The Two Routes to Termination
Dutch law provides two formal routes to terminate an employment agreement. Each is governed by a different body and applies to different grounds.
Route A: UWV (Employee Insurance Agency)
Applicable grounds:
- Business economic reasons (bedrijfseconomische redenen) -- redundancy, reorganization, closure
- Long-term incapacity for work (langdurige arbeidsongeschiktheid) -- after 104 weeks of illness
Process:
- Employer files an application with UWV
- UWV reviews the application (typically 4-6 weeks)
- Employee has 14 days to respond
- UWV may request additional information (adds 2-4 weeks)
- UWV grants or denies permission
- If granted, employer terminates with statutory notice period (1-4 months depending on tenure)
Timeline: 2-4 months from application to departure
Route B: Kantonrechter (Subdistrict Court)
Applicable grounds:
- Frequent short-term absence (frequent ziekteverzuim)
- Underperformance (disfunctioneren) -- the "d-ground"
- Culpable conduct (verwijtbaar handelen) -- serious misconduct
- Refusal to work on religious grounds (weigering wegens gewetensbezwaren)
- Disturbed employment relationship (verstoorde arbeidsverhouding)
- Other circumstances (overige omstandigheden) -- residual ground
- Cumulative grounds (cumulatiegrond / i-ground) -- combination of nearly-met grounds
Process:
- Employer files a petition with the kantonrechter
- Court schedules a hearing (typically within 4-8 weeks)
- Employee files a defense
- Oral hearing
- Court issues a decision (typically within 2-4 weeks after hearing)
Timeline: 3-6 months from filing to departure
The Closed System
Unlike US at-will employment, Dutch dismissal law operates a closed system ("gesloten ontslagstelsel"). The employer must prove one of the specifically enumerated grounds in Article 7:669 lid 3 sub a through i BW. There is no "for any reason" option.
Transitievergoeding (Transition Payment)
The Formula
Every employee who is terminated (or whose fixed-term contract is not renewed) is entitled to a transition payment:
Transitievergoeding = 1/3 of monthly gross salary x number of years of service
- Applies from day one of employment (since January 1, 2020)
- Monthly salary includes holiday allowance (8%), fixed year-end bonus, and other fixed wage components
- Part-years are calculated proportionally
- Capped at EUR 102,000 gross (2026) or one year's gross salary if higher
Calculation Examples
| Employee | Tenure | Gross Monthly Salary | Transitievergoeding |
|---|---|---|---|
| Junior developer | 2 years | EUR 4,000 | EUR 2,667 |
| Mid-level manager | 5 years | EUR 6,500 | EUR 10,833 |
| Senior engineer | 10 years | EUR 8,000 | EUR 26,667 |
| Director | 15 years | EUR 12,000 | EUR 60,000 |
| Long-tenured executive | 20 years | EUR 15,000 | EUR 100,000 (approaching cap) |
When It Is NOT Owed
- Mutual termination by settlement agreement -- but in practice, the transitievergoeding is almost always included as a minimum in the settlement amount
- Termination due to serious culpable conduct (ernstig verwijtbaar handelen) by the employee -- extremely rare; must be truly egregious
- Employee is under 18 and works fewer than 12 hours per week
- Employee has reached state pension age (AOW-leeftijd)
Tax Treatment
The transitievergoeding is subject to payroll tax (loonheffing) at the applicable rate. No social insurance premiums are owed.
Billijke Vergoeding (Fair Compensation)
On top of the transitievergoeding, a court can award a billijke vergoeding (fair compensation) when the employer is seriously culpable (ernstig verwijtbaar). This is an additional, uncapped payment.
The billijke vergoeding is not punitive but compensatory (per the New Hairstyle ruling, ECLI:NL:HR:2017:1187). Courts assess what would have happened if the employer had acted properly, including lost income and labor market prospects.
When It Is Awarded
- Employer created a toxic work environment
- Employer failed to provide a genuine verbetertraject before seeking termination for underperformance
- Employer violated dismissal prohibitions (e.g., terminating a sick or pregnant employee)
- Employer engaged in discriminatory conduct
- Employer deliberately made the employee's position untenable
Range of Awards
| Severity | Typical Range |
|---|---|
| Minor procedural failures | EUR 2,500 -- 10,000 |
| Inadequate verbetertraject, moderate culpability | EUR 10,000 -- 50,000 |
| Discriminatory dismissal, systematic harassment | EUR 50,000 -- 200,000+ |
| Severe misconduct affecting senior employees | EUR 500,000+ (rare but documented) |
The Settlement Agreement (Vaststellingsovereenkomst)
Why It Is the Default Exit
The vast majority of Dutch terminations are resolved by settlement agreement, not through UWV or court procedures.
