Severance Pay Upon Dismissal in the Netherlands

If you are dismissed in the Netherlands, you are almost always entitled to severance pay (transitievergoeding). However, the amount, the procedure and the practical implications differ depending on the type of dismissal. In this article you can read exactly what your rights are, how to claim severance pay, and what to do if your employer refuses to pay.

Severance pay and dismissal: an overview

Under Dutch employment law, the transitievergoeding (statutory severance pay) is regulated in Article 7:673 of the Dutch Civil Code (BW). As an employee, you are entitled to this compensation whenever your employer terminates the employment contract or does not renew a temporary contract. The right exists in principle from the very first day of employment — there is no minimum service period. However, important exceptions apply: dismissal during the probationary period (Article 7:676 BW), seriously culpable conduct by the employee, bankruptcy of the employer, and reaching the statutory retirement age all exclude the right to severance pay.

The standard calculation is straightforward: you receive one-third of your gross monthly salary for each full year of service, with the remaining period calculated proportionally. Your gross monthly salary includes your base salary, fixed year-end bonus (dertiende maand), holiday allowance (vakantiegeld, typically 8%), structural overtime, and other fixed pay components. Variable elements like incidental bonuses or profit-sharing are generally not included unless they are structural.

However, the practical reality of severance pay depends heavily on how the dismissal takes place. The type of dismissal route determines not only the amount you can expect, but also the procedure for claiming it and your options if there is a dispute.

Severance pay with UWV dismissal

If your employer requests a dismissal permit from the UWV (Employee Insurance Agency), this is typically because of one of two reasons: economic circumstances (bedrijfseconomische redenen) or long-term incapacity for work after two years of illness (langdurige arbeidsongeschiktheid).

Economic dismissal (bedrijfseconomische redenen)

In a reorganisation or other economic dismissal, the employer must apply to the UWV for permission to terminate your contract. If the UWV grants permission, the employer must pay you the full statutory transitievergoeding. The employer must observe the applicable notice period, and the severance pay is due at the end of the employment contract.

In practice, many employers prefer to offer a settlement agreement rather than going through the UWV procedure, especially in larger reorganisations. A settlement agreement offers certainty and speed for both parties. If your employer offers you a settlement agreement in the context of a reorganisation, the transitievergoeding is usually the minimum starting point, and there may be room for negotiation.

Dismissal after two years of illness

If you have been ill for two years and recovery or suitable alternative work is not expected within a reasonable period, your employer can request a UWV dismissal permit on the grounds of long-term incapacity. In this case, you are fully entitled to the transitievergoeding. Since 1 April 2020, the employer can claim compensation for this severance payment from the UWV under the Compensation Scheme (compensatieregeling transitievergoeding). This means the financial burden on the employer is reduced, but your right to severance pay is unaffected. Read more about severance pay during sick leave.

Severance pay with court dissolution (ontbinding)

If your employer requests the subdistrict court (kantonrechter) to dissolve your employment contract, this is typically because of personal grounds such as:

• Dysfunctioning (disfunctioneren): you are not performing adequately, and the employer has followed a proper improvement process.
• Culpable conduct (verwijtbaar handelen): you have acted in a blameworthy manner, but not seriously enough for summary dismissal.
• Disrupted working relationship (verstoorde arbeidsrelatie): the working relationship has deteriorated to the point where it cannot be restored.
• Frequent absence (regelmatig ziekteverzuim): frequent short-term illness that severely disrupts business operations.
• Residual ground (restgrond or h-ground): other circumstances that make continuation of the employment unreasonable.
• Cumulation ground (i-ground): introduced on 1 January 2020, allowing the court to dissolve the contract based on a combination of two or more grounds that individually do not fully justify dismissal. In this case, the court may award up to 50% additional severance pay on top of the transitievergoeding.

When the court dissolves the employment contract, you are entitled to the transitievergoeding. The court determines the amount based on the statutory formula. Additionally, the court may award:

• Additional severance (billijke vergoeding): if the employer has acted in a seriously culpable manner, the court can award fair compensation on top of the statutory amount. There is no fixed formula; the amount depends on the circumstances of the case.
• Cumulation premium: if the court uses the cumulation ground (i-ground), it may award up to 50% extra on top of the transitievergoeding (Article 7:671b paragraph 8 BW).

