In the event of illness, an employee is entitled to continued payment of wages for two years, and even three years in the event of a wage sanction. After that, the wage payment ends, but the employment contract does not automatically end with it. The employer can terminate this after permission from the UWV, but this is usually arranged with a settlement agreement (VSO). The employee is then entitled to payment of the transition allowance.
Dormant employment contract
Until a few years ago, the employment contract of an employee who was incapacitated for work for a long period of time was often not terminated, simply because the transition allowance did not have to be paid in that case. The employment contract then only existed on paper, without any wage payment (a ‘dormant employment contract’). However, in 2019, in the Xella ruling, the Supreme Court ruled that a good employer must agree to a proposal from the employee to terminate the employment contract after long-term incapacity for work. Not every employee asks for this, and so an employment contract sometimes continues for some time after two years of illness.
Accrual of vacation days
The employer who did not want to cooperate with termination was unpleasantly surprised in a recent ruling by the Gelderland District Court (ECLI:NL:RBGEL:2025:7054) with the consequences of this for the final settlement. The employer thought that payment of the accrued vacation days up to the last day of wage payment would be sufficient. This is understandable in itself, because on the basis of Article 7:634 paragraph 1 of the Dutch Civil Code, vacation days are only accrued over the working hours for which the employee receives wages. The court sided with the employee: on the basis of European law, sick employees accrue full vacation days throughout the entire period of illness, and not only the first two years, regardless of whether work has been performed and regardless of whether there is an entitlement to wages. The court therefore disregarded Article 7:634 of the Dutch Civil Code. The accrual of vacation days continues until the employment contract has been validly terminated. In the case of this employer, that was only 1.5 years later, so it concerned a considerable number of days. Terminating a dormant employment contract has been the advice since Xella, but with this ruling it is also wise not to wait too long.
