Compensation transition pay following 2 years’ illness

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Compensation transition pay following 2 years’ illness
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Nieuws Insights
Datum:
6 Apr 2020

Starting 1 April 2020, employers can reclaim a severance payment paid upon termination of the employment of an employee. This follows from the ‘Transition Payment Compensation Scheme’ that was announced late last year.

Door:
Hylda Wiarda

The application process with the UWV has now been opened per 1 April 2020. Applications are to be made through the UWV portal. We are happy to make the application for you. The further details of what the compensation entails and how this works, is explained below.

The possibility of compensation is limited to 2 situations. Firstly, the case of company closure as a result of retirement, illness or death of the owner/entrepreneur himself. This scheme applies to small businesses (less than 25 employees) and will have a limited scope.

The other situation, which will apply to a larger group of employers, concerns the termination of the employment contract after 104 weeks of illness. Since the implementation of the WWZ (Work & Security Act) employers also have a statutory obligation to pay a transition compensation to the employee sick leave upon termination of the employment. Because the employer was already obliged to continue to pay (part of) the wages during the obligatory two year period of continued payment of wages, it is now possible to apply for compensation of the transition payment.

Conditions

The conditions to qualify for compensation of the transition payment is threefold:

  1. The reason for the termination of the employment has to be the long term illness of the employee; and
  2. The full 104 week (or in case of a penalty 158 week) period of continued salary payment will have to be concluded; and
  3. The transition payment is in fact paid out by the employer.

In relation to the second condition, this means that if an employment contract is terminated by mutual consent after a period of incapacity for work of one and a half years, and a transition payment is paid, this will not be eligible for compensation.  The same applies to the situation in which an employee, working on an employment contract for the duration of 1 year, falls ill during that year. As of 1 January 2020, a transition payment will also have to be paid in this situation after the employee's employment contract has ended. Since the period of incapacity for work did not extend for 2 years, the paid transition allowance is not eligible for compensation

Retroactivity

The scheme is introduced retroactively. This means that employers can also apply for compensation for dismissals that took place before 1 April 2020. Employers can enter these applications up until September 30, 2020. However, this retroactive effect is limited to cases where the obligation to continue to pay wages for a 2 years period ended after 1 July 2015. In case the date on which the employee was incapacitated for a period of 2 years falls prior to 1 July 2015 and the employment contract was ended after 1 July 2015 with payment of the transition payment, the employer will in all likelihood not be eligible to receive compensation for that transition payment.

Maximum compensation

The compensation will not in each case cover the full amount of the transition payment paid by the employer. The maximum compensation is limited to:

  • the amount of transition compensation due on the day after the 2-year term has lapsed;
  • the maximum transition payment applicable at that time (in 2019: € ​​81,000 gross or one year's salary if that is higher);
  • the taxable wages the employer paid the employee during the 2 year period of obligatory continued payment of wages.

Since in practice employment with a disabled employee cannot be terminated immediately after 2 years and since a UWV procedure takes some time, it is not inconceivable that an employer will upon termination of the employment agreement have to pay a transition amount higher than the UWV will compensate under this scheme.

With the introduction of the compensation scheme, there is in fact no longer any reason for employers not to terminate the employment with an employee on sick leave after the obligation to continue to pay wages has ended, apart  from employers who are self-insured for the WIA.