Two years of sick leave in the Netherlands
End of ‘dormant employment’ is coming
As you may know, an employer in the Netherlands is liable for continued payment of wages of an employee on long-term sick leave for two years. Additionally, the employer is not permitted to terminate the employment contract during those two years. With very few exceptions, it is in practice not possible to terminate employment during this two-year period of sick leave.
But what happens after the two-year period of sick leave?
After two years of being on sick leave, the health insurance fund will assess if the employee and employer have made an adequate effort to fulfil their reintegration obligations. If not, the department may impose a wage sanction on the employer. This involves a risk of having to continue payment of wages for a maximum of one more year, i.e. on top of the statutory two-year sick leave period.
If the employer has fulfilled the relevant obligations as per the reintegration case file prepared with the Arbodienst (Occupational Health Service), then the employee will generally be entitled to health insurance fund assistance after two years of sick leave. However, this does not mean that the employment contract is terminated – this simply continues. The employer has an option of starting up a procedure by applying to the UWV (Employee Insurance Agency) for permission to terminate the employment contract. UWV will grant permission if it is unlikely that the employee could start performing work (the original work or adjusted work) within 26 weeks. If such permission is granted, the employer can formally terminate the employment contract.
Transition allowance if the employment contract is terminated after two years of sick leave
However, formal termination of employment comes with an issue. Upon termination of employment, the employer is liable to pay a transition allowance, which is essentially severance pay. Also, an employee is entitled to request payment of his/her holiday time balance.
Due to having to pay severance, many employers choose to do nothing after two years of sick leave. In that case, the employment continues as a ‘dormant contract’. After all, there is no obligation of continued payment of wages, there are no reintegration obligations, and the employee receives a health insurance fund benefits. Dormant employment contracts carry a risk. It is still a valid employment contract. If the employee is capable of working again at a given moment, he or she could technically go to the employer and claim a job. However, if this risk is low, or the employee is close to retirement, employers frequently choose to continue the formal contract as a ‘sleeper’.
There have been some court cases in the past few years, initiated by employees claiming it is unfair that the employer has continued a dormant contract. In almost all cases, the court judged that the employer was entitled to continue the dormant contract and that there was no obligation of formal termination of employment for the employer.
Compensation scheme transition allowance for employers
However, some recent developments are changing this issue. On one hand, the legislator feels it is no longer desirable to have dormant employment contracts on false grounds. On the other hand, the legislator is of the opinion that it is unfair to employers to pay a significant severance pay when they have already continued payment of wages for two years during sick leave and complied with a range of reintegration obligations. For this reason, the legislator decided to pay compensation to employers to refund all or some of the severance pay due after two years of sick leave. This compensation scheme will become effective on April 1st 2020. As from that date, employers may file a request to UWV to claim a refund for all or some of the severance pay paid out to the employee. This scheme is implemented with retroactive effect. Employers that paid out severance pay from mid-2015 due to termination of employment after two years of sick leave are also permitted to file a compensation claim.
This compensation claim may also be filed if the employer has terminated the employment contract based on a termination agreement with the relevant employee after two years of sick leave, rather than via a UWV procedure. Please note that the reason for termination of employment in the termination agreement must be the two years of sick leave. If the agreement states a different reason, then the employer does not have a right to compensation. Furthermore, the employer is required to file all case documents relating to the employee on sick leave, as the documents are required to submit a successful compensation claim. Furthermore, it is essential for the employer to file the compensation claim in due order, i.e. within six months of paying out the severance pay. If the employer files the claim past that date, no compensation will be paid out!
Recent decision of the Supreme Court
Finally, the Supreme Court just published a key ruling. Also, in view of the new developments relating to compensation, the Supreme Court decided in November 2019 that in the context of best employment practices, an employer in principle has an obligation to terminate the employment contract after two years of sick leave, rather than continue it on a ‘dormant’ basis, including granting severance pay to the employee. Some exceptions are possible; however, the expectation is that an employee could successfully claim termination of employment with severance pay.
This involves the awkward situation for the employer that the compensation claim cannot be filed until the compensation is actually paid out to the employee. This sometimes concerns a significant amount and the employer is required to advance this amount.
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Since 1972, Interfisc has offered international HR & Payroll solutions in the Netherlands, Belgium, Germany, France, the United Kingdom, and Italy. We do this from our offices in the Netherlands and Belgium, and with an international team of around 45 committed and caring employees.
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