Supreme Court – is dormant employment permitted?

The case law is not straightforward on whether dormant employment relationships are permitted. The District Court of Limburg has therefore asked the Supreme Court to clarify the situation, in a request dated 10 April 2019.

Dormant employment

If an employee becomes unable to work due to employment disability, the employer is obliged to continue paying wages for two years. The obligation to continue paying wages falls away after this period and the employment contract can then be terminated. But many employers keep the employment relationship going for employees with long-term employment disability, even after this period, because they have to pay a transition payment when the contract is terminated. Employers can avoid paying the transition payment by keeping their employee on the books. We call this “dormant employment”. There have already been several cases about whether an employer can keep an employment relationship dormant.

The Transition Payment Compensation Act (“Wet CT”)

The Wet CT was introduced on 11 July 2018 for long-term employment disability. Under this Act, an employer will be able to submit an application to the UWV, from 1 April 2020 onwards, to get compensation equivalent to the transition payment that the employer has paid on termination of the employment contract. The compensation that employers can receive will not exceed the transition payment that an employee is entitled to at the point when the period for peremptory continued payment of wages comes to an end. Also, the compensation will not exceed the amount of gross wages paid during the employee’s illness. The compensation scheme will come into effect on 1 April 2020 and employers will also be able to apply for compensation for employment contracts that have been terminated before that date (but after 1 July 2015) due to long-term employment disability.

Case law prior to the Wet CT

Up until the introduction of the Wet CT, the case law went along the lines that the employer had not acted with serious culpability if it decided not to terminate the employment contract after the 104 week period. If an employee submitted an application for dissolution of the contract, he would receive a transition payment if the judge considered that the employer’s course of action had been seriously culpable. There was no serious culpability because there was no obligation for an employer to terminate an employment contract, even if the contract could no longer effectively be performed because of the employee’s employment disability.

Case law after the Wet CT

Case law since the enactment of the Wet CT in 2018 has been varied. For instance, the District Court of Overijssel held on 21 March 2019 that there was no serious culpability and that the dormant employment need not be terminated. By contrast, the District Court of The Hague held on 28 March 2019 that keeping an employment relationship dormant was contrary to good employer conduct – in that specific case – so that the employer had to terminate the employment contract. The judge took account of the impending introduction of the Wet CT, and (briefly) held that there was no longer any need for the employer to refrain from terminating the employment contract.

Questions referred for preliminary rulings by the Supreme Court

The District Court of Limburg recently submitted questions referred for preliminary rulings to the Dutch Supreme Court in order to gain greater clarity on whether dormant employment is still permitted.

The questions are about whether, if circumstances change, an employer is obliged to accept a reasonable proposal from an employee on the basis of good employer conduct. If so, does this also cover the situation of terminating the employment contract? If the Supreme Court considers that this is the case, it will be a new way of bringing employment to an end and therefore enforcing the transition payment.

Proceedings of this sort generally take a few months before the Supreme Court, so we shall have to wait for clarification on whether employees can enforce the termination of a dormant employment relationship.

Anneke Pelser (ap@clintlegal.com / +31 20 820 0330)