Abolition of compensation scheme for dormant employment contracts in the Netherlands 

Dealing with long-term sick employees? Adjust your policy considering new Dutch regulations 

In the policy outline of the new Dutch government, a significant change is proposed for employers with long-term sick employees. Under current plans, the compensation scheme for the transition payment (transitievergoeding) in cases of long-term incapacity for work will be abolished for employers with more than 25 employees, effective July 1, 2026. This upcoming change means that larger employers in the Netherlands should proactively reassess their current policies regarding dormant employment contracts (slapende dienstverbanden) to minimize financial and legal risks. Need assistance in evaluating or adjusting your policies for managing sick employees in the Netherlands? Crowe Peaks’ employment law specialists are here to help. Want to learn more about the upcoming changes? Read on. 

Sick for more than two years: These are the current Dutch rules 

Under Dutch law, when an employee has been sick for more than two years, the employer’s obligation to continue paying their salary ends. However, the employment contract often remains in place, creating what is known in the Netherlands as a “dormant employment contract” or “slapend dienstverband.” Employers often choose this route (instead of terminating the contract) to avoid the costs associated with the mandatory transition payment. However, for the past few years, Dutch employers have been able to apply for compensation from the Employee Insurance Agency (UWV) for the transition payment they are required to make when terminating an employment contract due to long-term incapacity. This scheme has reduced the necessity to maintain dormant contracts. Nonetheless, many employers continue to retain these sick employees, partly because the current compensation scheme does not always cover the full transition payment. 

Key considerations when maintaining a dormant employment contract 

On the other hand, keeping a dormant employment contract also carries risks. If the employee recovers during the dormant period, the employer’s obligations are reinstated, including  the duty to offer suitable work and therefore to continue paying salary again. This can be unexpected, especially if the employer had not anticipated the employee’s recovery, or at least not at the time it occurs. Moreover, under Dutch law, the employer must continue to support the employee’s recovery efforts, even if the salary payment obligation has ceased. Therefore, failing to actively terminate the contract can create uncertainty for all parties involved. 

Beware of the Dutch right to be dismissed 

It is also crucial to understand that maintaining a dormant employment contract is not always permissible under Dutch law. Several Dutch court rulings have established that employers cannot simply refuse to dismiss an employee (and thereby deny them the transition payment), particularly when a compensation scheme is available. It remains uncertain whether this “right to be dismissed” will disappear if the compensation scheme for larger employers is eliminated. This could lead to legal uncertainty and potentially unfair situations for employees working for larger employers as compared to those at smaller firms. 

Large employers in the Netherlands: Review your policy 

According to the current plans of the Dutch government, the compensation scheme for large employers (those with more than 25 employees) will be abolished as of July 1, 2026. It is important to note the workforce size is determined at the group level. This means that for cases of illness with a first sick day after July 1, 2024, no compensation can be claimed after the scheme’s abolition. Therefore, it is advisable for large employers to terminate dormant employment contracts in a timely manner and claim compensation while it is still available.  

Our advice: Act proactively. Contact an experienced employment law advisor for guidance on adjusting your organization’s policies and claiming compensation under Dutch law. Need immediate advice? Contact Joachim Eendebak. Want to learn more about Crowe Peaks’ legal services? Fill out this form.