Since 1 July 2015, any employer who terminates the employment contract of an employee who has been in service for two years or more is liable to pay a transition payment. In principle, this obligation also applies if the employer terminates the contract for commercial reasons or following two years of sickness. In 2017, the transition payment amounts to a maximum of €77,000 gross, or a maximum of one gross annual salary.
Amount of the transition payment
The following formula applies to the amount of the transition payment: for the first 10 years of service, one-third of the gross monthly salary per year of service; and for subsequent years of service, half the gross monthly salary. There is one exception to this until 2020, namely for employees aged 50 or over who work for an employer with more than 25 employees. In that case, a higher allowance applies.
Two types of costs to be deducted
One of the purposes of the transition payment is to help the employee cover the costs they would otherwise have to incur to facilitate the transition to other work. These costs may be deducted from the transition payment. There are two types of costs involved here.
- Transition costs (costs incurred to prevent unemployment or to shorten the period of unemployment). These include training costs, outplacement or the provision of a longer notice period.
- Employability costs (costs incurred to promote a wider range of employment opportunities for the employee outside their own role and outside the employer’s organisation). These are costs incurred before any redundancy took place and which are not related to the role. Examples include training that is not specific to the role but which may contribute to broader employability in the labour market.
Conditions for a reduction
The employee must have given their prior written consent for these costs to be deducted from the transition payment, and the employee must have been notified of the costs in writing before they are incurred. The costs must be proportionate; in other words, they must not be excessively high, for example in the case of an outplacement programme. Costs relating, for example, to a clause on study expenses may not be set off against the transition payment. These are dealt with separately, but relate to costs that may be recovered from the employee, whereas these costs do not relate to transition or employability costs.
Since 2017, the parties to a collective labour agreement have been free to determine the extent of the benefits provided in place of the transition payment. These benefits no longer need to be equivalent to the statutory transition payment.
Proposal for compensation for transition payments to sick employees
A bill has been tabled which aims to compensate employers, with retroactive effect from 1 January 2019, for transition payments due to employees on sick leave. It is not yet clear whether this bill will be passed. Where there are commercial grounds, a collective agreement may provide for an exemption from the obligation to pay a transition payment.