On February 19, 2025, a bill was proposed that limits the compensation scheme for the transition payment in case of dismissal due to long-term disability to small employers. This proposal has significant implications for employers. The compensation scheme, originally intended to relieve employers, will now only be available to small employers. This article discusses the details and implications of this change.
Limitation on Compensation for Transition Payment
The compensation scheme for the transition payment was introduced to support employers in paying the transition payment after 104 weeks of illness. For many employers, it felt unjust to have to pay a transition payment after two years of continued salary payment. This often led to ‘dormant employment contracts’, where the employment contract was not terminated to avoid payment of the transition payment.
With the new bill, the government aims to limit the compensation scheme to small employers. Small employers are defined as those who have been active for less than two years or have a wage bill of no more than 25 times the average taxable wage per employee. In 2025, this threshold was set at a wage bill of no more than € 990,000 per year.
Implications for larger employers
For medium-sized and large employers, this change means that they will have to pay the transition payment themselves in case of dismissal due to long-term disability. This can have significant financial consequences. The question arises whether employers are still obliged to terminate the employment contract if they are not compensated. The legislator leaves this to the judiciary, but it is likely that existing case law will be maintained.
The change is expected to take effect on July 1, 2026. No transitional law is proposed, meaning the new rules will apply immediately. Employers will only be eligible for compensation if the 104-week waiting period ends before the law comes into effect. No specific arrangements have been made for special employers, such as social development companies.
Do you have questions about the compensation scheme for the transition payment or would you like to discuss it? Please contact Gerard Zuidgeest, Rose Horstman, or one of our other employment law specialists.