This is because:
- It is faster (weeks vs. months)
- It is cheaper than a failed court procedure
- It gives both parties certainty
- It avoids public court proceedings
- The employer can include confidentiality clauses
Typical Contents
A standard VSO includes:
- Termination date (usually end of notice period or slightly beyond)
- Severance payment (transitievergoeding as a floor, plus additional compensation)
- Employer contribution to legal fees (usually EUR 750-2,500 excl. BTW)
- Garden leave (vrijstelling van werkzaamheden) during the notice period
- Reference letter (getuigschrift) commitment
- Non-disparagement clause
- Final settlement clause (finale kwijting) -- mutual release of all claims
- Confidentiality clause
The 14-Day Right to Revoke
Under Article 7:670b lid 2 BW, the employee has 14 calendar days to revoke the agreement without giving any reason. If the employer fails to mention this right in the VSO, the period extends to 21 calendar days. This is non-waivable.
Typical Settlement Amounts
| Scenario | Typical Total Package |
|---|---|
| Short tenure (< 2 years), clean file | 1-2x transitievergoeding |
| Medium tenure (2-5 years), performance concerns | 1.5-3x transitievergoeding |
| Long tenure (5-10 years), employer-initiated | 2-4x transitievergoeding |
| Employer misconduct (e.g., no verbetertraject) | 3-6x transitievergoeding |
| Protected employee (sick/pregnant) | 3-5x transitievergoeding (or more) |
The Performance Termination Problem
Why 80% Fail
Practitioners widely estimate that approximately 80% of termination requests based on underperformance (the "d-ground") are rejected by Dutch courts.
[Note: the specific 80% figure is widely cited among Dutch employment lawyers but no published court statistics with a traceable methodology have been identified.]
The primary reason: employers fail to meet the verbetertraject (improvement trajectory) requirements. See the dedicated briefing on verbetertraject requirements for the full analysis.
What Courts Require
Before terminating for underperformance, the employer must demonstrate:
- Clear, timely notification of the performance issues
- A structured improvement plan with SMART goals
- Adequate duration (minimum 3-6 months for professional roles)
- Genuine coaching and support (not just monitoring)
- Regular, documented evaluations
- An offer of alternative positions (herplaatsing) across the entire corporate group
- No contradictory signals (e.g., salary increases during alleged underperformance)
The American PIP vs. Dutch Verbetertraject
In US practice, a PIP is widely understood as the final step before termination. In the Netherlands, the verbetertraject must be a genuine rehabilitation program, not a managed exit.
If a Dutch court concludes the trajectory was predetermined, it will reject the termination and may award billijke vergoeding for the employer's culpable conduct.
Dismissal Prohibitions (Opzegverboden)
Absolute Prohibitions
The employer cannot terminate an employee during:
| Protection | Duration | Legal Basis |
|---|---|---|
| Illness (ziekte) | First 104 weeks (2 years) of illness | Art. 7:670 lid 1 BW |
| Pregnancy and maternity leave | During pregnancy + 6 weeks after birth + leave period | Art. 7:670 lid 2 BW |
| Military service | During service | Art. 7:670 lid 3 BW |
| Works council membership | During membership + 2 years after | Art. 7:670 lid 4 BW |
| Parental leave | During exercise of parental leave rights | Anti-discrimination law |
Exceptions
The prohibition does not apply in cases of:
- Urgent dismissal (ontslag op staande voet) for serious misconduct
- Closure of the entire business (bedrijfssluiting)
- Termination during probationary period (proeftijd)
- Mutual termination (settlement agreement) -- because the employee consents voluntarily
An employee who becomes sick during a reorganization cannot be included in the redundancy. The employer must continue paying their salary for up to 2 years, potentially extending to 3 years if reintegration duties are insufficient.
Probationary Period and Fixed-Term Contracts
Probationary Period (Proeftijd)
| Contract Type | Maximum Proeftijd |
|---|---|
| Indefinite contract (onbepaalde tijd) | 2 months |
| Fixed-term > 2 years | 2 months |
| Fixed-term 6 months - 2 years | 1 month |
| Fixed-term < 6 months | No proeftijd allowed |
During the proeftijd, either party can terminate immediately without notice, reason, or severance. This is the only period in Dutch employment law that resembles US at-will employment.
