Employers do not dismiss employees who are unfit for work in order to avoid having to pay the transition allowance. The result is the creation of what is known as a “dormant employment contract”. Formally, the employment contract has not been terminated, but the employee is not carrying out any work due to their illness and no wages are being paid.
Compensation scheme
The government considers this undesirable. A compensation scheme has therefore been set up. We describe this scheme in our article Transition Payment Compensation Scheme. With effect from 1 April 2020, employers will be compensated for transition payments made to employees who are unable to work. Transition payments made between 1 April 2015 and 1 April 2020 will also be compensated retrospectively.
However, most employers maintain these dormant employment contracts, probably until such time as they can actually receive compensation from the government. Whilst the employment contract remains dormant, the transition payment continues to accrue. After all, the amount of this payment is linked to length of service.
Judge
The question of whether it is permissible not to formally terminate the employment contract has now been put to various courts. One argument put forward is that the compensation scheme is due to be introduced. In most cases, however, the court rules that maintaining the employment relationship does not constitute serious culpable conduct or poor employment practices.
In a particularly distressing case, however, the healthcare arbitration tribunal did rule that the employer was obliged to terminate the employment contract and pay the transition allowance. See our article Employer must terminate dormant employment. The District Court of The Hague also recently, in a specific case, taking the view that this constituted a breach of the principles of good employment practice.
The line taken in the rulings of the various lower courts appears to be that employers can only be compelled to terminate an employment contract in very exceptional circumstances. However, these are, for the time being, rulings by lower courts. Only once cases have been brought before the Supreme Court will the much-needed clarity be provided.
Questions referred for a preliminary ruling
The Limburg District Court has taken up this challenge. By referring the matter for a preliminary ruling, this court aims to provide clarity in the near future. The Supreme Court must rule on the question of whether the employer is obliged to accept a reasonable proposal from the employee to amend the employment contract where there has been a change in circumstances. The court also asks whether the inability to continue performing the employment contract constitutes such a change in circumstances. And whether a proposal is reasonable if it entails the payment of a transition allowance upon termination by mutual consent, equal to the compensation to be received by the employer.