The Netherlands Introduces Compensation Regulation to Discourage “Dormant Employment”

Volume 7 No 2    /    Read Article

By Rachida el Johari and Madeleine Molster (guest authors)

For U.S. tax advisers not versed in Dutch labor law, the world of employee rights and employer obligations is a thing to behold. To illustrate, in 2015, the Dutch parliament enacted a law under which an employee in the Netherlands having spent 104 weeks on paid sick leave is entitled to a transition payment if the employment contract was terminated by the employer. However, many employers attempted to avoid the payment by retaining these employees under “dormant contracts,” where the contract remained in force but there was no position available and no pay. New legislation effective April 1, 2020, breaks the deadlock. The transition fee remains in effect, but all or most of the payment is funded on a deferred basis by the Dutch government. Rachida el Johari and Madeleine Molster of Saguire Legal, Amsterdam, the Netherlands, explain how the Compensation Regulation works and propose a winning strategy for employers.  See more →