The financial cost of dismissing an employee in the Netherlands
Before initiating a dismissal, every employer in the Netherlands should calculate the total financial exposure. The costs of dismissal are often higher than anticipated because the transition payment is just one of several potential cost items. A realistic financial assessment is essential for making the right strategic decisions - including whether to negotiate a settlement agreement, pursue a kantonrechter dissolution, or apply to the UWV for permission.
The main cost components are:
- Transition payment: Mandatory upon employer-initiated termination. One-third of monthly salary (including holiday allowance and fixed bonuses) per year of service. Calculate your exposure carefully - errors are common.
- Notice period wages: During the notice period, the employee continues to accrue salary, holiday pay, and other entitlements. For long-serving employees, the statutory notice period can be up to four months.
- Settlement agreement compensation above transition payment: In negotiations, employees often achieve compensation above the transition payment, particularly when the employer's legal position is weak.
- Legal costs: Employment lawyer fees, subdistrict court filing fees, and any UWV costs. The cost of an employment lawyer depends on the complexity of the case and the route chosen.
- Fair compensation (billijke vergoeding): Payable if the employer acted seriously culpably. This can be substantial - courts have awarded amounts equal to several years of salary in egregious cases.
Cost control strategies for dismissal in the Netherlands
The most cost-effective dismissal route depends on the specific situation. A negotiated settlement avoids court costs and gives certainty, but may require paying above the transition payment. A UWV or subdistrict court route gives the employer more control over the amount, but costs legal fees and takes longer. An employment lawyer can map out the cost of each route and advise on the most economical approach given the strength of your dismissal case.
The statutory notice period under Article 7:672(2) of the Dutch Civil Code is one month for less than five years of service, two months for five to ten years, three months for ten to fifteen years, and four months for fifteen or more years; during this period the employee continues to accrue salary, holiday pay, and all other contractual entitlements. The transition payment is capped at EUR 98,000 gross (indexed annually) or one year salary if higher (Article 7:673(2)(3) BW), but fair compensation (billijke vergoeding) awarded for seriously culpable conduct is uncapped and courts have in egregious cases awarded multi-year salary equivalents. In a subdistrict court dissolution, the time spent in proceedings is generally deducted from the notice period (with a minimum of one month remaining), which reduces the employer wage liability during the notice period but does not affect the transition payment calculation.
The statutory notice period under Article 7:672(2) of the Dutch Civil Code is one month for less than five years of service, two months for five to ten years, three months for ten to fifteen years, and four months for fifteen or more years; during this period the employee continues to accrue salary, holiday pay, and all other contractual entitlements. The transition payment is capped at EUR 98,000 gross (indexed annually) or one year salary if higher (Article 7:673(2)(3) BW), but fair compensation (billijke vergoeding) awarded for seriously culpable conduct is uncapped and courts have in egregious cases awarded multi-year salary equivalents. In a subdistrict court dissolution, the time spent in proceedings is generally deducted from the notice period (with a minimum of one month remaining), which reduces the employer wage liability during the notice period but does not affect the transition payment calculation.