19 September 2018

Supreme Court: employees entitled to partial transition payment

In its ruling of 14 September 2018, the Supreme Court ruled that in certain cases involving a reduction in employees’ working hours, those employees are entitled to a partial transition payment. This is the case if the reduction in working hours is ‘substantial’ – at least 20% – and ‘on a structural basis’ – meaning the reduction can reasonably be expected to be permanent. This ruling is particularly important, as Dutch legislation does not provide for partial termination of an employment agreement or for a partial transition payment in case of a reduction in working hours.

Background

The employee entered into the service of (the legal predecessor of) Kolom, a special education institution, in 1980. The employee worked as a teacher, initially on an almost full-time basis (0.9894 FTE). In 2013, she became partially unfit for work and eventually her degree of disability was established at 43.83%. Due to this partial disability, Kolom gave notice to terminate the employment agreement per 29 February 2016. Replacing this employment agreement, with effect from 1 March 2016, the employee would be appointed as a teacher on a part-time basis (0.5500 FTE). At that time, she no longer enjoyed special protection against dismissal, since Dutch law only provides for protection during the first 104 weeks of illness.

The employee turned to the cantonal court and requested the court to order Kolom to pay her a partial transition payment of EUR 33,394.40. This amount corresponded to the part of the employment (0.4394 FTE) that was terminated as from 1 March 2016. Unlike the cantonal court, the court of appeal rejected the requests. Thereupon, the employee appealed to the Supreme Court.

Entitlement to partial transition payment in case of reduction in working hours?

Following article 7:673 of the Dutch Civil Code (DCC), an employee is entitled to a transition payment if the employer gives notice of termination, if the court dissolves the contract at the initiative of the employer or if the employer does not renew a  fixed-term employment agreement with a duration of at least 24 months. In the present case, the main legal question was whether Dutch law provides for a partial transition payment in case of a reduction in working hours.

The Supreme Court ruled that this is the case. The Supreme Court considered that Dutch legislation provides neither for partial termination of an employment agreement, nor for the entitlement to a partial transition payment in the case of a reduction in working hours. Nevertheless, the Supreme Court considered that, in the case of a reduction in working hours and under certain special circumstances, employees should be entitled to a partial transition payment. The reduction in working hours should be both ‘substantial’ – at least 20% – and ‘on a structural basis’ – meaning reasonably expected to be permanent. The Supreme Court gave two examples of situations in which an employee will be entitled to a partial transition payment; first, when redundancies are necessary due to business or economic reasons, and second, when an employee suffers partial and permanent disability for work. The Supreme Court further ruled that the partial transition payment should be calculated in proportion to the reduction in working hours and to the remuneration the employee was previously entitled to.

“With this ruling, the Supreme Court has filled in a blind spot in Dutch dismissal legislation”, says Stefan Sagel, who litigated the case on behalf of the employee before the Supreme Court. Although the Supreme Court only gave two examples of reduction of working hours (namely in cases of business or economic reasons or partial illness), Stefan Sagel considers it likely that a partial transition payment can also be due in case of other reasons for dismissal, such as an unsatisfactory performance by the employee. “This can affect not only employees in the education sector, but also other sectors where employees are confronted with a reduction in their working hours at some point. For employees in this situation, I advise submitting a claim for a partial transition payment within three months after being informed about the reduction in working hours, to prevent the risk of forfeiting all rights, as according to the Dutch Civil Code a claim for a transition payment will have to be filed within three months after the termination date. The courts may hold that this expiry period will also apply in case of a mere reduction of working hours, leading to a pro rata entitlement to a transition payment”.