On 8 November 2019, the Supreme Court gave a preliminary ruling on questions of law regarding termination of dormant employment agreements. Where the requirements for termination of the employment agreement on account of long-term disability have been met, the basic principle is that an employer is required - based on standards of good employment practice - to agree to a proposal from the employee to terminate the employment agreement by mutual consent, awarding the employee the statutory transition allowance.

A dormant employment agreement is an employment agreement that has not been terminated by the employer - although authorised to do so - after two years of disability of an employee. In such event, the employee is still employed by the employer, but no longer receives wages. As long as the employment agreement is not terminated by the employer, the employer will not be required to pay the transition allowance.

The Supreme Court has held that with the introduction of the Transition Allowance Compensatory Scheme Act [Wet Compensatieregeling Transitievergoeding] (which will take effect on 1 April 2020) the legislature had intended to put an end to the phenomenon of a "dormant employment agreement". The standard of good employment practice governing that situation will be that a dormant employment agreement should, in principle, be terminated if the employee so desires and the employer does not have any reasonable interest in continuing the employment agreement. The employer may have a legitimate interest in continuing the employment agreement if there are realistic re-integration opportunities for the employee. The employer will not have a legitimate interest if the employee submits his proposal for termination at a time when he has nearly reached pensionable age.

In such event, the compensation need not be more than the transition allowance applicable in the event of termination of the employment agreement on the day following that on which the employer could have terminated the employment agreement on account of long-term disability.

The Transition Allowance Compensatory Scheme Act entitles employers to compensation for employment agreements terminated on or after 1 July 2015 on account of long-term disability. The employer will, therefore, be required to pre-finance the employee's allowance until the Transition Allowance Compensatory Scheme Act has taken effect. This will be different only if the foregoing would lead to serious financial problems for the employer, in which event the court may decide that payment of the transition allowance can be made in instalments or suspended until 1 April 2020. As from 1 April 2020, the employer will in any event sometimes have to pre-finance the allowance, since a condition for compensation is that the allowance has been paid to the employee in full.

Needless to say, we would like to draw your attention to the new rules concerning the calculation of the transition allowance, the outcome of which may be lower. These new rules have immediate effect. In other words, they apply to employment contracts of which the termination is initiated on or after 1 January 2020.

Also, we'd like to bring to your attention our next Employment Expert Session: A clear view on the labour market in 2030 on 11 December.

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