Dismissal shortly before retirement age. Full transition payment?

Is an employer allowed to award a lower or even no transition payment if an employee is dismissed shortly before the age of General State Pension (AOW-leeftijd) entitlement? The Dutch Supreme Court issued a finding on this matter on 5 October 2018.

The facts

The employer applied to the Employee Insurance Agency (UWV) for a dismissal permit, based on the employee’s long-term inability to work. The employer terminated the employment contract with effect from 23 August 2016, with the consent of the UWV. The employer refused to pay the transition payment because the employee was approaching state retirement age and had been awarded an IVA payment (income provision for full employment disability). The employee claimed payment of the full transition payment, amounting to EUR 73,541 gross.

Sub-District Court

The Sub-District Court found as follows. An employee is not entitled to a transition payment if he or she is dismissed upon reaching the state retirement age. As the employee was fast approaching that age (just over 20 months away) and had been awarded an IVA payment, he was in an almost equivalent situation and it would not be acceptable, by standards of reasonableness and fairness, to ignore that equivalence. As there had been some loss of income, the Sub-District Court found that a partial transition payment of EUR 25,000 gross would be reasonable.

Court of Appeal

The Court of Appeal awarded the full transition payment, because (i) the transition payment was established (fixed) by statute and not linked to ‘damage’ or loss of income by the employee; and (ii) the legislature did not intend, when calculating the amount of the transition payment, that any account should be taken of the fact that the employee was close to state retirement age. The employer took the case to the Supreme Court.

Dutch Supreme Court

The Supreme Court upheld the Court of Appeal judgment. According to the Supreme Court, the courts must act with reticence when assessing whether a statutory rule is unacceptable by standards of reasonableness and fairness, certainly when the law is mandatory, as it is with transition payments. The legislature accurately laid down in the law when there is a right to a transition payment and how the amount of it should be calculated. The legislature did consider the fact that this might result in an employee, who is dismissed shortly before state retirement age, having a right to a transition payment that is more than the salary that would have been awarded if he or she had remained in employment until reaching state retirement age. The fact that the employee was receiving an IVA payment was also not a reason for the employer to award a lower transition payment.

Conclusion

In principle, therefore, employees who are dismissed shortly before reaching state retirement age have a right to the full transition payment.

It should be noted here that the Upper House of the Dutch parliament approved a legislative bill on 10 July 2018 that gives employers compensation for transition payments to employees who are chronically ill. If this bill is adopted, employees will be able to apply for compensation from 1 April 2020, with retrospective effect to 1 July 2015, for transition payments they have made.

Coco de Munk & Eric van Dam