You may set off the transition payment against the compensation

Yes, a paid transition payment (or termination payment) can, under certain circumstances, be set off against compensation for personal injury following a workplace accident — but only to the extent that is reasonable. The legal basis for this is the so-called benefit offsetting (Article 6:100 of the Dutch Civil Code): if a single event results in both damage and benefit, that benefit may be deducted from the compensation to the extent that is reasonable. Whether set-off is actually permitted depends heavily on the facts and the nature of the benefit. Case law is divided on this point, so never assume in advance that set-off will automatically succeed.

What does offsetting the transition payment against the compensation mean?

If an employee becomes the victim of a workplace accident, the employer is in many cases liable for the damage based on their duty of care (Article 7:658 of the Dutch Civil Code). The employer (or their insurer) must then compensate for the personal injury suffered: think of medical costs, loss of earning capacity, and pain and suffering. Such personal injury compensation can amount to a substantial sum.

If the employee becomes permanently incapacitated for work as a result of the accident, the employment often ends as well. Upon termination, the employer typically pays a transition payment or a termination payment equivalent to it. The core question then is: may the employer deduct the compensation already paid from the personal injury compensation still to be paid? This is called set-off or, more legally sound, benefit offsetting.

The difference between transition payment and termination payment

The terms are used interchangeably, but are not the same. The transition payment is the statutory compensation to which an employee is entitled in principle upon dismissal. A termination payment is an agreed amount in a settlement agreement; this can be equal to the transition payment, but also higher or lower. Regarding the question of whether set-off is permitted, the court looks primarily at the function of the benefit, not at its label.

What did the judge rule? The case at the District Court of The Hague

In a frequently cited case before the District Court of The Hague, an employee was the victim of a workplace accident resulting in permanent injury. The employer acknowledged liability. After the employee had been continuously incapacitated for work for over two years, the parties terminated the employment contract, and the employer awarded a termination payment equal to the transition payment.

The parties disagreed regarding the personal injury compensation: should the termination payment already paid be deducted from it? That point of dispute was submitted to the court as a partial dispute.

Causal link between accident and termination payment

The judge ruled that a connection existed between the industrial accident and the termination of the employment contract. After all, the employee had received a benefit as a result of the accident—the termination payment. Because that benefit stemmed from the same event as the damage, the principle of offsetting benefits came into play, and the employer was, in principle, entitled to set this off against the personal injury compensation.

Set-off only to the extent reasonable

The judge did emphasize, however, that set-off must satisfy the reasonableness requirement of Article 6:100 of the Dutch Civil Code. In this regard, factors such as the nature of the damage, the nature of the liability, the nature of the benefit, and foreseeability are taken into account.

The nature of the benefit played a particularly important role. A termination payment is intended to mitigate the adverse consequences of the termination of employment—and thereby the loss of income. It was precisely for this item of damage (the loss of earning capacity) that the paid compensation was permitted to be set off. This does not mean that the entire compensation may be deducted from all items of damage: compensation for pain and suffering or medical expenses are, in principle, separate from the loss of income.

Please note: the judiciary is divided

The Hague ruling is not a fixed rule. In similar situations, other judges have ruled that the transition payment could not be set off, for example, when the dismissal had a cause other than the accident. It therefore always revolves around the specific facts and reasonableness. As an employer, never assume blindly that set-off will succeed, and ensure the substantiation is properly documented.

Set-off and the Transition Payment Compensation Scheme

Since April 1, 2020, the Transition Allowance Compensation Scheme has been in effect. Under this scheme, an employer can, in certain cases, recover (part of) the transition allowance paid following long-term incapacity for work via the UWV. The Hague court clarified that the existence of this compensation scheme does not mean that the transition allowance must therefore remain outside the settlement of damages. These are two separate tracks: compensation via the UWV is separate from the question of whether offsetting it against personal injury damages is reasonable.

The importance of a good settlement agreement

This case demonstrates that a settlement agreement never stands alone. Take into account the factual circumstances preceding the dismissal. If there was a workplace accident, explicitly establish the link between the termination payment and the personal injury compensation to be paid, including the manner in which the parties handle set-off.

There are more pitfalls. For example, we previously wrote about the risk of the final discharge clause: an overly broad final discharge can unintentionally cover personal injury damages as well. Therefore, always have a settlement agreement legally reviewed before you sign.

Step-by-step plan: consider offsetting as an employer

1. Determine whether you are liable for the workplace accident (Article 7:658 of the Dutch Civil Code).
2. Map out the individual items of damage: loss of income, medical expenses, pain and suffering.
3. Assess whether the termination or transition payment arises from the same accident.
4. Determine for each item of damage whether set-off is reasonable — especially regarding loss of income.
5. Carefully record the agreements in the settlement agreement.
6. Investigate separately whether you can receive (partial) compensation from the UWV via the Transition Payment Compensation Scheme.

Frequently Asked Questions

Are you always allowed to set off the transition payment against the personal injury compensation?

No. Set-off is only possible insofar as it is reasonable (Article 6:100 of the Dutch Civil Code) and there is a connection between the accident and the termination. Case law is divided; in some cases, set-off was actually rejected.

Against which item of damage may the termination payment be set off?

In practice, this primarily concerns the loss of earning capacity (loss of income), as a termination payment aims to compensate for that loss. Items such as pain and suffering and medical expenses are, in principle, separate from this.

What is the difference compared to the Transition Payment Compensation Scheme?

In the case of set-off, the employer deducts the benefit from the personal injury compensation to the employee. The Transition Allowance Compensation Scheme is something different: under this scheme, the employer can reclaim (partially) the transition allowance paid to the UWV following long-term incapacity for work from the employer. Both can operate concurrently.

Who bears the risk if set-off is not recognized?

The employer. If set-off is rejected by the court, the full personal injury compensation remains due, even though the termination payment has already been made. Proper substantiation and documentation in advance are therefore essential.

Does this also apply to illness without a work-related accident?

For set-off based on the offsetting of benefits, a ground for liability is required — usually a workplace accident for which the employer is liable. Without that connection and without an obligation to pay compensation, there is nothing to set off.

Have a settlement agreement or personal injury claim reviewed?

Are you unsure whether set-off is justifiable in your situation, or do you want a legally sound settlement agreement? Our employment will work with you and draft tailor-made documents. View our legal assistance for entrepreneurs or schedule an intake directly.