Transition fee

The Work and Security Act of the Netherlands with effect from 1 July 2015 entitles employees upon dismissal to a transition fee on condition that they should have been in their (then former) employer’s service for at least 24 months. The transition fee in essence applies to all dismissals from 1 July 2015 onwards, albeit that allowances are made for the preceding period in determining whether or not the employee in question is entitled to a transition fee and if so, what the amount should be.

The transition fee regime lacks transitory provisions. One of the objections to this has been that it could inspire employers not to rehire temporary staff so as not to have to pay out transition fees, as an accidental and inappropriate effect of the new legislation.

The Dutch Minister of Social Affairs in response has prepared a number of measures to counteract this effect, which because of their urgent nature have been included in the Second Memorandum of Amendment to the draft legislation designed to counteract bogus arrangements (Dutch acronym: “WAS”). These measures are as follows:

• Suspension of the employer’s obligation to pay out a transition fee on condition that it should give the employee in question the guarantee that the latter will be able to return to work within the next six (6) months.
• No allowances are to be made in deciding whether there is transition fee entitlement and if so, in what amount for service contracts having terminated before 1 July 2012 and not having been succeeded within the next three (3) months by a subsequent service contract.
• In order to encourage the conclusion of indefinite (rather than definite) employment contracts, it has been proposed in the event that indefinite employment contracts are entered into with effect from 1 July 2015 onwards not to make allowances for previous employment contracts having terminated before 1 July 2015 where the gap between successive contracts was greater than three (3) months. This essentially causes the composition of the transition fee for the term in question to be “transformed” into an indefinite employment contract, with the matching protection from dismissal.