Fixed-Term Contract Chain Rule (Ketenregeling)
Under Article 7:668a BW:
- Maximum 3 consecutive fixed-term contracts
- Maximum 36 months total duration (including renewals)
- Exceeding either limit automatically converts the contract to indefinite
- A break of more than 6 months resets the chain
Strategic Use
US companies can use fixed-term contracts strategically:
- First contract: 7-12 months (includes 1-month proeftijd)
- Second contract: 12 months
- Third contract: 12 months (or convert to indefinite if performing well)
Cost Modeling
Scenario A: Terminating One Mid-Level Employee (EUR 6,000/month, 4 years tenure)
| Cost Component | Amount |
|---|---|
| Transitievergoeding | EUR 8,000 |
| Additional settlement premium (1.5x) | EUR 4,000 |
| Legal fees (employer's lawyer) | EUR 3,000 - 8,000 |
| Employee's legal fee contribution | EUR 1,500 |
| Garden leave (2 months) | EUR 12,000 |
| Total | EUR 28,500 - 33,500 |
Scenario B: Failed Performance Termination
When the court rejects your termination request, all the money spent on the verbetertraject and legal proceedings is wasted. You then negotiate a settlement from a position of weakness.
| Cost Component | Amount |
|---|---|
| Verbetertraject costs (6 months coaching) | EUR 8,000 - 15,000 |
| Legal fees (preparation + court) | EUR 10,000 - 20,000 |
| Court rejects termination (likely) | EUR 0 (but all above costs wasted) |
| Settlement after failed court attempt | 3-5x transitievergoeding |
| Total (for EUR 6,000/month, 4 years) | EUR 40,000 - 75,000 |
Scenario C: Terminating a Protected Employee (Sick)
Must wait 104 weeks. Then:
| Cost Component | Amount |
|---|---|
| 2 years salary continuation (70-100%) | EUR 100,000 - 144,000 |
| Reintegration costs | EUR 5,000 - 10,000 |
| Transitievergoeding (after 6 years total) | EUR 12,000 |
| Additional settlement premium | EUR 12,000 - 36,000 |
| Total | EUR 129,000 - 202,000 |
US Comparison
Practical Guidance for US Managers
The Five Rules
-
Never promise a US-style termination timeline. When HQ asks "how long to let this person go?" the answer is months, not days.
-
Document everything, starting now. If an employee is underperforming, begin written documentation immediately. You will need 6-12 months of documented feedback before a court will consider termination.
-
Consult a Dutch employment lawyer before acting. Not after. Not during. Before. The procedural requirements are strict and missteps are expensive.
-
Budget for settlements, not terminations. The most common exit is a negotiated settlement. Budget 2-4x the transitievergoeding for a typical departure.
-
Never terminate during illness. The dismissal prohibition is absolute for 104 weeks. There is no workaround. Plan accordingly.
- Before starting any performance management process
- Before any reorganization affecting Dutch headcount
- Before terminating any employee, even during proeftijd (for risk assessment)
- When an employee reports sick during a performance trajectory
- When considering a settlement offer
- When a works council must be consulted
Key Legal References
| Reference | Subject |
|---|---|
| BW 7:669 | Grounds for termination (closed system) |
| BW 7:671 | Termination via UWV |
| BW 7:671b | Termination via kantonrechter |
| BW 7:673 | Transitievergoeding (formula and cap) |
| BW 7:681 | Billijke vergoeding |
| BW 7:670 | Dismissal prohibitions (opzegverboden) |
| BW 7:670b | Settlement agreement (14-day revocation right) |
| BW 7:668a | Chain rule for fixed-term contracts (ketenregeling) |
Sources
Official Government Sources
- UWV - Dismissal Procedure
- Business.gov.nl - Dismissing Staff
- Government.nl - Dismissal
- Rijksoverheid.nl - Ontslagrecht
Employment Law Firms
- Russell Advocaten - Dutch Dismissal Law
- Loyens & Loeff - Termination of Employment in the Netherlands
- CMS Law - Employment in the Netherlands
Court Decisions
- ECLI:NL:HR:2017:1187 - New Hairstyle ruling on billijke vergoeding
- ECLI:NL:HR:2019:933 - Ecofys ruling on verbetertraject requirements
Research compiled 2026-03-16. Figures are current as of 2025-2026 unless otherwise noted.