Employment law – Termination of employment contracts – Transitional allowance

Upon termination of the employment contract, the employee may be entitled to a ‘transitional allowance’. The transitional allowance is intended to assist the employee in finding a new job after dismissal, for example through education.

The transitional allowance is only owed to employees who have been employed by the employer for at least 2 years and are aged 18 or over.

The employer must pay the transitional allowance to the employee in the following situations:

  • The employer has given notice of termination;
  • The employment agreement has been rescinded by the court at the employer’s request;
  • The employee has taken the initiative for the termination due to serious misconduct by the employer;
  • A fixed-term contract of longer than 2 years (e.g. a 3 year contract) has not been renewed at the initiative of the employer

Several exceptions apply, including in relation to small companies (with fewer than 25 employees). In addition, no transitional allowance will be due if the employee is considered responsible for his/her dismissal.

At its discretion the court may also award an employee an additional financial compensation, but only under exceptional circumstances.

Calculation of the transitional allowance

The transitional allowance is calculated as follows:

  • During the first 10 years of service: 1/6 of the employee’s monthly salary for each 6 months of service; and
  • After the first 10 years of service: 1/4 of the employee’s monthly salary for every 6 months.

The transitional allowance will amount to 1/2 of the monthly salary for each 6 months of employment over the age of 50. Certain categories of small businesses with fewer than 25 employees may, however, pay lower compensation to employees over 50.

In most cases the transitional allowance will be limited to € 77,000 or a maximum of one annual salary if the annual salary exceeds € 77,000.

It may be that the employer has incurred costs for education or outplacement prior to dismissal of the employee. These costs can be deducted from the transitional allowance under certain circumstances.

Click here for the introductory Blogarticle on termination of employment contracts. If you have any questions regarding this matter please don’t hesitate to contact us by using our contact form or telephone: +31 (0) 20 – 68 98 123 or e-mail: info@noordamadvocatuur.nl.