THE BOTTOM LINE
- Damages Are Not Wages: In the event of an employer’s bankruptcy, the Dutch Employee Insurance Agency (UWV) will not cover court-awarded “fixed compensation” for an improper dismissal, as it is legally distinct from wages.
- Timing is Everything: The UWV’s liability is limited to claims arising during the employment contract. Compensation related to the period after termination, even if awarded for a lack of notice, is not covered.
- Risk Shift to Employees: Employees who accept fixed compensation instead of challenging the dismissal itself cannot rely on the state’s insolvency fund for this payment. They become unsecured creditors in the bankruptcy proceedings for that amount.
THE DETAILS
This case centered on an employee who was dismissed without the required notice period by a financially distressed employer. The employee successfully sued in a sub-district court, which awarded, among other things, “fixed compensation” (gefixeerde schadevergoeding) equivalent to the salary that should have been paid during the proper notice period. When the employer was unable to pay, the employee requested that the UWV cover this amount through its insolvency payment scheme, which covers certain wage-related obligations of an insolvent employer.
The core legal question was whether this fixed compensation could be considered “loon” (wages) under Article 64 of the Dutch Unemployment Benefits Act (WW). The UWV refused, arguing that its mandate only covers wages earned up to the end of the employment contract. A lower court initially sided with the employee, reasoning that the compensation served the same financial purpose as wages during the notice period. However, the UWV appealed this decision, escalating the matter to the Netherlands’ highest administrative court for social security matters.
The Central Appeals Tribunal (CRvB) decisively overturned the lower court’s ruling and sided with the UWV. The court’s reasoning hinged on a critical distinction: the fixed compensation is, by its legal nature, a payment for damages arising from an improper termination. It relates to the period after the employment relationship has officially ended. The UWV’s insolvency scheme, in contrast, is designed to cover claims that arose during the employment period, such as unpaid salary and holiday pay. As the employment contract had already terminated, the compensation could not be classified as wages and therefore fell outside the scope of the UWV’s payment obligations.
SOURCE
Centrale Raad van Beroep
