Council of State critical of restrictions on transition payment compensation scheme

Council of State critical of restrictions on transition payment compensation scheme 

On 17 September 2025, the Advisory Division of the Council of State issued its opinion on the bill that aims to limit the compensation scheme for transition payments to small employers in the event of dismissal due to long-term incapacity for work. The opinion, published on 22 September 2025, contains a remarkable conclusion by the Council of State.

Background

Since the introduction of the transition allowance in 2015, employers have also had to pay this allowance when dismissing employees who are on long-term sick leave. Because employers already have to continue paying wages for two years in the event of illness and have reintegration obligations, this was considered unbalanced at the time. To overcome this, a compensation scheme was introduced in 2020: employers could reclaim the transition allowance paid after two years of illness from the UWV.

The government now wants to limit this scheme to small employers. This intention stems from the government programme, in which reducing employer costs for SMEs is an important principle.

Criticism from the Council of State

The Council of State believes that the proposal fails to take fundamental interests into account. According to the Council, greater emphasis should be placed on the vulnerable position of employees with long-term illnesses and the multi-year obligations of employers in the event of illness. By limiting the compensation scheme, the costs of the transition allowance will in most cases fall entirely on the employer, which is precisely the problem that the original scheme was intended to solve.

The Council points out that the dual objective of the transition allowance – on the one hand, compensation for dismissal and, on the other, promoting the transition to other work – is not well suited to the situation of long-term incapacity for work. These employees often already have a social safety net, such as WIA benefits, and the transition to new work is limited in practice. At the same time, employers already have considerable obligations during illness, which makes the need for a transition allowance less obvious in this specific case.

Dormant employment contracts

An important warning in the advice concerns the possible return of so-called dormant employment contracts. Employers who are no longer eligible for compensation may be inclined to keep employees on long-term sick leave without paying them, in order to avoid having to pay them a transition allowance. The Council of State anticipates that this will once again lead to discussions and legal proceedings about this practice, even though the compensation scheme was specifically intended to solve that problem. Furthermore, the implementation of the scheme will become more complex and the likelihood of legal disputes will increase if the compensation only applies to small employers.

Advice: fundamental reconsideration

The Division draws a clear but remarkable conclusion: in its view, the government should consider abolishing the mandatory transition payment in the event of dismissal due to long-term incapacity for work altogether. This would also eliminate the need for a compensation scheme.