What dismissal payments are due under Dutch employment law?
Dismissal payments under Dutch law include the statutory transition payment (transitievergoeding) and, in some cases, additional fair compensation (billijke vergoeding). These payments protect employees when an employment contract ends and follow specific rules set out in the Dutch Civil Code.
As an experienced employment lawyer in the Netherlands, I regularly advise both employers and employees on the financial consequences of termination. This article explains the types of dismissal payments, the calculation methods, and the circumstances under which they apply.
For businesses operating in the Netherlands, understanding how dismissal payments work helps prevent disputes and unexpected costs. Employees benefit from knowing their rights so they can assess whether a proposed settlement is fair.
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What Is a Dismissal under Dutch Law?
Under Dutch law, a dismissal (ontslag) is the termination of an employment contract by either the employee or the employer, ending all rights and obligations between them. Termination can take several forms, including collective redundancy, individual redundancy, termination by mutual consent and early retirement, and each route carries its own rules on what payment the employee is entitled to receive.
In each case, specific rules apply that employers must follow. Additional provisions in the employment agreement may outline further conditions required before a termination can take place.
Both employees and employers should understand their respective rights and responsibilities when terminating an employment relationship. Employers should familiarise themselves with applicable laws regarding minimum notice periods and settlement amounts due at the time of dismissal.
What Are the Legal Requirements for Dismissal Payments?
Employers must comply with the statutory framework surrounding dismissal payments, and any deviation from it can result in legal proceedings and penalties. The main payment is the statutory transition payment, also called transition pay or severance pay, and a court may add fair compensation (billijke vergoeding) on top of it where the employer acted in a seriously culpable manner.
Understanding the Dutch dismissal procedures as well as the different types of payments and their respective amounts is therefore important before proceeding with a dismissal.
The transition payment is determined by several factors, such as length of service and monthly salary at the time of termination. There is no fixed formula for the additional fair compensation; the court weighs factors such as the employer's conduct, the employee's age, length of service and prospects on the labour market. Any applicable collective labour agreement (CLA) should also be taken into account when calculating final settlement costs.
How Is the Transition Payment and Notice Period Calculated?
Under Article 7:672 of the Dutch Civil Code, the employer's statutory notice period runs from one month for less than five years of service up to four months for fifteen years or more. The transition payment itself equals one-third of the employee's monthly salary for each year of service, and employees accrue this entitlement from their first day of employment.
The employer's statutory notice period is one month for less than 5 years of service, two months for 5 to 10 years, three months for 10 to 15 years, and four months for 15 years or more. The employee's own statutory notice period is one month regardless of tenure, unless the employment contract validly provides otherwise. Collective labour agreements may set different notice periods that take precedence over this statutory default.
Since January 2020, the transition payment (transitievergoeding) equals one-third of the monthly salary for each year of service. The monthly salary used for this calculation includes regular wages, holiday allowance and fixed bonuses, and severance payments should therefore take these elements into account alongside the base salary.
Under Dutch Law, When Is No Payment Required Upon Dismissal?
No transition payment is due when a court finds that the dismissal resulted from seriously culpable conduct (ernstig verwijtbaar handelen) by the employee, for example theft, fraud or a repeated refusal to follow reasonable instructions. A summary dismissal (ontslag op staande voet) for an urgent reason ends the contract immediately, but summary dismissal and seriously culpable conduct are legally distinct tests, and the transition payment is excluded only on the latter ground (Dräger, ECLI:NL:HR:2018:484).
A valid summary dismissal ends the employment contract immediately, without a notice period, but this alone does not remove the employee's right to a transition payment. The employer must prove the serious culpability in court; where it is established, the employer has no obligation to pay the transition payment or a further financial settlement.
What Can an Employee Do If a Dismissal or Payment Is Disputed?
An employee who believes a dismissal was unjustified, or who disputes the amount of a dismissal payment, can bring the matter before the subdistrict court (kantonrechter). Depending on the type of dismissal, the request must be filed within two or three months of the termination date, and the court may order reinstatement or award additional compensation if it finds the dismissal was unlawful.
If an employer fails to pay the statutory transition payment, the employee can file a separate claim with the subdistrict court within three months after the employment contract ended. The court can order the employer to pay the full amount plus statutory interest, and delay may also result in additional costs for the employer.
Employees benefit from protection against dismissal under the law, and depending on the length of service with their employer, they may also be entitled to severance pay or other financial compensation from their former employer.
What Must an Employer Do When Dismissing an Employee?
When dismissing an employee, the employer must observe the applicable notice period or pay severance in lieu, follow the correct dismissal procedure, and ensure the decision is reasonable and based on sound business reasons. Failing to meet these requirements can expose the employer to legal proceedings and a claim for compensation.
The relevant notice period and transition payment calculation are set out above. Beyond meeting those payment obligations, the employer's underlying decision to dismiss is not simply a matter of its own judgement: it must be reasonable and grounded in sound business reasons, and failure to comply with these procedural and substantive requirements may lead to adverse legal consequences and financial compensation claims against the employer.
Can a Dismissed Employee Be Reinstated?
Reinstatement is one of the remedies the subdistrict court can order when an employee successfully challenges a dismissal: instead of, or in addition to, awarding compensation, the court may reinstate the employee in their former position. Reinstatement (herstel van de arbeidsovereenkomst) restores the employee to the conditions that existed before termination.
Whether reinstatement is granted depends on the circumstances of the individual case, as assessed by the court within the same procedure described above for challenging a dismissal or its payment.
Key legal sources
- Article 7:672 of the Dutch Civil Code - statutory notice periods for termination of employment
- Hoge Raad, Dräger, ECLI:NL:HR:2018:484 - summary dismissal and seriously culpable conduct are legally distinct tests for excluding the transition payment