When an employment contract is terminated, the question often arises as to whether the employee is entitled to a transition payment. In most cases, the answer is yes. Of course, there are exceptions to this rule. In this blog, we outline the most important rules.
What is the transition allowance?
The transition allowance is the payment that an employer must make to an employee when the employer terminates the employment relationship. The transition allowance is intended to ease the transition to new employment. The employee may decide for themselves how to use the allowance.
When is an employee entitled to a transition allowance?
The right to a transition allowance arises when the employer terminates the employment contract or does not renew a temporary employment contract. The reason for the termination does not matter. For example, an employee may be entitled to a transition allowance if terminated for business reasons, poor performance, or a strained working relationship. An employee who resigns voluntarily is not entitled to a transition allowance.
Even employees who have only been with the company for a short time are entitled to a transition payment. This right takes effect from the first day of the employment contract. This therefore also applies if the employer terminates an employee’s employment during the probationary period.
Exception: grossly negligent conduct
There is no right to a transition payment if the employee is terminated due to serious culpable conduct. This is often the case with summary dismissal. This may also apply in the case of termination due to culpable conduct. However, culpable conduct alone is not sufficient. The employer must demonstrate that the conduct was not only culpable but also seriously culpable.
The judge may also choose to —even in cases of serious culpable conduct on the part of the employee—to award the employee a (partial) transition payment if the judge finds that failing to do so would be unacceptable under the standards of reasonableness and fairness.
Other Exceptions
Other exceptions apply, for example, if the employee has reached retirement age or if the employee is under 18 years of age and worked an average of no more than 12 hours per week. The right to a transition allowance may also lapse in the event of the employer’s bankruptcy or suspension of payments.
How is the transition allowance calculated?
The transition payment is calculated based on the employee’s salary and the length of employment. For each year of service, the employee is entitled toone-third of his or her monthly salary. For a partial year of service, the payment is calculated on a pro-rata basis.
Total compensation includes not only the base salary but also certain fixed and variable pay components, such as vacation pay, a fixed year-end bonus, shift differentials, and bonuses.
The transition payment is capped at €102,000 gross in 2026. If the employee earns more than this amount on an annual basis, the maximum payment is limited to one gross annual salary.
Transition Payment in the Event of Long-Term Work Disability
An employee who is terminated following long-term disability is also, in principle, entitled to a transition payment. In some cases, the employer is entitled to compensation for the transition payment made.
Transition payment in the event of a settlement agreement
In the event of termination by mutual agreement (VSO), there is no automatic legal right to a transition payment. In practice, however, a settlement agreement often includes a payment that is equal to, or higher than, the statutory transition payment. This payment is also referred to as a severance payment. The amount of the payment is negotiable.
Are you entitled to a higher payment?
The transition payment is not always the only compensation to which an employee is entitled. If the employer has acted in a seriously culpable manner, the court may award fair compensation in addition to the transition payment. There is no fixed formula for calculating the amount of fair compensation. It can vary significantly depending on the specific circumstances of each case.
In addition, the subdistrict court may award supplementary compensation in the event of termination based on the cumulative ground (i-ground). This supplementary compensation may amount to no more than half of the transition payment.
Advice on the transition payment
Whether an employee is entitled to a transition payment and how much it should be depends on the circumstances and the manner in which the employment contract is terminated. Even in the case of a settlement agreement, it is important to carefully assess what compensation is appropriate and what terms it is prudent to include.
Our employment law attorneys advise employers and employees on transition payments and other severance payments. We are happy to help you identify the options, risks, and next steps, and determine an appropriate strategy.
