Holiday entitlement accrual for employees on a dormant employment contract in the Netherlands

The A-G's conclusion

The A-G concludes that the answer is yes: an incapacitated employee accrues holiday entitlement at salary value during a dormant employment contract. Article 7:634(1) of the Dutch Civil Code (DCC) – which links holiday accrual to the right to salary – must be disapplied where it conflicts with Article 31(2) of the EU Charter of Fundamental Rights.

Key legal principles

• The right to paid annual leave is a fundamental right under Article 31(2) of the EU Charter, which has direct horizontal effect and can be invoked directly against a private employer.
• EU law treats incapacitated employees as equivalent to working employees for holiday accrual, because the onset of incapacity is unforeseeable and beyond the employee's control.
• Accrued holiday entitlement must be paid out in cash upon termination of employment.
• Member States may provide that holiday entitlement accrued during long-term incapacity lapses after a carry-over period, provided that period substantially exceeds the reference period. The Netherlands has a five-year limitation period (Article 7:642 DCC); the six-month forfeiture period (Article 7:640a DCC) does not apply where the employee could not reasonably take holiday – as is the case for an incapacitated employee with a dormant employment contract.

What does this mean for employers?

The A-G's conclusion – if followed by the Supreme Court – has significant practical implications:

• In practice, a dormant period arises between the end of the two-year salary continuation obligation and actual termination. This may occur because the employer must obtain UWV dismissal permission and observe a notice period, because no such permission is issued or initiated, or because the parties cannot reach an amicable settlement – for example, where the employee wants to await the WIA decision first, which can take considerable time given current delays at UWV. This dormant period generates holiday entitlement at salary value, which must be paid out on termination.
• Employers who have maintained dormant employment contracts for a longer period face a potentially significant holiday pay liability upon termination, subject to the five-year limitation period.
• The current government intends to abolish the compensation scheme for transitional allowances (compensatieregeling transitievergoeding), with the abolition now postponed to 1 January 2028. This may affect the incentive for employers to terminate dormant contracts promptly and could increase exposure to holiday accrual claims.

What should you do now? 

• Review any existing dormant employment contracts and assess your potential holiday pay liability.
• Consider whether legislative or procedural steps – such as requesting UWV permission promptly – can reduce the duration of any dormant period.
• Await the Supreme Court's binding ruling on the preliminary question. 

We will provide a further update once the Supreme Court has issued its ruling. In the meantime, if you have questions about dormant employment contracts or the implications for your organisation, please contact your usual Osborne Clarke adviser.