Transition payment upon dismissal
Upon termination of an employment contract, the employer may be required to pay the employee a transition payment (transitievergoeding).
What is a transition payment?
An employer must pay a transition payment to an employee in the following situations:
- The employer has given notice of termination, with permission of the UWV (the Employee Insurance Agency, a government agency)
- The employment contract has been rescinded by the court at the employer’s request
- The employee has taken the initiative for the termination due to serious misconduct by the employer
- A fixed-term contract has not been renewed at the employer’s initiative
Calculation of a transition payment
The calculation of the transition payment is based on the years of service. The employee is entitled to 1/3 of the monthly salary for each year of service, plus a proportionate part thereof in the event of incomplete years of service.
The transition payment is limited to a maximum of €89,000 or a maximum of one annual salary if the employee’s annual salary exceeds €89,000 gross (2023). The maximum amount is annually reviewed by the government.
It may be that the employer has incurred costs for education or outplacement prior to dismissal of the employee. These costs can be deducted from the transition payment under certain circumstances.
Several exceptions to the rules of the transition payment may apply:
- If the employer is declared bankrupt or if other insolvency proceedings apply, the transition payment is no longer due and payable. Businesses undergoing financial distress may pay the transition payment in instalments
- Part-time workers under 18 who are working 12 hours or less, and workers reaching pensionable age are not entitled to receive a transition payment
- Parties may stipulate other arrangements in the employment contract, deviating from the above. Collective Labour Agreements may also deviate from the statutory rules on the transition payment
- The courts may decrease the transition payment where the employee has been negligent or committed a serious culpable act
Additional severance pay
In the event of serious culpable acts or negligence by the employer, the court may grant an additional severance pay, also referred to as a 'fair compensation' (billijke vergoeding). This additional severance pay will in principle only be granted by the court to the employee in exceptional situations.