Severance pay

With the introduction of the Work and Security Act in 2015, the old severance pay, based on the subdistrict court formula (AxBxC), was replaced by a new severance pay, the transition compensation.

The old subdistrict court formula – unlike the current transition compensation – took the employee’s age into account and roughly amounted to one month’s salary per year of service worked. The subdistrict court formula also had a correction factor (the C-factor), which meant that the compensation could be (much) higher or lower. When the Work and Certainty Act came into being, the legislator felt that the (sometimes) sky-high severance payments were locking up the labor law system, because firing employees was becoming too expensive, and therefore these payments had to be reduced.

The current transition compensation, which was adjusted as of Jan. 1, 2020, with the introduction of the Labor Market in Balance Act (WAB), no longer discriminates in terms of employees’ age. Also, with the introduction of the WAB, employees are already entitled to transition compensation from the first day of their employment.

The transition compensation amounts to 1/3rd monthly salary per whole year of service from the first day of employment. Thus, the employee’s age no longer matters when calculating this severance payment.

In addition to the transitional compensation, the employee can still claim what is known as equitable compensation in a dissolution through the subdistrict court.
However, fair compensation only comes into play if there is serious culpable action or omission by the employer. The fair compensation is separate from the transition compensation and an employer can be obliged to pay both compensations.