Severance Pay During Sick Leave in the Netherlands

If you are on sick leave and facing dismissal, you may be wondering what your rights are regarding severance pay. The interaction between illness, dismissal protection and the transitievergoeding is one of the most complex areas of Dutch employment law. In this article, you will find a comprehensive overview of your severance pay rights during illness, after two years of sick leave, and in the context of a settlement agreement.

Dismissal protection during illness

Before discussing severance pay, it is important to understand the strong dismissal protection you enjoy as a sick employee in the Netherlands. Under Article 7:670 paragraph 1 BW, your employer cannot terminate your employment contract during the first two years of illness. This is known as the opzegverbod tijdens ziekte (dismissal prohibition during sickness).

This protection means that your employer cannot request a UWV dismissal permit during the first two years of your illness, except in specific circumstances such as company closure. The employer also cannot give notice during this period. This protection is one of the strongest employee protections in Dutch employment law.

However, there are important nuances:

• The protection does not apply to court dissolution: in exceptional cases, the subdistrict court can dissolve the employment contract during illness, for example in case of a seriously disrupted working relationship that is unrelated to the illness.
• The protection does not prevent a settlement agreement: your employer can still offer you a settlement agreement during illness. You are free to sign it, but you are never obligated to do so. Signing during illness carries significant risks.
• The protection ends after two years (with exceptions): after 104 weeks of illness, the dismissal prohibition generally expires. However, if the UWV has imposed a wage sanction (loonsanctie) on the employer for insufficient reintegration efforts, the protection is extended by the duration of the sanction (up to an additional 52 weeks). After the protection ends, the employer can request a UWV dismissal permit.

Severance pay after two years of sick leave

Once you have been ill for two years (104 weeks), your employer's obligation to continue paying your salary ends. At this point, the employer has several options:

Dismissal via UWV after two years

The most common route is that the employer requests a UWV dismissal permit on the grounds of long-term incapacity for work (Article 7:669 paragraph 3 sub b BW). For this, the employer must demonstrate that:

• You have been ill for at least 104 weeks (or that the waiting period for the Sickness Benefits Act has expired).
• Recovery is not expected within 26 weeks.
• The employer cannot reasonably offer you suitable alternative work (passende arbeid) within the organisation.

If the UWV grants the dismissal permit, the employer must pay you the full statutory transitievergoeding. The amount is calculated over the entire duration of the employment, including the two years of illness. This is an important point: the period of illness counts fully towards the calculation of your severance pay.

Impact of reduced salary during illness

During illness, your employer is legally required to pay at least 70% of your salary for the first 104 weeks (with at least the minimum wage in the first year). Many employment contracts or collective labour agreements (CAOs) provide for higher payment, often 100% in the first year and 70% in the second year.

For the calculation of the transitievergoeding, the full contractual salary is used as the basis, not the reduced amount you may have received during illness. The Besluit loonbegrip vergoeding aanzegtermijn en transitievergoeding specifies that salary reductions due to statutory sick pay rules do not affect the calculation basis. This is an important protection for sick employees.

The compensation scheme for employers (compensatieregeling)

Since 1 April 2020, the Compensation Scheme Transitievergoeding (compensatieregeling transitievergoeding) allows employers to claim reimbursement from the UWV for the severance pay paid to an employee dismissed after two years of illness. This scheme was introduced retroactively: it also applies to employment contracts that ended on or after 1 July 2015 due to long-term incapacity.

The purpose of this scheme is to remove the financial incentive for employers to avoid paying severance after long-term illness. Before this scheme, many employers chose to keep the employment contract alive (a so-called sleeping contract) to avoid paying the transitievergoeding. The compensation scheme was intended to end this practice.

The compensation is capped at the transitievergoeding that was due at the end of the two-year waiting period, or at the amount of salary paid during the illness period, whichever is lower. This means the employer cannot claim more than what was actually paid during the illness.

For you as an employee, the compensation scheme does not directly change your rights. Your entitlement to the transitievergoeding is the same regardless of whether the employer claims reimbursement. However, the scheme has had an important practical effect: employers are now much more willing to terminate sleeping contracts and pay severance, knowing they will be compensated.

Sleeping employment contracts (slapend dienstverband)

A sleeping employment contract arises when your employer keeps the contract alive after two years of illness without paying salary and without dismissing you. Before the compensation scheme was introduced, this was a common strategy by employers to avoid paying the transitievergoeding.

The Xella ruling

On 8 November 2019, the Dutch Supreme Court (Hoge Raad) issued a landmark ruling in the Xella case (ECLI:NL:HR:2019:1734). The Supreme Court ruled that an employer is, as a rule, obligated to cooperate with the termination of a sleeping employment contract if the employee requests this. The Supreme Court did not prescribe a specific form of termination: this can be through a settlement agreement, but also through dismissal with UWV permission or court dissolution.

