19 September 2019

Advocate General: employer must in principle end dormant employment agreement by mutual consent at the employee’s request

Advocate General De Bock of the Supreme Court of the Netherlands has provided the Supreme Court with independent advice – known as an “advisory opinion” – regarding preliminary questions that the Limburg District Court referred to the Supreme Court in April 2019. These questions were suggested to the district court during preliminary relief proceedings in a test case brought jointly by Stichting Achmea Rechtsbijstand (SAR) and De Brauw Blackstone Westbroek. The Advocate General’s view is that employers are in principle obliged to terminate the dormant employment by mutual consent and to pay a transition payment, at the employee’s request.

Background and preliminary questions

Since the Dutch Work and Security Act (WWZ) entered into force in 2015, there has been a tendency among employers not to terminate dormant employment contracts with long-term disabled employees. Hanging on to these dormant contracts allows employers to avoid having to pay the employee the statutory transition payment, which amounts to a maximum of EUR 81,000 or the employee’s annual salary if this is higher.

To encourage employers to terminate employment agreements after two years of illness, parliament passed the Transition Payment Reimbursement Act (WCT). The WCT will enter into force in April 2020 and has retroactive effect to the date the WWZ entered into force in 2015. Under the WCT, employers will, in the near future, be able to ask the Dutch Employee Insurance Agency (UWV) for reimbursement of transition payments made to employees who are dismissed after two years of illness. The reimbursement will be limited to the transition payment the employee was entitled to after two years of illness. This means that any financial consequences for employers will be limited where dormant employment contracts are terminated. In spite of this fact, however, 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 an employment contract.

In the test case now pending before the Supreme Court, a long-term disabled employee, who suffered serious back complaints, repeatedly – but unsuccessfully – requested the employer to terminate the employment by mutual consent, subject to a transition payment being made. The employee eventually started proceedings and claimed 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 – and if so, under what circumstances – an employer, acting as a “good employer” within the meaning of Article 7:611 Dutch Civil Code, must agree to a proposal by a long-term disabled employee 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 Article 7:611 Dutch Civil Code implies that an employer may not keep an employment contract “dormant” with the sole aim to avoid making the transition payment. Consequently, according to the Advocate General, an employer must in principle terminate a dormant employment agreement and pay a transition payment if a long-term disabled employee requests this. The Advocate General takes into account that, under the WCT, the employer will be reimbursed for making a transition payment, thus limiting any financial consequences for the employer. Besides, it is clear that the Dutch legislature wants to end the current tendency among employers not to terminate dormant employment contracts of long-term disabled employees.

This means that, in the Advocate General’s view, the employer is in principle obliged to terminate the dormant employment and make a transition payment, at the employee’s request. This may be different if the employer has legitimate interests to continue the employment agreement, for example, if there is a realistic prospect of the employee’s reintegration.

The Advocate General’s advisory opinion benefits long-term disabled employees whose employment is dormant. The Supreme Court will take the advisory opinion into account, but is not bound by it. The Supreme Court’s decision clarifying this issue 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.

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