Posted on: 01-01-2020

Redundancy payments in the Netherlands

Written by:

Hein Kernkamp

The severance payment in the settlement agreement

Under Dutch law the employer can have the employment contract terminated if there are reasonable grounds for dismissal, such as the loss of jobs or the employee's unsuitability. Depending on the grounds for dismissal, a procedure must then be chosen via the Dutch Dismissal Authority UWV or via the subdistrict court judge. But often both the employer and the employee prefer to terminate the employment contract by means of a settlement agreement. Such a termination agreement usually includes a clause regarding a redundancy package.

When is a severance payment due?

As a rule, an employee is entitled to a severance payment if the employer takes the initiative to terminate the employment contract. This is no different if the employment contract ends by means of a settlement agreement. The parties are free to make an appropriate arrangement, but often seek alignment with the legal system and the expected severance payment in the event of a proceeding.

Which reimbursement can be expected?

Transition payment

From January 1, 2020, statute provides that the ordinary redundancy payment amounts 1/3 of a monthly salary per full year the contract has lasted. An employee is not entitled to a transition payment if the dismissal resulted from his or her seriously culpable conduct. Other than that, the employee will automatically be entitled to the transition payment.

Additional payment based on cumulation ground

If none of the other grounds for dismissal listed in the law can lead to the termination of the employment contract, the court may terminate the employment contract on the basis of the new 'cumulation' ground as introduced in 2020. The judge then has the freedom to award up to one and a half times the transition allowance.

Fair compensation in case of seriously culpable behavior

Also there are circumstances where the employee is entitled to an additional fair and adequate redundancy payment. The court may award this additional fair compensation to the employee where the employer's conduct has been seriously culpable.

These three factors must therefore be taken into account when negotiating the termination agreement.

Negotiating redundancy payments in the Netherlands

The expected outcome of a possible procedure therefore plays an important role in the negotiations on the redundancy payments in the settlement agreement. Another common factor is that the situation may simply not justify dismissal. If the employer would go to the Dutch Dismissal Authority UWV or the sub-district court, the employment contract would probably not end. In such cases, the only viable solution for the employer is to enter into a termination agreement with the employee. By offering a high severance package, the employer will usually give the employee a sufficient incentive to accept the offer. The golden handshake still exists today, even after the severance packages were cut back drastically in 2015 with the implementation of the Work and Security Act.

The Cantonal Court Formula

The Cantonal Court Formula fixes the redundancy payment at a number of months salary. The exact severance payment is determined by multiplying three factors: A, B and C, where:

The A-factor is the adjusted number of years of service of the employee. The years of service up to age 35 will count as 0.5, the years of service between 35 and 45 years of age will count as 1, the years of service between ages 45 and 55 will count as 1.5 and the years of service above age 55 will count as 2.
The B-factor is the corrected monthly gross salary, which includes fixed components like holiday allowance.
The C-factor is a correction factor that in redundancy situations is usually 1.0 (neutral dissolution), but may be fixed at a higher or lower level by the Court in order to come to a fair and adequate severance payment. Behaviour of employer and eployee, the job market position of the employee and the financial position of the employer may all play a role, which makes the C-factor the least certain factor of the formula.

But the cantonal court formula is also only a starting point. In the end it all comes down to negotiations. We can assist you in negotiating a balanced and fair redundancy payment.

Also see:

Consult a lawyer

It is advisable to consult us before you make an important decision regarding the termination of an employment contract. Please contact us for more information. Of course you can email us without obligation or contact us by telephone. It is not without reason that our motto is: "Your problem, our concern."

More information?

Hein Kernkamp will gladly help you further.