What Wage Amount Should the Basis for Calculation of the Transitional Allowance of a Labour Incapacitated Employee?

An employer who had terminated the employment contract with an employee due to the fact that the employee had been ill for more than two years, had to calculate the amount of the transitional allowance on the basis of the agreed wage as applicable at the end of the employment contract. This amount included an increase of the wage that had only come into effect after the employee was no longer entitled to payment of this wage, because he had been labour incapacitated for more than 104 weeks.

Since 1985, an employee had been working for a company in the port of Rotterdam.
On 17 June 2019, he became incapacitated for work as a result of an industrial accident.
When the waiting period of 104 weeks had expired on 24 June 2021, the UWV granted the employee an IVA benefit. Then the employer asked the UWV for permission to dismiss the employee for long-term labour incapacity. After the UWV had granted the dismissal permit, the employer terminated the employment contract on 15 July 2021 with effect from 17 November 2021. In addition, the employer paid the employee the transitional allowance.
The employer calculated the amount of the transitional allowance on the basis of the employee's wages at the end of the 104 week period in which the employee was entitled to sick pay. A salary increase per 1 July 2021 under the applicable CLA was not included. According to the employer, the employee was not entitled to this salary increase for calculation of the transitional allowance, because he had never been entitled to this higher part of the salary. After all, the employer's wage payment obligation had already expired by that time.
The employee disagreed, however. Since there were some more points of disagreement around the final settlement of the employment contract, the employee applied to the Sub-district Court, claiming payment of the part of the transitional allowance that related to the wage increase per 1 July 2021.
The Sub-district Court first stated that case law of the Supreme Court shows that wages are “the compensation that the employer owes the employee in respect of the stipulated work”. The fact that the employee actually received less wages is not relevant to the question of what wage should be the basis to calculate the amount of the transitional allowance. It should be based on the wages agreed between the parties and not on the wages actually paid. If this were otherwise, an employee whose employment contract would end during a period in which he was only entitled to 70% of the wage due to illness, could only claim a transitional allowance that would be calculated on the basis of 70% of the agreed wage.
From the legislative history, the Sub-district Court deduced that it has been the legislator’s intention not to make a distinction between employees who are capacitated for work and those who are not when it comes to entitlement to the transitional allowance.
Thus, the employee was the winner. The wage increase per 1 July 2021 had to be included in the calculation of the transitional allowance.

Regarding the transitional allowance of long-term disabled employees, the legislator has made an arrangement that entitles the employer to compensation of the transitional allowance by the UWV. The amount of the compensation for the transitional allowance is capped to the transitional allowance to which the employee would be entitled at the moment when the two-year period in which the prohibition on termination during illness applies expires.
In the above case, it was the employer who had terminated the employment contract.
In that case, the amount of the transitional allowance has to be calculated on the basis of the employee’s number of years of service and his/her earnings at the moment the employment contract ends. In that case, the employer pays a higher transitional allowance than the UWV compensates. The employer also had the option to wait with termination of the employment contract until the employee had requested so. According to case law of the Supreme Court, the employer would then be obliged to cooperate with the termination of the employment contract against payment of “a compensation equal to the amount of the transitional allowance that would be due on the day after the one when the employer would have terminated the employment contract for long-term labour incapacity”.
In the case of terminating an employment contract by mutual consent (the “settlement agreement”), the employee is not entitled to a transitional allowance. In order to be allowed to terminate the employment contract by mutual consent, the employer must usually offer a severance payment that is at least equal to the transitional allowance that would be due if the employment contract had to be terminated by the employer without mutual consent.
The Supreme Court has indicated that good employment practices require that an employer cooperates in the termination of the employment contract with a long-term incapacitated employee “in return for payment of a severance payment equal to the transitional allowance”.
The ruling of the Supreme Court means that an employer can make an agreement with an employee about termination of the employment contract of which the costs of the transitional allowance will not be higher than the amount that will be compensated by the UWV.
If, however, the employer chooses to terminate the employment contract instead, more transitional allowance will be owed than the UWV will compensate.