The Supreme Court reasoned that keeping a sleeping contract alive solely to avoid paying severance pay is not consistent with the requirements of good employment practice (goed werkgeverschap, Article 7:611 BW). Employers can no longer use the sleeping contract as a strategy to deny you your severance pay.

How to end a sleeping contract

If you find yourself in a sleeping employment contract, you should send a written request to your employer asking them to terminate the contract and pay the transitievergoeding. In your request, refer to the Xella ruling and the compensation scheme. Give the employer a reasonable deadline to respond (typically two to four weeks).

If the employer refuses or does not respond, you have two options:

• Request court dissolution: you can ask the subdistrict court to dissolve the employment contract and award the transitievergoeding.
• Claim damages: alternatively, you can claim damages equal to the transitievergoeding on the basis that the employer has breached its duty of good employment practice.

Severance pay in a settlement agreement during illness

It is not uncommon for employers to offer a settlement agreement to an employee who is on sick leave. This can happen at any point during the illness, including in the first two years when the dismissal ban applies. While you are free to consider such an offer, signing a settlement agreement during illness requires extreme caution.

VSO during the first two years of illness: higher compensation justified

If you are ill during the first two years (while the dismissal ban still applies) and your employer offers a settlement agreement, the compensation should generally be higher than the statutory transitievergoeding. By signing, you give up strong rights that justify additional compensation:

• You are giving up strong dismissal protection: during the first two years of illness, the employer cannot dismiss you. By signing a settlement agreement, you voluntarily surrender this protection. This concession should be reflected in the compensation.
• You lose continued salary payment: your employer is legally required to pay your salary during illness for up to 104 weeks. By agreeing to end the contract, you give up this right to continued payment.
• You risk losing Sickness Benefits Act (Ziektewet) rights: if you sign a settlement agreement during illness, you may not be entitled to sickness benefits from the UWV. The UWV may determine that you voluntarily ended your employment and are therefore not eligible.
• You lose reintegration support: your employer has a legal obligation to support your reintegration into the workforce. By ending the contract, this obligation ceases.
• Your position in the labour market is weakened: finding new employment while ill is significantly more difficult, which justifies additional compensation.

VSO after two years of illness: statutory minimum only

If the settlement agreement concerns the termination of a sleeping employment contract after two years of illness (the Xella scenario), the situation is fundamentally different. The employer is only required to pay the statutory minimum: the transitievergoeding calculated up to the day after 104 weeks of illness. There is in principle no basis for a higher amount, because the employer will not pay more than what the UWV compensates under the compensation scheme.

What a fair settlement agreement during illness should include

If, after careful consideration and legal advice, you decide to pursue a settlement agreement during illness, the following elements are particularly important:

• Substantially higher severance: the compensation should reflect the value of the rights you are giving up, including remaining salary payments, dismissal protection, and reintegration support.
• End date after the notice period: the end date must respect the applicable notice period to protect your potential benefit rights.
• Employer initiative: the agreement must clearly state that the initiative for termination lies with the employer, not with you.
• No mention of illness as reason: the stated reason should be one that does not jeopardise your benefit rights (for example, a difference of opinion or a disrupted working relationship).
• Final discharge with carve-outs: ensure that any ongoing claims (such as claims related to occupational illness) are explicitly excluded from the final discharge.

Read more about the specific risks and considerations in our detailed article about the settlement agreement during sick leave.

Interaction with the Sickness Benefits Act (Ziektewet)

The Sickness Benefits Act (Ziektewet, ZW) provides a safety net for employees who become ill but do not have an employer who pays their salary. Understanding the interaction between severance pay and sickness benefits is essential, particularly if your employment ends during illness.

When does the Sickness Benefits Act apply?

The Ziektewet applies in several scenarios relevant to dismissal during illness:

• Temporary contract expires during illness: if your fixed-term contract ends while you are ill, you can claim sickness benefits from the UWV. In this case, you are also entitled to severance pay from your employer for the non-renewal of the contract.
• Dismissal during illness with UWV permission: in exceptional cases where dismissal during illness is permitted (e.g., company closure), you may be entitled to both severance pay and Ziektewet benefits.
• After two years of illness: if you are dismissed after the two-year waiting period and you are still (partially) incapacitated, you transition to the WIA (Work and Income according to Labour Capacity Act) assessment. The Ziektewet no longer applies at this stage.

Impact of settlement agreement on sickness benefits

If you sign a settlement agreement during illness, the consequences for your Ziektewet rights can be severe. The UWV may determine that you are a benadelingshandeling (detrimental act) — meaning you took an action that harmed UWV's interests by voluntarily ending your employment while still ill. In that case, the UWV can deny your sickness benefit claim entirely or impose a sanction.

This is one of the primary reasons why signing a settlement agreement during illness is so risky. Even if the agreement contains favourable terms and a substantial severance payment, the loss of sickness benefits can far outweigh the financial gain from the settlement.

