In labour law, ‘dormant employment contracts’ have become a trend. A ‘dormant employment contract’ arises when, after two years of illness, an employment contract is not terminated by the employer. The employment contract continues, but is dormant, since the employee is not performing any work (because they are unfit for work) and the employer no longer has to pay a wage.

The primary motive for an employer deciding to maintain a dormant employment contract is to avoid paying a transition allowance to the ill employee, as the employment contract is not terminated.

In an attempt to obtain a transition allowance, a number of employees have tried their luck by seeking termination of their contract with a transition allowance. However, the difficulty of substantiating such requests means that, for the most part, such attempts have proved futile. Deciding against terminating an employment contract in order to avoid paying an allowance does not make the employer guilty of a seriously culpable act, as employers are under no legal obligation to lay off an employee after two years of illness.

One employee, who had received a letter from his employer in which the latter confirmed that the mandatory continued payment of his wage had ceased when he began receiving incapacity benefit, thus bringing the employment contract to an end, had more luck: the court awarded him the allowance.

Both employer and employee are doing themselves a favour by always seeking the advice of a lawyer who specializes in dismissal law.

However, the transition allowance is not the only factor to bear in mind when considering whether to maintain a dormant employment contract.

The status of an employee whose contract is dormant must be clarified, as must the potential requirement to include the employee when applying the reflection principle in the event of a reorganization. The minimum thresholds set by laws and regulations must still be observed: questions such as the requirement for a Works Council (employer with 50 or more employees), or the applicability of the law on flexible working conditions(employer with ten or more employees) must be considered.

Another thing to bear in mind is that, in the case of a dormant employment relationship, the reintegration obligations continue to apply to both the employer and the employee. This can make the situation even trickier. Dormant employment contracts are particularly appealing to employers with employees who are on long-term sick leave. However, the employer must take into account that (following a reassessment by the UWV) the ill employee may recover, to some extent, and be available again to perform suitable work for the employer. In this eventuality, the employer must offer the employee suitable work and resume wage payments, unless it can prove that such work is no longer available.

It is therefore advisable to invite the employee to attend regular appointments with the company doctor. As the employee is not paid a wage while he is not working, the employer cannot impose a wage penalty if the employee does not properly fulfil their reintegration obligations. In this scenario, fines may be an alternative. An employment lawyer will be able to advise you.

Not everyone is aware that maintaining a dormant employment contract can also have ramifications for a number of employment conditions, such as holiday. Employers and employees would be wise to seek professional advice, as the rules on whether holidays can be paid or taken, or are forfeited, vary from one case to the next. As the time frames applicable these entitlements are tight, employees in particular are urged to take prompt action, with the help of an employment lawyer, so they do not lose their entitlement.

To sum up, employers and employees need to be aware of the complications inherent in dormant employment contracts.

Furthermore, on 1 April 2020, a law takes effect under which employers can obtain compensation for the costs of paying a transition allowance from that date (with retroactive effect to 1 July 2015). The costs are to be reimbursed from the Algemeen Werkloosheidsfonds (General Unemployment Fund), and the single premium will be increased to fund this.

In summary, before allowing an employment contract to remain dormant, it is advisable for employers to first weigh up the pros and cons of doing so. An employment lawyer can help you with this.

Employees are also advised to obtain legal advice, to make sure they don't overlook certain rights. An employment lawyer can help you safeguard your rights before the window of opportunity closes.

If you have any questions or are in need of advice, please get in touch with one of our employment lawyers. We will be happy to be of assistance!