Employers can apply for compensation for transition payments!

The House of Representatives and the Senate have adopted the draft law on compensation for employers who have paid transition allowances. The law is intended to compensate employers for the high costs they incur when employees are on long-term sick leave, and the allowance the employer must pay an employee if the employment contract is terminated for economic reasons. The government view is that employers should not be left to shoulder the full burden of transition allowances in the event of dismissal due to long-term disability or on economic grounds.

What does this new law entail?

The first measure relates to dismissals for economic reasons. In some circumstances, the employer will no longer has to pay an allowance. Under the new law, this is the case if:

a) The employment contract is terminated due to economic circumstances and

b) Based on the collective labour agreement or the rules of the relevant administrative authority, the employee is entitled to a measure to limit the duration of unemployment, or is entitled to reasonable financial compensation, or a combination of the two.

In summary, the parties to a collective labour agreement are given leeway to depart from the statutory allowance in the case of termination for economic reasons. However, the collective labour agreement must offer reasonable financial compensation or provide for a measure that increases the likelihood of the employee concerned finding new work.

Examples of such measures are an internal compensation scheme, training options, outplacement, or supra-statutory, supplementary unemployment benefit. Crucially, the monetary value of this measure does not have to be equal to the allowance to which the individual employee would have been entitled. Moreover, whether the individual employer offers this measure, or a body such as a foundation to which the employer pays an annual or other contribution, is immaterial.

The second measure concerns terminating the contract of an employee who has been unfit for work on a long-term basis (more than two years). In some circumstances, an employer can obtain compensation from the UWV Employee Insurance Agency for the transition allowance due. According to the new law, an employer can obtain compensation from the UWV for the allowance if the employment contract

a) is terminated due to long-term incapacity for work after the employee has been ill for two years (or, in the case of a wage sanction, after three years of illness), or

b) has been terminated by law and the employee was unable to perform the agreed work due to illness or infirmity at that time.

The employer can then apply for compensation, irrespective of whether:

  • a dismissal procedure has been conducted,
  • the contract is being terminated by mutual agreement or
  • the employment relationship is ending by operation of law.

This is because the legislator feared that, otherwise, employers would (needlessly) initiate official dismissal proceedings to terminate the employment contract, thus increasing the workload of the UWV (and the courts).

In principle, an application for a refund of the allowance must contain the following information/documents:

a) the employment contract with the employee concerned

b) evidence that the employment contract was terminated due to long-term incapacity for work, such as:

  • the permit from the UWV to terminate the employment contract on the grounds of long-term incapacity for work, or the decision of the district court dissolving the contract for that reason;
  • the settlement agreement (concluded after the end of the period in which dismissal is prohibited during illness) which relates to the termination of the employment contract due to long-term incapacity for work, by mutual agreement

c) if the employment relationship was not terminated due to extended incapacity for work with a permit from the UWV:

  • a statement by the company doctor to the effect that the employee was ill when the employment contract ended
  • the period during which the employee was ill
  • and the wage paid by the employer during the illness

d) the wage paid by the employer during the illness (based on payslips).

It is, of course, also advisable to keep a meticulous record of data used to calculate the allowance and to retain proof of payment.

Please bear in mind that the UWV can claim the compensation back from the employer should it become apparent that the compensation was wrongly paid, or an overpayment was made. In the explanatory statement on the law, the legislator goes as far as saying that deliberate false information (fraud) may be referred to the public prosecutor’s office.

The provision enters into force on 1 April 2020. Employers then have six months from 1 April 2020 in which to submit an application to the UWV. This means that applications for compensation for allowances payable between 1 July 2015 and 1 April 2020 must be submitted by 1 October 2020.

Normally, the UWV processes new applications within eight weeks. However, due to the anticipated sudden influx, applications concerning compensation for allowances paid in the period from 1 July 2015 to 1 April 2020 will be processed within six months.

Bear in mind that applications by employers who are taking advantage of the so-called staggered payment scheme will not be processed until after the final payment.

The new law therefore bodes well for employers! Provided all the requirements are met, employers can obtain compensation for allowances they had to pay to employees on long-term sick leave. Moreover, depending on the circumstances, they may no longer have to pay a transition allowance when dismissing employees on economic grounds.

Employers who have already paid allowances are advised to keep all of the data on these cases up to 1 April 2020 as, from 1 April 2020, they have six months in which to apply for compensation from the UWV for these allowances.

However, the new law also bodes well for employees! At present, many employers allow employment contracts to become dormant after two years of absence due to illness, in order to avoid paying an allowance. This revised law, however, may lead employers to reassess the situation, and prompt them to terminate such employment contracts in future. After all, employers do have to contend with a number of complications inherent in dormant employment contracts (see: https://www.spee-advocaten.nl/welche-haken-hat-ein-ruhendes-arbeitsverhltnis)

If you have any questions or are in need of advice, get in touch with SPEE advocaten & mediation for a chat without obligation. Our employment lawyers will be happy to be of assistance!

SPEE advocaten & mediation Maastricht