable and fair employer’ or to the principle of what is just and equitable. The employer also asserted that it was under no obligation to terminate an employment contract with an employee who was on long-term sick leave. Moreover, the employer disputed that it could recover the full amount of the allowance from the UWV Employee Insurance Agency, stating that it had a financial interest in allowing the employment to become dormant.

The judge at the district court ruled as follows: The employer has the discretion and policy freedom to decide whether to terminate an employment contract with an employee who has not performed work for more than two years. There is no legal obligation to terminate the contract. The introduction of the ‘Wet compensatie transitievergoeding’ (Dutch transition payment [compensation] act) does not alter this fact. Moreover, 1 April 2020 is the earliest date from which to apply to the UWV for compensation for transition payments made. Therefore, were an employer to pay allowances to employees now, that employer would have to foot the bill for very substantial transition allowances, with no assurance that the UWV will compensate it for any of the outlay. In light of this, it cannot be asserted at present that the employer in question has no legal interest in refusing to terminate a dormant employment contract before the transition payment act comes into force.

Therefore, the court provisionally concludes that the employer is not acting in a culpable manner by leaving the employment contract dormant. Nor does this alter the fact that the employee reached statutory retirement age before 1 April 2020, bringing an end to his employment contract. This is the consequence of a legal provision over which the employer has no influence.

Lastly, the district court took the view that, once the transition payment act enters into force and it is possible to gauge how the UWV will handle compensation payments, it may be that, in certain circumstances, maintaining the employment contract of an employee who has no prospect of recovery after two years of illness will expose an employer to serious recrimination. As the district court sees it, going forward particular consideration must be given to situations in which an employer's sole reason for maintaining a dormant employment relationship is to avoid paying a transition allowance. This interest is eclipsed by the compensation paid by the UWV for the allowance, so the employer no longer has a legitimate interest in maintaining the dormant employment relationship.

In summary, the ruling in this case did not go in the employee's favour. However, since the judge did not rule out the prospect of a different outcome in the future, this ruling is not unequivocally bad news for employees.

We will, of course, be keeping a close eye on developments in jurisprudence.

Are you in a dormant employment relationship, or would you like more information? Feel free to contact one of our employment lawyers for a chat without obligation!

Read our other articles on dormant employment contracts here:

SPEE advocaten & mediation Maastricht


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