Retirement severance clause back?

Retirement severance clause back?
07 Jan 2016

De Eerste Kamer heeft eind september 2015 ingestemd met het wetsvoorstel “Wet Werken na de AOW-gerechtigde leeftijd”. Door deze wet, die met ingang van 1 januari 2016 in werking is getreden, is het voor werkgevers (nog) aantrekkelijker geworden om AOW-gerechtigde werknemers langer in dienst te houden of in dienst te nemen.

Benjamin Vaandrager

At the end of September 2015, the First Chamber accepted the Bill “Act on Continued Employment after (State) Pension Age”.  As a result of this Act, implemented on 1 January 2016, it has become (even) more attractive for employers to retain or hire employees that have reached the state pensionable age.

One of the most important changes is that the continued payment of wages during illness is limited to a 13 week period instead of 104 weeks, as applicable to other employees. The continued payment of wages is often the greatest obstacle for employers for retaining or hiring employees having reached the state pensionable age. It will also be possible – following attainment of the state pensionable age – to offer a maximum of six definite contracts (normally three) over a period of four years at most (normally two), before the employment relationship results in an employment agreement for an indefinite period of time.

The implementation of the Wwz (Act Work & Security) as per 1 July 2015 already saw to a number of measures being implemented regarding employees with a state pensionable age. An employee of the state pensionable age is for example not entitled to a transition payment upon dismissal. Also, an employer will have the right to terminate the employment agreement of an employee reaching or having reached the state pensionable age (or alternative pensionable age) for just that reason, without being required to request the prior permission from the UWV or the court. Naturally, in doing so the applicable term of notice needs to be observed. Further condition is that the employment agreement was reached before the state pensionable age is reached. In particular the fact that the employment may “just” be termination upon or after reaching the state pensionable age, is an importance easing (relaxation) of dismissal law.

Prior to the implementation of the Wwz, many employers incorporated a so-called “Retirement severance clause” in the employment agreement. Such a clause stipulates that the employment agreement is automatically terminated upon the employee reaching the state pensionable age. The advantage is that it is clear to both parties that and when the employment agreement ends, without such termination requiring any further formal action. Several employers have stricken this stipulation following the implementation of the Wwz, with the intention to allow for greater flexibility in determining the dismissal date.

Without such a retirement severance clause the employment agreement is not terminated automatically and the employee may, if so desired, continue to work for a certain period of time, without there being a necessity to enter into a new employment agreement for a definite period of time.

Despite the various legislative amendments it would from an employer’s perspective seem advisable to maintain the retirement severance clause and to subsequently, in appropriate cases, enter into (a) new employment agreement(s) for a definite period of time.

In most cases the “old’ employment agreement will include  an entitlement to continued payment of wages during a period of 104 weeks. In case a retirement severance clause has not been agreed upon and notice of termination was not given in a timely manner (often well in advance), that entitlement remains applicable, despite the statutory limitation to 13 weeks as of 1 January 2016.

Maintaining the retirement severance clause moreover releases the employer from the obligation to justify itself to employees on an individual basis for the fact that dismissal is given upon or after reaching the state pensionable age. After all, parties will in that case have agreed upon automatic termination of the employment.

The retirement severance clause would also prevent possible discussions regarding the extent to which a dismissal for reasons of an age higher than the state pensionable age constitutes a prohibited age discrimination.

The advantage of entering into a new contract (for a definite period of time) in general, even after a timely notice of dismissal without a retirement severance clause, is that it will be easier to reach agreements on matters such a adjustment of range of duties, the number of hours or the height of the salary. Moreover, the option to close consecutive contracts for a definite period of time after the state pensionable age has been broadened as per 1 January 2016.

It does remain to be seen however, if all these measures regarding the state pensionable age employees will not result in the age bracket below (50/55+) taking the brunt. After all, employees of the state pensionable age are cheaper for an employer as a result of the fact that for those employees no premiums are owed. The fact that the state pensionable age employees need to be dismissed first in a reorganisation (which rule also applies to the public sector as of 1 January 2016) may possible only be considered palliative since it only applies to the reduction of the workforce.

This article is intended to provide you with ad hoc information regarding new regulatory and case law developments and does not contain any legal advice. If you want to know more on the subject or need legal advice please contact us: