On 1 July 2015, the legislator introduced the fair compensation in Dutch employment law.
If a notice of termination can be nullified, the employee has the choice between either nullifying the termination or requesting a so-called ‘fair compensation’. However, the level of fair compensation has been surrounded with much uncertainty. How exactly should this level be calculated? What circumstances play a role here? Is there a maximum compensation?
The Dutch Supreme Court has recently offered a number of guidelines on how to calculate a fair compensation. This judgment gave rise to suggestions in the media that the Supreme Court had reversed the cutback on severance payments in the Work and Security Act (“WWZ”). However, such suggestions do not seem to be correct.
An employee had been employed with her employer as a hairdresser since 1989. At the beginning of 2015, a conflict arose about the employee’s holiday wishes. The employer reacted by giving notice of termination of the employment agreement without the permission of the UWV. The employee then started legal proceedings seeking a fair compensation.
The Court of Appeal
The Court of Appeal upheld the ruling of the Subdistrict Court, in which the employee was awarded a fair compensation of €4,000 gross. The employee had claimed compensation amounting to €57,699.07 gross. According to the Court of Appeal, the amount of fair compensation has to reflect that the termination of the employment was inadmissible. However, the Court of Appeal did not take into account the factors of duration of the employment and consequences of the dismissal when it determined the fair compensation.
The Supreme Court
On 30 June 2017 the Supreme Court held that under current law, the consequences of the dismissal do not constitute a ground for awarding any other compensation but the transition fee. However, the regime of the WWZ does not preclude that the consequences of the dismissal are taken into account when determining the level of fair compensation.
In this matter, the employee had chosen not to request the Subdistrict Court to nullify the termination, but instead to award her a fair compensation. The consequences of the dismissal cannot be deemed in all cases to have been already fully compensated by a (possible) transition fee.
When determining the fair compensation, the amount of wages the employee would have earned had the termination been nullified may also be considered. It will depend on the circumstances of the case which continued duration of the employment agreement should be presumed. One relevant aspect here is whether the employer could also have terminated the employment agreement in a legitimate way. To what extent the income the employee would have earned had the termination been nullified should be reckoned with, depends partly on the question to what extent the employer is to blame for what has happened.
Finally, the Court of Appeal has wrongly failed to consider the duration of the employment. This was an omission, since all circumstances of the case must be considered when determining the fair compensation, according to the Supreme Court.
Importance to Practice
This judgment of the Supreme Court is an important ruling. It has made clear that when determining a fair compensation, as an alternative to nullification of the termination, the duration of the employment and the consequences of the dismissal do matter. However, the suggestions in the media that the Supreme Court had reversed the cutback on severance payments in the WWZ seem to be over-simplified. The employee will only be entitled to fair compensation in the event of a voidable termination or a seriously culpable act or omission on the part of the employer. This leaves the large majority of employees who lose their jobs still dependent on the (modest) transition fee.