Severance pay with partial disability

If you are partially disabled after two years of illness, the situation becomes more complex. Several scenarios are possible:

• Full dismissal with partial disability: if the employer dismisses you entirely despite your partial disability, you are entitled to the full transitievergoeding calculated over your original working hours and the full duration of employment.
• Partial dismissal: if your hours are permanently and substantially reduced (by at least 20%) due to partial disability, you may be entitled to partial severance pay under the Kolom ruling (HR 14 September 2018). The transitievergoeding is then calculated proportionally to the reduction in hours.
• Adapted position: if the employer offers you an adapted position at fewer hours, and you accept, this may constitute a partial termination that triggers (partial) severance pay rights.

The rules around partial disability and severance pay are nuanced and depend heavily on the specific circumstances. If you find yourself in this situation, professional legal advice is essential to ensure you receive the full compensation you are entitled to.

Dismissal for frequent absence (veelvuldig ziekteverzuim)

Apart from long-term illness, there is a separate dismissal ground for frequent short-term absence. Under Article 7:669 paragraph 3 sub c BW, the employer can request the subdistrict court to dissolve the employment contract if you are frequently ill and this leads to unacceptable consequences for business operations.

For this ground to succeed, the employer must demonstrate that:

• The frequent absence has unacceptable consequences for the organisation.
• The absence is not caused by insufficient efforts regarding working conditions.
• Recovery is not expected within 26 weeks.
• The work cannot reasonably be performed with adapted duties.

If the court dissolves the contract on this ground, you are entitled to the full transitievergoeding. Frequent absence, while disruptive, does not constitute seriously culpable conduct on your part, so the severance pay cannot be denied.

What to do if you are ill and facing dismissal

If you are on sick leave and your employer is discussing the end of your employment, take the following steps to protect your rights:

1. Do not sign anything hastily: you are under no obligation to sign a settlement agreement, regardless of what your employer says. Take time to think and seek advice.
2. Understand your dismissal protection: during the first two years of illness, your employer generally cannot dismiss you. Know your rights before entering into any discussion.
3. Keep records: document all communications with your employer about your illness, reintegration and any discussions about termination.
4. Seek legal advice: the interaction between illness, dismissal and severance pay is complex. A specialised lawyer can assess your specific situation and advise on the best course of action. Upload your agreement for a free review.
5. Consider the full picture: severance pay is just one element. Also consider the impact on your salary continuation, sickness benefits, WIA assessment, pension accrual and reintegration support.
6. Be aware of deadlines: if you are dismissed, you have three months to claim the transitievergoeding at the subdistrict court. If you are summarily dismissed, you have two months to challenge the dismissal.

Frequently asked questions about severance pay during sick leave

Am I entitled to severance pay if I am dismissed after two years of illness?

Yes. If your employer obtains a UWV dismissal permit after two years of illness, you are entitled to the full statutory transitievergoeding. The entire employment period, including the years of illness, counts towards the calculation. Your employer can claim reimbursement from the UWV under the compensation scheme, but this does not affect your entitlement.

Should I sign a settlement agreement while I am ill?

Extreme caution is needed. Signing a settlement agreement during illness means you give up strong dismissal protection, continued salary payment and reintegration support. You also risk losing sickness benefits from the UWV. If you are considering signing, always seek professional legal advice first. Read more in our article about the settlement agreement during sick leave.

What is a sleeping employment contract and what are my rights?

A sleeping employment contract arises when your employer keeps the contract alive after two years of illness without paying salary or dismissing you. Following the Xella ruling by the Supreme Court, your employer is generally obligated to cooperate with the termination and pay the transitievergoeding if you request it. If the employer refuses, you can seek a court order.

Is my severance pay lower because I received reduced salary during illness?

No. The transitievergoeding is calculated based on your full, unreduced contractual salary, not the reduced amount you may have received during illness. The Besluit loonbegrip specifies that salary reductions due to statutory sick pay rules do not affect the calculation basis. This means your severance pay is the same as if you had been working at full salary.

Can I receive both severance pay and sickness benefits?

In principle, the transitievergoeding is a one-time payment that does not affect your entitlement to benefits. However, if your employment ends during illness (for example, through a settlement agreement), the UWV may refuse your sickness benefit claim if it determines that you acted to the detriment of UWV's interests. The severance pay itself is not deducted from benefits, but the manner in which your employment ended can affect benefit eligibility.

What if my employer keeps my contract sleeping and refuses to terminate it?

Following the Supreme Court's Xella ruling, your employer is generally obligated to cooperate with termination if you request it and the employer can claim compensation under the compensation scheme. Send a written request to your employer. If they refuse, you can request the subdistrict court to dissolve the contract and award the transitievergoeding, or claim damages for breach of good employment practice.