Netherlands - An international perspective – Views on key issues from around the globe

Supply chain disruption

Dutch law has a statutory concept called force majeure (overmacht), which can excuse a party from performing a contract and from liability in this respect. By contract, parties can deviate from this statutory regime, so that contractual arrangements are leading. One of the statutory conditions of force majeure is that the contract must be (practically) impossible to perform, which is why it is difficult to rely on this concept in practice. In COVIDrelated cases, courts have considered that a mere inability to pay in principle comes for the risk of the debtor, so that force majeure cannot be relied upon in such situations.

If the concept of force majeure is unavailable, for example if performance is not impossible but very onerous, contracting parties may be able to rely on the statutory concept of reasonableness and fairness (redelijkheid en billijkheid) or unforeseen circumstances (onvoorziene omstandigheden). Based on these concepts, contracts can (temporarily) be changed. The starting point is, however, that the contract prevails and that unforeseen circumstances are considered to form an entrepreneurial risk. It is therefore only under exceptional circumstances that the unaltered continuation of the contract may not be expected, and the burden of proof is high. This is also confirmed in COVID-related case law. Although lower courts generally seem to accept that COVID-19 is an unforeseen circumstance in respect of contracts entered into before March 2020, they are careful with interfering in the contractual relationship between parties. If they do so, there seems to be a practical tendency to embrace the ‘share the pain’ philosophy.

Insolvency and restructuring

Remarkably, the number of bankruptcies in the Netherlands in the first six months of 2020 was just as high as the first six months of 2019.

Available options in the Dutch Bankruptcy Act to cope with these liquidity problems include moratorium and bankruptcy.

A bill to introduce a court approved “scheme of arrangement” to the Dutch Bankruptcy Act – the Act for Court Approval of a Scheme of Arrangement (Prevention of Insolvency) (Wet Homologatie onderhands akkoord; “WHOA”) – will be voted on in the Dutch Senate (Eerste Kamer) on 6 October 2020. After it has been in debate for the last seven and a half years. If adopted, the WHOA may still enter into force this year.

The WHOA effectively provides for debt restructuring outside of bankruptcy, which is currently not possible under the Dutch Bankruptcy Act. The WHOA combines elements of the English Scheme of Arrangement and the American Chapter 11. The WHOA introduces amendments to the Dutch Bankruptcy Act, which amendments provide that a Dutch court can approve a private agreement between a company and its creditors and/or shareholders regarding the restructuring of debts. Court approval will make the scheme binding on all creditors and shareholders that are a party to the scheme. Creditors/shareholders that had not agreed to the scheme can also be bound to the scheme by the court, provided that the decision-making on and the content of the composition meets certain legal requirements.

With respect to COVID-19, courts have agreed to exercise restraint in declaring bankruptcies and when deciding on requests for leave for (prejudgment) attachments, taking the pandemic and the economic consequences into account as relevant circumstances. For companies that would have been viable without the COVID-19 crisis, courts will not allow strategic bankruptcy requests that serve the only purpose of forcing a company to pay debts of certain forceful creditors.

In a pending bill for temporary COVID-19 measures, it is provided that viable companies confronted with a bankruptcy request can ask the Court to suspend the decision on a bankruptcy request. The Court will agree to suspend its decision if certain criteria are met, which include that the payment problems are the result of the COVID-19 pandemic, the company was otherwise financially viable and the company has growth perspective. If granted, the suspension effectively results in a temporary moratorium in which creditors can in principle not force payment of debts and not terminate existing contracts. The Minister considers these rules, if entered into force, to be of crucial importance in the sense of Article 9 Rome I and therefore also applicable to foreign creditors. It is currently unclear if and when this bill will be passed. If the bill is passed, it may enter into force with retroactive effect.

Health and Safety Issues

Similarly to the UK, employers in the Netherlands have a duty of care to ensure a safe working environment which applies both to employees working on the employer’s premises and in a homeworking environment.

A risk inventory and evaluation (RI&E) needs to be performed to identify the health and safety risks the employees face and which measures will be taken in order to mitigate those risks. The safety measures and instructions should be tailored to each individual organization. Merely referring to the guidelines issued by the Government, for example, maintain 1.5 meters’ distance, wash your hands for 20 seconds with soap and water and dry with a paper towel, etc. – will not be sufficient in terms of the employer’s duty of care. Clear instructions must be provided regarding the safety measures that have been implemented. In addition, training needs to be provided to employees in order to make sure that the safety instructions are clear and understood.

If an employee claim would be issued in the future, stating that it suffered damages during the exercising of their activities, the employer must be able to demonstrate that the duty of care has been fulfilled and thus the employer cannot be held liable. As a result, written records must be kept of all what has been done in terms of ensuring a safe working environment.

Restrictive covenant enforcement

In the Netherlands, restrictive covenants such as noncompete and business relations/non-solicitation provisions can generally be agreed upon if (i) the employee has reached the age of 18 and (ii) the provision is entered into by means of a written contract which is signed by both the employer and the employee. Noncompete clauses with a term of one year and a geographical scope of the Netherlands are fairly common, especially in indefinite term employment contracts.

