Termination After 2 Years of Sick Leave: As an Employer, You Really Need to Have This Properly Sorted Out
After two years of incapacity for work, the obligation to continue paying wages expires. Many employers believe that this also automatically terminates the employment contract. This is a persistent misconception. In reality, from a legal standpoint, there is still quite a bit involved. Two recent court rulings illustrate what can go wrong if an employer does not act with due care.
Continued Pay Ends, but Employment Continues
After 104 weeks of sick leave, you, as an employer, may stop paying wages, unless the UWV imposes a wage penalty. However, the employment contract remains in effect until it is legally terminated. This can be done through termination with the UWV’s approval, with the employee’s consent, or through a settlement agreement. Simply assuming that the employment relationship ends “automatically” can lead to problems.
The notice period remains in effect
Another common misconception: once the UWV has granted permission to terminate employment after two years of sick leave, you can skip the notice period. This is incorrect. The statutory notice period still applies in such cases, unless you agree otherwise with the employee. In a case before the Midden-Nederland District Court, the employer ignored this notice period and terminated the employment immediately after the period of continued pay ended. The judge ruled that the employer had terminated the employment unlawfully and imposed a fixed amount of damages equal to three months’ salary.
Vacation days carry over
Vacation days accrued during sick leave do not simply disappear either. Employees continue to accrue vacation days as usual while on sick leave. And upon termination of employment, those days must be properly paid out, unless they have expired. However, such expiration is subject to strict conditions.
According to the Court of Appeal in The Hague, the employer must inform the employee in a timely manner about the risk of forfeiture and enable the employee to actually take vacation time. If this does not happen, the vacation days remain available, even if the employee is on long-term sick leave.
Don’t forget about other pay components either
In addition to accrued vacation days, as an employer you must also include other pay components in the final settlement. These include vacation pay, a thirteenth-month bonus, recurring bonuses, or gratuities. In the case before the Midden-Nederland District Court, the employer was also required to pay a gratuity because it had been consistently awarded in previous years. The fact that the employee was on sick leave did not affect this ruling.
Dormant Employment Relationship? Employee Can Enforce Termination
Some employers try to avoid paying the transition allowance by keeping the employment contract “dormant.” That is risky. Since the well-known Xella ruling, it has been clear that an employee has the right to compel termination and to claim the transition allowance. Maintaining a dormant employment relationship without a legitimate reason is not legally acceptable.
In addition, under certain conditions, the transition allowance in the event of termination after 104 weeks of sick leave is compensated by the UWV. However, certain requirements must be met, and a maximum amount applies.
Wage penalty? Then the counter starts over
If the UWV determines that the employer has not made sufficient efforts toward reintegration, a wage penalty may be imposed. In that case, you are required to continue paying wages for up to an additional 52 weeks during the employee’s sick leave and may not terminate the employment contract yet. This means the process does not begin after two years, but only after the wage penalty has ended. And if an employee reports sick again after recovering and has worked for four weeks, the process can start over.
Conclusion: Watch out for legal pitfalls
Terminating an employment contract after two years of illness seems like a standard procedure on paper. However, recent case law shows that things can go wrong if you, as an employer, do not act with due care. This includes observing the notice period, fully paying out accrued benefits, and properly documenting agreements.
Employers would be wise to ensure that the process is properly handled from a legal standpoint. This will prevent a formal conclusion from ultimately leading to high costs or protracted proceedings. Do you have any doubts? Seek advice in a timely manner. This will prevent a case that appears to be closed from being reopened.
This blog was written by Stijn Blom, Esq., an employment law attorney at Arbeidsadvocaat.nl B.V. Stijn has extensive experience in employment law and assists employers and employees on a daily basis with a wide range of employment law issues. From dismissal cases to drafting watertight contracts and policies—with his practical and personalized approach, he helps employers and employees move forward. Want to learn more? Visit Stijn’s page.
Arbeidsadvocaat.nl is happy to assist you if you have any questions about terminating an employment contract during a period of illness. Please feel free to contact us .
April 2025