When do I have to terminate a dormant employment contract?

Since the Supreme Court's Xella ruling (8 November 2019), as an employer you are in principle obliged to cooperate in terminating a dormant employment contract as soon as a long-term sick employee requests it, subject to payment of compensation equal to the statutory transition payment. Deliberately keeping an employment contract “dormant” to avoid this payment is therefore no longer a safe route. The good news: in many cases, you can have the paid transition payment reimbursed via the UWV. On this page, you can read exactly what a dormant employment contract is, when you must terminate it, what risks you face, and what concrete steps you need to take.

What is a dormant employment relationship?

A dormant employment relationship typically arises after an employee has been incapacitated for work for a long period (104 weeks, or two years). After that period, the obligation to continue paying wages ends in principle, and as an employer, you may request permission to terminate the employment contract due to long-term incapacity for work.

Some employers deliberately chose not to terminate the agreement. The employee does not work and no longer receives wages, but formally remains employed. In this way, the employer did not have to pay the transition allowance . We call such an unterminated, inactive employment contract a dormant employment relationship.

Sleepers, deep sleepers and semi-deep sleepers

In practice, a distinction is made between different situations:

• Sleepers – the employment relationship was kept dormant around or after the Xella judgment.
• Deep sleepers – the employment relationship had been dormant for a considerable period before the Supreme Court ruled.
• Semi-deep sleepers – an intermediate form between both categories.

The Supreme Court has clarified that the obligation to cooperate also applies to (semi-)deep sleepers. Due to legal developments on this point, it is advisable to have your own situation assessed individually; the outcome depends heavily on the date of the request and the facts of the case.

Do I have to terminate a dormant employment contract?

The short answer: if the employee requests it, you are in principle obliged to cooperate. The Supreme Court ruled in the Xella judgment that an employer must act as a good employer . It follows from this that, in principle, you must agree to a proposal from the employee to terminate the dormant employment relationship by mutual consent, subject to payment of compensation equal to the statutory transition payment.

There are limited exceptions, for example if you have a legitimate interest in keeping the employee employed, such as a realistic prospect of reintegration. Whether such an exception applies depends heavily on the facts and requires legal assessment. Therefore, do not automatically assume that an exception applies to you.

Allowing a dormant employment relationship to continue purely to evade the transition payment is no longer a sustainable strategy since the Xella ruling.

How is the transition payment calculated?

The compensation you pay upon termination of a dormant employment contract is linked to the statutory transition payment. The Supreme Court has set an important limit in this regard: the compensation need not exceed the amount that would have been due at the time you could have terminated the employment due to long-term incapacity for work (in short: around the end of the 104-week period).

This is relevant, because a transition payment can accumulate over the years. The reference date prevents keeping the employment dormant for an extended period from leading to an even higher payment. The exact calculation depends on the salary, the duration of employment, and the applicable calculation rules at the reference date. Have this carefully checked, as errors have a direct impact on what you pay and on the compensation you can claim later.

Will I get the transition payment reimbursed by the UWV?

Yes, in many cases. Under the scheme regarding compensation for the transition payment, as an employer you can reclaim the paid transition payment from the UWV when you terminate an employment contract following long-term (104 weeks) incapacity for work. You have been able to apply for this compensation since April 2020.

Please note the practical order: in principle, you must first pay the transition payment yourself (pre-finance) and only then apply for the compensation. Conditions and time limits are attached to the compensation, and the compensation paid out may in certain cases be lower than the amount you paid.

Important: the compensation scheme has recently been the subject of political and legal discussion and may change in the future, for example regarding its scope or which employers it continues to apply to. Therefore, always check the current conditions, amounts, and application deadlines directly with the UWV before termination, or seek advice on this matter. This will prevent you from paying a fee that you do not receive (fully) reimbursed for afterwards.

What risks do you run if you do not cooperate?

If you refuse to cooperate with a reasonable termination proposal without good reason, you run various risks:

• Proceedings and court order. The employee can go to court to enforce termination and payment of the transition allowance.
• Liability for damages. Unnecessarily maintaining a dormant employment relationship can be regarded as poor employership, potentially resulting in liability for damages.
• Missing out on compensation. By allowing deadlines to expire, you may (partially) lose your right to UWV compensation.
• Strained relationships and reputation. An unnecessary conflict with a long-term sick employee can be poorly received internally and externally.

Step-by-step plan: how to carefully terminate a dormant employment contract

1. Assess the situation. How long has the employee been incapacitated, has the period of 104 weeks elapsed, and is there a realistic prospect of reintegration?
2. Calculate the transition payment at the correct reference point. Use the moment at which you could have terminated the contract due to long-term incapacity for work.
3. Record the agreements. Termination usually takes place by mutual consent via a settlement agreement, in which the end date and compensation, among other things, are regulated.
4. Pay the transition allowance. Please note that, in principle, you are pre-financing.
5. Apply for compensation from the UWV in a timely manner. Pay close attention to the current conditions and deadlines, and bear in mind that the scheme may change.

Frequently asked questions about dormant employment

Am I, as an employer, obliged to terminate a dormant employment contract?

In principle, you must cooperate as soon as the sick employee requests it. Since the Xella ruling, a good employer agrees to termination by mutual consent, subject to payment of compensation equal to the statutory transition payment. This may only be different in the case of a justified interest, such as a realistic prospect of reintegration.

When is an employment relationship “dormant”?

Typically, this occurs after the employee has been incapacitated for work for 104 weeks (two years), the obligation to continue paying wages has ended, and you could have terminated the employment but choose not to. The employee formally remains employed without working and without pay.

Will I get the paid transition allowance back?

In many cases, you can have the transition payment reimbursed by the UWV when you terminate employment following long-term disability. In principle, you pay the payment yourself first and then apply for reimbursement. Because the regulations may change, it is advisable to check the current conditions and deadlines with the UWV in advance.

How high is the transition payment for a dormant employment contract?

The compensation is linked to the statutory transition payment, but need not exceed the amount that would have been due at the time you could have terminated employment due to long-term disability. The exact amount depends on salary, years of service, and the applicable calculation rules.

What if I refuse to cooperate?

In that case, the employee can enforce termination and payment of the transition allowance through the courts. Moreover, you risk liability for damages and may lose your right to UWV compensation. Refusing unnecessarily is therefore rarely in your own interest.

Assistance with terminating a dormant employment contract

Terminating a dormant employment contract seems simple, but the calculation of the transition payment, the correct reference point, and UWV compensation require careful attention. A small mistake can cost you money or lead to an unnecessary conflict. MKB Juristen helps entrepreneurs handle this carefully and cost-efficiently.

• Want to know more about your position regarding illness and dismissal? Read about our employment law and specifically about dismissal law.
• Are you in the middle of a dismissal matter? View our legal assistance regarding dismissal.

Do you want to terminate a dormant employment contract correctly and without unnecessary costs? Schedule an intake interview today and have your situation assessed by a lawyer.