The Netherlands: Risks of Dormant Employment

A recent decision by the Gelderland District Court shows yet again that dormant employment in the Netherlands comes with risks.¹ In this article, we briefly set out what dormant employment is and what the associated risks are.

Sick employees

In principle, sick employees retain the legal right to continued payment of a wage for 104 weeks. This term runs parallel to the waiting period for WIA (Work and Income according to Labor Capacity Act) benefits. Both the obligation to continue to pay a wage during illness and the waiting period of 104 weeks may be extended by up to 52 weeks if the Employee Insurance Agency (“UWV”) is of the opinion that insufficient redeployment efforts have been made. This means that, in principle, the obligation to continue to pay a wage expires after this period of 104 weeks and a sick employee is, in principle, entitled to WIA benefits. 

Dormant employment

Despite the fact that sick employees are no longer entitled to a wage after 104 weeks, their employment continues. This is known as dormant employment. Employers often deliberately used to leave the dormant employment in place (even when there was no prospect of recovery) because employees were only entitled to a transition payment on termination of their employment contract.

Since April 2020, the Transition Payment Compensation Scheme ("Compensation Scheme") has allowed employers to apply to UWV for compensation of transition payments they make after long-term illness. The scheme was introduced because employers found it unfair that, after 104 weeks of continuing to pay a wage and making rehabilitation efforts, they also had to make a transition payment. Now that employers are compensated for the transition payment, in its 2022 Xella judgment the Dutch Supreme Court found that good employment practice may require an employer to accept an employee's proposal to terminate the employment contract subject to the award of compensation amounting to the transition payment.

Under the Compensation Scheme, any compensation is capped at the amount of the transition payment up to the time the employment contract could have been terminated (in principle, the 104-week period). If an employer chooses to let an employee's employment become dormant, it risks not being compensated for the extra amount due on termination. After all, the transition payment continues to increase the longer the employment lasts. 

Conflict with European law

The Gelderland District Court has now ruled that an employee in dormant employment could also claim vacation hours accrued during the period of dormant employment, in addition to the transition payment. By law, employees accrue vacation hours over the period in which they are entitled to a wage. The Subdistrict Court found that this is contrary to European law, which allows sick employees to accrue vacation hours over the entire period of their illness (i.e., not limited to the first 104 weeks), regardless of whether they do any work and regardless of whether they are entitled to a wage.

In short, this recent decision makes it even more unattractive for employers to keep a sick employee's employment dormant after 104 weeks. 

A bill has been proposed to limit the Compensation Scheme to "small employers" (< 25 employees), but the fall of the cabinet makes it unclear whether and when this bill will be passed into law. On September 17, 2025, the Council of State advised the government (click here) to scrap the mandatory transition payment in the event of dismissal due to long-term incapacity for work and thereby make the Compensation Scheme entirely redundant. For now, though, everything remains as it was, and employers would do well to consider whether or not to terminate employment as the end of the 104-week period approaches.

*Justin Conijn is a Junior Associate with Littler Netherlands.