Severance pay in a settlement agreement

A significant number of employment terminations in the Netherlands occur through a settlement agreement (vaststellingsovereenkomst or VSO). In this scenario, you and your employer agree on the terms of your departure by mutual consent, without intervention from the UWV or the court.

The statutory amount as starting point

In a settlement agreement, there is no automatic legal right to the transitievergoeding. The compensation is the result of negotiation. In practice, many employers use the statutory severance pay as a reference point. However, this is not guaranteed: when the employee's negotiating position is weak, with smaller employers, or in certain sectors, the offer may be lower than the statutory amount. Conversely, when the employer has a weak legal case, there is often significant room to negotiate above the statutory amount.

Negotiation room in a settlement agreement

The amount you can negotiate above the statutory minimum depends on several factors:

• Strength of the employer's case: if the employer has a weak legal position (e.g., insufficient documentation for dysfunctioning, no proper improvement plan), there is more room for negotiation.
• Dismissal ground: with a disrupted working relationship or a difference of opinion, the employer often has more motivation to reach a deal and may be willing to pay more.
• Your personal circumstances: factors such as your age, years of service, and position in the labour market can influence the negotiation.
• Employer's culpability: if the employer has acted culpably (for example, created a hostile working environment), this significantly strengthens your negotiating position.
• Alternative costs for the employer: a court procedure is costly and time-consuming for the employer. The more expensive and uncertain the alternative route, the more the employer may be willing to pay in a settlement.

Other financial components in a settlement agreement

Besides the severance payment itself, a settlement agreement typically addresses other financial matters that affect your total compensation package:

• Payment of outstanding holiday days and holiday allowance
• A legal costs contribution (often between EUR 750 and EUR 2,500 excluding VAT)
• Release from duties with continued pay during the notice period
• Outplacement budget
• Lifting of non-compete and non-solicitation clauses
• Waiver of training costs repayment obligations

Severance pay and probationary dismissal

If your employer terminates the employment during the probationary period (proeftijd), you are not entitled to severance pay. A probationary period dismissal falls under the special regime of Article 7:676 BW and is excluded from the severance pay obligation of Article 7:673 BW. This is an important exception to the general rule that severance pay accrues from the first day of employment.

If you are dismissed after the probationary period has ended — even if you have only been employed for a few weeks beyond the proeftijd — you are entitled to the transitievergoeding, calculated on a pro rata basis. If you believe the probationary dismissal was unlawful (for example, because the probation clause was not validly agreed or because the dismissal was discriminatory), the dismissal can be challenged and severance pay claims may arise.

Severance pay and summary dismissal (ontslag op staande voet)

Summary dismissal is the most drastic form of termination: the employer ends the employment immediately, without notice, for an urgent reason. If the summary dismissal is valid, you are not entitled to severance pay under Article 7:673 paragraph 7 sub c BW.

However, summary dismissal is frequently disputed. The legal requirements are strict: there must be an urgent reason, the dismissal must be given immediately upon discovery of that reason, and the reason must be communicated to the employee without delay. If any of these requirements are not met, the dismissal may be annulled by the court.

If the subdistrict court rules that the summary dismissal was not valid, several outcomes are possible:

• Reinstatement: you can request that the dismissal be annulled and that you return to your position.
• Fair compensation: instead of reinstatement, you can request a fair compensation (billijke vergoeding), which often includes the transitievergoeding.
• Severance pay: the court may award the transitievergoeding if it finds the dismissal was unjustified.

How to claim your severance pay

In most cases, the employer includes the transitievergoeding in the final settlement (eindafrekening) at the end of the employment contract. The payment is typically made together with your last salary, outstanding holiday pay, and accrued holiday allowance.

If the employer does not pay voluntarily, you should take the following steps:

1. Send a written demand: write a formal letter or email to your employer, stating the legal basis (Article 7:673 BW), the amount you are owed, and a reasonable payment deadline (typically 14 days).
2. Seek legal advice: if the employer does not respond or disputes the amount, consult a lawyer who can assess your situation and send a demand on your behalf.
3. Submit a court request: if the employer still refuses, you must submit a request (verzoekschrift) to the subdistrict court for payment of the transitievergoeding. The court can also award statutory interest from the date the severance was due.

What if your employer refuses to pay?

