Since the introduction of the Work and Security Act, we’ve seen a new trend emerging: many employers keep employment contracts with long-term disabled employees dormant, in order to avoid the transition payment that in principle is payable after two years of employment in the event of forced dismissal. Case law is divided on the issue of whether keeping employment contracts dormant is allowed. Whereas previously no obligation to dismiss was assumed, courts recently ruled that the employer could in fact be obliged to dismiss an employee who has a long-term disability. According to the courts, an obligation to dismiss ensues from good employment practices. These cases involved distressing cases of terminally ill employees. What exactly applies in such cases?
Obligation to dismiss?
The starting point is that the transition payment must be paid in the event of forced dismissal after two years of employment, regardless of the ground for dismissal and therefore payment must also be made to long-term disabled employees. Nonetheless, the legislative text does not contain an obligation to dismiss. Dutch employment law in principle aims to prevent unjustified dismissal.
If the employer keeps the employment contract dormant, then the employee is not entitled to the transition payment. However, in exceptional cases, the employee may request termination of the employment contract and thus obtain a transition payment.
Until recently it was assumed that an employer could not legally be obliged to terminate a dormant employment contract. Courts ruled that keeping employment contracts dormant was not in violation of good employment practices. This resulted in employers keeping employment contracts dormant on a large scale due to double costs; an obligation to continue payment of wages for 104 weeks and a transition payment. What’s more, keeping an employment contract dormant is not entirely without risk. A recovered employee can, among other things, at some point claim resumption of work and continued payment of wages. The transition payment will also continue to increase.
Is the Transition Payment Compensation Scheme the solution?
With the introduction of the Transition Payment Compensation Scheme, the legislator wanted to remove obstacles for employers to terminate ‘socially undesirable’ dormant employment contracts, with retroactive effect to 2015. On the other hand, the compensation scheme still does not oblige employers to terminate dormant employment contracts, in which employers may have an interest, as the transition payment by definition is not compensated in full (see our February Newsflash on the Transition Payment Compensation Scheme).
Case law is divided on the obligation to dismiss
To date, employers are still inclined to keep employment contracts dormant. However, whereas previously no obligation to dismiss was assumed, courts recently ruled that the employer could in fact be obliged to dismiss a long-term disabled employee. According to the courts, an obligation to dismiss ensues from good employment practices. These cases involved distressing cases of terminally ill employees. Given these additional circumstances, the court concluded that the employer did not have a legitimate interest in not dismissing the employee, as the employer ‘only pursued a financial interest’ (i.e. to avoid paying the transition payment). According to the court, this interest was not sufficiently important in relation to the new compensation scheme.
What is striking, however, is that in other recent cases poor employment practices were not assumed when dormant employment contracts were maintained despite the new compensation scheme. In these cases it was stressed that there is currently no legal obligation to terminate dormant employment contracts and that this does not follow from the compensation scheme either. It was furthermore taken into account that an application requesting the award of compensation for a transition payment cannot be submitted before 1 April 2020.
Clarity requested from the Supreme Court
Dutch employment law in principle aims to prevent unjustified dismissal. An obligation for the employer to terminate the employment contract does not seem to be relevant, but is now under discussion. Last week (10 April 2019), a court referred questions for a preliminary ruling to the Supreme Court in order to obtain clarity on whether an obligation to dismiss could apply.
Hopefully we will soon know more and be able to advise you more concretely on how to deal with dormant employment contracts.