Recently, the Supreme Court expanded employees’ entitlement to transitional compensation, by also awarding partial compensation when the employer reduces the employee’s working hours.
Partial termination of the employment contract
The law only provides for complete terminations of employment contracts; not for partial terminations. The statutory provisions regarding the transitional compensation are consistent with this.
Entitlement to partial transitional compensation
However, the Supreme Court recently accepted the possibility of a partial entitlement to a transitional compensation in the event of a partial termination, namely in those cases where circumstances force the employee’s working hours to be reduced substantially and structurally. This can be the case, for instance, in the event of partial redundancy of the employee’s position due to commercial reasons or in the event of permanent partial incapacity for work.
In the case that led to the decision of the Supreme Court, an employer partially terminated an employee’s near full-time employment by means of a termination letter due to the employee’s partial incapacity for work. The parties had continued the employment contract in an adjusted form. From that point on, the employee’s working hours were reduced to 55%. This continuation was essentially a partial termination of the employment contract.
Because the transitional compensation is based on the last-earned wage, the employee would miss out on a part of her transitional compensation in case of full termination in the future, if she would not receive a partial transitional compensation for the structural reduction of her working hours. According to the Supreme Court, this is not justified if the reduction of the working hours is substantial (at least 20%). If the reduction is substantial, the transitional compensation must be calculated proportionally to the reduction of the working hours, based on the last-earned fixed salary.
The remarkable part of this ruling is that, for the entitlement to a partial transitional compensation, it makes no difference whether the reduction of working hours is caused by a partial termination of the employment contract, full termination given by notice followed by a new changed employment contract, or an amendment of the employment contract.
Notice of termination by the employer with the employee’s consent or termination of the employment contract by mutual consent?
In case of a notice of termination by the employer with the employee’s consent, the law stipulates that the employee must receive a transitional compensation. This compensation must be paid within 1 month after the end of the employment contract and can be claimed at law until 2 months after.
In case of a termination of the employment contract by mutual consent, the employee is not entitled to a transitional compensation. In that case, the parties are free to arrange a lower, higher or a different compensation than the transitional compensation. Previous lower-court case law already provided that, upon concluding a termination agreement, the employer is under no obligation to notify the employee of his entitlement to a transitional compensation after being given notice of termination. However, good employment practices could imply that the employee should be correctly informed of an existing entitlement to a transitional compensation when the working hours are substantially and structurally reduced. Therefore, in the absence of adequate information, a certain compensation might still be due on this basis.
In short: the line between a notice of termination by the employer with the employee’s consent and termination of the employment contract by mutual consent is a thin one, but the consequences can be markedly different. Moreover, the decision of the Supreme Court elicits new questions in its own right.