Dismissal and Transition Payment in Outplacement

Dismissal and transition payment means your employment contract is terminated and you are entitled to a financial compensation to support your move to a new job. This right, established by Dutch law, applies to nearly all employees facing involuntary dismissal. In outplacement, both the dismissal process and the use of the transition payment are crucial for effective re-employment. In this article, you’ll discover how dismissal and transition payment relate to outplacement and what rights and responsibilities come into play.

What Is Dismissal and When Are You Entitled to a Transition Payment?

Dismissal is the formal termination of an employment contract, typically initiated by the employer. In the Netherlands, most employees dismissed involuntarily after at least 24 months of service are entitled to a transition payment, as regulated in the Dutch Civil Code. This applies to terminations via the Employee Insurance Agency (UWV), the subdistrict court, or a mutual agreement through a settlement agreement (vaststellingsovereenkomst).

The transition payment (transitievergoeding) is designed to help bridge the gap to a new job, for example, via retraining or outplacement coaching. The amount is based on your years of service and gross salary. For instance, after three years of service, if you are dismissed, you receive a payment calculated from your gross monthly wage and tenure.

Transition payment is not owed when the employee resigns without urgent cause or during the probation period. There are exceptions, such as in cases of gross misconduct. The topic of dismissal covers various scenarios and rules that impact your rights.

How Is the Transition Payment Calculated?

The amount is determined by a legally prescribed formula: one third of the gross monthly salary for each year of service. For periods less than a full year, a proportional part applies. Fixed wage components, including holiday allowance and regular bonuses, are also included.

For example: if your gross monthly salary is €3,000 and you worked four years and eight months, you receive 4.66 (4 years + 8/12 year) x 1/3 x €3,000 = about €4,655 as transition payment. The payment is capped by a statutory maximum that is adjusted annually. You pay income tax on the transition payment, but no social security contributions. More about the transition payment is explained in a dedicated article.

Dismissal and Transition Payment in Combination with Outplacement

Outplacement is specialist guidance towards new employment after dismissal. Employers often offer outplacement as part of a social plan, during restructuring, or via a settlement agreement. The transition payment can be used at the employee’s discretion, but employers may (with consent) use part of it directly for outplacement services.

For example: if your employer offers a €2,000 outplacement program in addition to the statutory transition payment, arrangements may be made for the cost to be deducted or paid separately. Outplacement support helps you find new work, improve job search skills and process your dismissal.

Clear agreements are essential regarding the allocation of transition payment. Employers may only deduct outplacement costs from the transition payment if agreed upon in writing.

The Role of the Settlement Agreement (VSO) in Dismissal and Compensation

In case of mutual termination, a settlement agreement (vaststellingsovereenkomst, VSO) is drafted. This document specifies the arrangements for ending the employment, including the amount of the transition payment and any outplacement services. The VSO must meet conditions to ensure you retain eligibility for unemployment benefits and the transition payment.

The compensation stated in the VSO can never be lower than the statutory minimum unless a different legal ground applies. In practice, the VSO often determines if part of the compensation is used for outplacement. The settlement agreement is vital to safeguard your rights.

Practical Considerations Regarding the Transition Payment

When facing dismissal, consider these important points about the transition payment:

• Always check if you are entitled to the payment and if the amount is calculated correctly.
• Make clear agreements about using the payment for outplacement or retraining.
• Know that the payment is only tax-free in certain situations, e.g., direct use for approved training.
• Keep all written agreements, especially when a settlement agreement is involved.

For example, some employers offer a higher payment if you sign quickly. Consider your decision carefully, as rushed choices may affect your unemployment benefit or tax position. Tax aspects are especially relevant in this context.

Outplacement as Alternative or Supplement to the Transition Payment

Employees sometimes choose to allocate (part of) their transition payment directly to outplacement. This approach has advantages: expert guidance increases your chances of finding a new job and minimizes unemployment duration. For employers, this is a way to facilitate a softer landing for staff after dismissal.

For instance: an employee receives €6,000 transition payment and invests €3,000 in a personal outplacement program, keeping the remaining €3,000 to spend freely. Custom arrangements can be negotiated depending on the specific case.

Outplacement is relevant after restructuring, illness, or when returning to a previous role isn’t feasible. Dismissal due to restructuring: what does it mean and what next? provides more insight into what outplacement can offer in such situations.

Rights and Duties of Employer and Employee

Dutch law sets clear rules for dismissal and transition payments. Employers must provide proper justification for dismissal and timely information. For collective dismissals, employers must consult unions and the Employee Insurance Agency (UWV).

Employees have the right to information, guidance, and correct payment processing. If the employer refuses to pay, the employee can appeal to the subdistrict court. In some cases, outplacement presents a constructive solution, especially when return to the company is no longer possible. Outplacement when return to your previous position is impossible offers further details.

Common Scenarios and Real-World Examples

Dismissal with transition payment frequently occurs during reorganizations, long-term incapacity for work, or job redundancy. For example, an employee declared redundant after a merger receives a transition payment and outplacement support via a social plan. With professional guidance, they find new employment within a few months.

Another scenario: an employee signs a settlement agreement after long-term illness. Using the transition payment and outplacement, they successfully move to a new sector. Every case requires tailored agreements and a clear understanding of your rights.

Curious about the process steps in outplacement? How an outplacement process works provides a comprehensive overview.

Summary

Dismissal and transition payment are closely connected to outplacement in the Netherlands. Statutory transition payment provides financial support for job transitions or retraining. Outplacement is a valuable complement, helping employees maximize re-employment opportunities. Clear arrangements about transition payment and support ensure that you make the most of your rights and prospects in case of dismissal.