Unfortunately, it is not uncommon for employers to refuse or delay payment of the transitievergoeding. Common reasons (or excuses) include:

• "We offered you a different position": if the employer offered a reasonable alternative position and you refused it, this could in some cases affect your entitlement. However, the offer must be a genuine and suitable alternative, not just any position.
• "You were seriously at fault": the employer claims your conduct was so culpable that no severance is owed. As noted, this is a very high threshold and is often used incorrectly.
• "We cannot afford it": financial difficulty is not a legal ground for refusing to pay the transitievergoeding. The employer is obligated to pay regardless of its financial situation (though bankruptcy is a separate matter).
• "The severance pay is included in the notice period": this is not correct. The notice period salary and the transitievergoeding are two separate entitlements.

If your employer refuses to pay, the most effective recourse is to file a request with the subdistrict court. Courts routinely award the transitievergoeding in such cases, often together with statutory interest (wettelijke rente) and a contribution towards legal costs.

Negotiation room: getting more than the statutory amount

The statutory transitievergoeding is a minimum. In many dismissal situations, there is room to negotiate a higher amount, especially when the termination occurs through a settlement agreement. Factors that strengthen your position include:

• Employer culpability: if the employer has acted culpably — for example, by failing to follow a proper improvement process, creating a hostile environment, or not meeting reintegration obligations — you have a strong basis for requesting additional compensation.
• Weak legal grounds: if the employer does not have a solid legal basis for dismissal, the risk of losing a court procedure makes the employer more inclined to offer a generous settlement.
• Your labour market position: if you are older, have a specialised role, or face other challenges in finding new employment, this can be a factor in negotiation.
• Emotional damage: if the dismissal process has caused demonstrable emotional or psychological harm, this may support a claim for additional compensation.

In court proceedings, the billijke vergoeding (fair compensation) can be awarded on top of the transitievergoeding when the employer has acted in a seriously culpable manner. There is no fixed formula for the billijke vergoeding; the court considers all circumstances, including the financial consequences of the dismissal for you and the degree of the employer's culpability. In a settlement agreement context, the prospect of a billijke vergoeding claim is a powerful negotiation tool.

The three-month deadline

One of the most critical aspects of claiming severance pay is the strict deadline. Under Article 7:686a paragraph 4 sub b BW, you must submit your request to the subdistrict court within three months of the end of the employment contract. This deadline applies regardless of the reason for dismissal or the amount in dispute.

The three-month period starts on the day after the last day of your employment contract. If you miss this deadline, your claim to the transitievergoeding lapses permanently. In very exceptional circumstances (such as deliberate deception by the employer about the employee's rights), courts have occasionally accepted a breach of this deadline, but this is extremely rare.

This means that if your employer does not pay the transitievergoeding, you must act decisively. Do not wait for the employer to respond to informal requests or demand letters if time is running short. It is better to file the court request and withdraw it later if the employer pays, than to miss the deadline entirely.

Frequently asked questions about severance pay upon dismissal

Do I receive severance pay if I am dismissed via the UWV?

Yes. If your employer obtains a UWV dismissal permit (for economic reasons or long-term illness), you are entitled to the full statutory transitievergoeding. The employer must pay this at the end of the employment contract.

Is the severance pay in a settlement agreement the same as the statutory transitievergoeding?

Not necessarily. In a settlement agreement, the compensation is negotiable. The statutory transitievergoeding is often used as a reference point, but the actual amount depends on the negotiation between you and your employer. In many cases, a higher amount can be achieved, particularly when the employer has a weak legal position.

What happens if I am summarily dismissed?

If the summary dismissal is valid, you are not entitled to severance pay. However, summary dismissal is frequently disputed. If you challenge the dismissal within two months and the court finds it was not valid, you may still receive severance pay and potentially additional fair compensation.

How long do I have to claim severance pay?

You have three months from the end of your employment contract to submit a request to the subdistrict court for payment of the transitievergoeding. This deadline is strict and cannot be extended. If you miss it, your claim lapses permanently.

Can I negotiate a higher severance payment?

Yes, especially in the context of a settlement agreement. The statutory transitievergoeding is a minimum. If the employer has a weak case, has acted culpably, or if your personal circumstances justify it, there is often room for a higher amount. Professional legal advice significantly increases your chances of achieving a better result.

What if my employer says they cannot afford to pay severance?

Financial difficulty is not a legal ground for refusing to pay the transitievergoeding. Your employer is obligated to pay the statutory amount regardless of their financial situation. The only exception is formal bankruptcy, in which case the transitievergoeding is not a preferential claim. If your employer claims inability to pay, seek legal advice about enforcing your claim.