Background and preliminary questions
Since the Dutch Work and Security Act (WWZ) entered into force in 2015, employers have not been inclined to terminate dormant employment agreements with long-term disabled employees. Maintaining these dormant employment agreements allows employers to avoid paying the employee the statutory transition payment, which amounts to a maximum of EUR 81,000 or the employee’s annual salary, whichever is higher.
To encourage employers to terminate employment agreements once an employee is ill for two years, parliament has passed the Transition Payment Reimbursement Act (WCT). The WCT enters into force in April 2020 and is retroactive to 2015, when the WWZ entered into force. Under the WCT, employers will soon be able to ask the Dutch Employee Insurance Agency (UWV) to reimburse them for transition payments made to employees dismissed after two years of illness. The reimbursement will now be limited to the transition payment that the employee was entitled to after two years of illness. This means that any financial consequences for employers will be limited. Even so, it is estimated that there are still thousands of cases of dormant employment, as the WCT does not contain a statutory obligation for employers to terminate employment agreements.
In the test case before the Supreme Court, a long-term disabled employee dealing with chronic back pain, had repeatedly – but unsuccessfully – requested that the employer terminate employment by mutual consent, subject to the employer making a transition payment. The employer refused to terminate employment. The employee eventually filed a claim, seeking compensation for missing out on the transition payment as a result of the employer’s refusal to terminate the employment.
During the first stage of the test case, the Limburg District Court referred questions that were raised on behalf of the employee, to the Supreme Court. In short, the Supreme Court was asked whether a “good employer” as outlined in Article 7:611 the Dutch Civil Code must agree – and if so, under what circumstances –, to a long-term disabled employee’s proposal to terminate his or her dormant employment agreement, subject to a transition payment being made to the employee.
Advisory opinion of the Advocate General
According to the Advocate General, the principle of “good employment practices” as set out in the Dutch Civil Code, implies that an employer may not keep an employment agreement “dormant” with the sole aim of avoiding making the transition payment. Consequently, according to the Advocate General, an employer must in principle terminate a dormant employment agreement and make a transition payment if a long-term disabled employee so requests. The Advocate General takes into account that, under the WCT, the employer will be reimbursed for making a transition payment, thus limiting the employer’s financial loss. It is also clear that the Dutch legislature wants to end the current inclination of employers to not terminate the dormant employment agreements of long-term disabled employees.
In the view of the Advocate General, the employer must in principle and at the employee’s request, terminate the dormant employment agreement and make a transition payment. This may differ if the employer has legitimate interests in continuing the employment agreement – for example, if there is a realistic prospect that the employee can be reintegrated.
The Supreme Court will take the advisory opinion into account, but is not bound by it. A decision is expected later this year.
Stefan Sagel and Irina Timp of De Brauw’s employment team litigated this case before the district court, together with representatives of SAR, and are now representing the employee before the Supreme Court.