Compensation of Transition Fee to be Abolished in 2028

In the coalition agreement, the Dutch government parties agreed to abolish the compensation of transition fees for terminations due to long-term occupational disability. This abolition would apply to all employers alike. This measure is part of a broader reform package concerning the transition fee. The government wants to encourage employers to use this fee again for the specific aim of transition from work to work. It will be examined whether employers who have invested demonstrably in education, retraining and reintegration may be allowed to pay a lower transition fee, or even none at all. 

This abolition was initially scheduled for 1 January 2027. On Budget Day, it was announced that the compensation scheme will remain in place for one more year and will lapse on 1 January 2028. 

When an employee leaves employment after two years of occupational disability, the employer basically owes them a transition fee. For many years employers have felt this obligation to be unjust, given their continued payment of wages for two years of illness and their obligation to put in big re-integration efforts. To avoid paying the transition fee, some employers chose to keep the employment of their long-term disabled employee ‘dormant’. Although the employment is maintained, the employee is no longer performing work and is therefore not entitled to any more wages.

As a countermeasure to this practice, the compensation scheme was introduced in April 2020. Since then, employers have had the option of receiving compensation from the UWV, under certain conditions, for the transition fees they pay. 

The recently announced abolition gives rise to questions. For example, it is not yet clear what the precise reform to the transition fee will look like, nor how the abolition relates to the ‘Xella obligation’, which forces employers to cooperate in terminating dormant employments under circumstances based on a reference by the Supreme Court to the Transition Fee Compensation Scheme Act.

As mentioned above, one of the motives for introducing the compensation scheme was precisely to prevent dormant employments. If employers have to bear the full costs of the transition fee again from 2028 onwards, they might not want to terminate employments immediately after two years of occupational disability. Without additional regulatory measures, it cannot be excluded that employers will yet again choose to keep employments of long-term disabled employees dormant. 

At present, the abolition of the compensation scheme is only an intention. The plans are still to be debated in both Houses of the Dutch Parliament. We will closely follow developments and will of course keep you posted.