Whilst a non-compete provision can be added to a fixed-term employment contract, it will only be valid and binding if a written statement (referred to in Dutch as a “motivation”) is included which sets out the employer’s justification for the provision, based on substantial business interests. The motivation must be relevant to the circumstances existing when the fixed term contract is entered into as well as at its end, when the employer invokes the non-compete provision.

The practical steps considered prudent for businesses in the UK are also generally applicable to employers in the Netherlands.

Employment tribunals and employee relations

The landscape of employment litigation in the Netherlands differs from the situation in the UK. For example, there is no tribunal that exercises a similar function to the Employment Tribunal in the UK. In general, cases in the field of employment law, for example with respect to (change of) terms and conditions of employment, employer’s liability and dismissal are handled by civil courts.

Increased employment litigation is arising with respect to disputes regarding pay (for example are employees entitled to their salary and other emoluments if they are unable to work due to self-quarantine as a result of the novel COVID-19) and/or holidays (for example can employers oblige employees to take their holidays in case there is less work due to COVID-19).

Under Dutch mandatory law, employers that intend to unilaterally dismiss indefinite term employees due to business-economic reasons such as redundancy or due to an employee’s long-term illness require prior permission for termination from the Employee Insurance Agency (in Dutch: Uitvoeringsinstituut Werknemersverzekeringen, “UWV”) or need to get the employment contract terminated by the sub-district court in case of personal reasons for dismissal such as unsatisfactory performance, imputable acts of the employee or a work conflict. At present we have not seen a specific increase in litigation on that subject. However, we do expect that more employers will start to implement (mass) redundancies in the coming months which could result in increased litigation.

Class actions

The Dutch legal system is known for its modern and advanced procedural system for collective actions.

Since the Settlement of Large-scale Losses or Damage (Class Actions) Act (Wet afwikkeling massaschade in collectieve actie; “WAMCA”) came into force on 1 January 2020, it is now possible to claim collective/mass damages in collective actions. Before, interest groups could demand a declaratory decision on liability by means of a collective action. Unless interest groups subsequently succeeded in reaching a collective settlement, claimants had to individually go to court to obtain a compensation award. With the WAMCA act coming into force, claims for damages can now be brought in the collective action.

The WAMCA applies to class action proceedings in respect of events on or after 15 November 2016 in proceedings that are instituted after 1 January 2020.

A recent example of a mass claim that was initiated under WAMCA in relation to COVID-19 is a claim against the authorities of the Austrian Federal State, Tyrol, due to negligence and the authorities’ late response to take measures preventing people to get infected. More than 400 people have already joined this claim.

Before the pandemic, there was already a slightly increasing trend of (collective) claims against directors in the Netherlands. It is envisaged that directors of companies will have to deal with mass claims under director’s liability. It may be expected that other cases will follow as the global impact of the pandemic is overwhelming, both in terms of health and economic effects, and it seems that early warnings have been ignored.1

[1]     J. Hoevenaars & X. Kramers, Mass Litigation in Times of Corona and Developments in the Netherlands, Erasmus University Rotterdam, https://conflictoflaws.net/2020/mass-litigation-in-times-of-coronaand- developments-in-the-netherlands/

Real estate

The most important performances under a lease agreement are: (i) the provision of quiet enjoyment of the leased space by the landlord and (ii) the payment of the rent by the tenant. Almost all Dutch leases, which are based on the ROZ model, contain a clause that exclude rent reduction and settlement rights.

Dutch courts have decided that COVID-19 restrictions posed by the Dutch Government can qualify as unforeseen circumstances and not being able to use the leased property can qualify as a defect in the sense of article 7:204 DCC. According to the courts, the exclusion of rent reduction rights can be set aside if required by reasonableness and fairness and based on unforeseen circumstances. Whether this applies, needs to be assessed case to case, taking into account the circumstances of the specific case.

Before the COVID-19 outbreak, when negotiating a lease agreement, parties did not pay particular attention to the exclusion of the rent reduction and settlement rights of the tenant. However, we are currently experiencing more pushback on this exclusion and a strong demand to negotiate break options and other early termination rights.

When consulted by parties to a pre-COVID-19 lease - either by the landlord or the tenant - we always advise that you should take a practical and reasonable approach to see how the relationship can be continued under the current circumstances. After all, neither a landlord nor a tenant benefits from a bankrupt counterparty.

Digital transformation and data disputes

The current crisis has forced organizations to adapt their digital transformation strategies rapidly. After scoping the risks and challenges that have occurred over the past six months, most organizations have chosen solutions that have had a significant impact on their original digital transformation strategy. Some companies have already managed to set up a proper legal and compliance framework around it, whilst others desperately try to catch up.

Organizations are currently facing the following issues and challenges:

• implementation of cyber security policy for home networks; what is going to be your standard, will you help employees and will you audit this?
• maintaining a strict policy to use only company devices (be it in your private network or will you enable 4G or 5G) or amendment of (Bring-)Your- Own-Device (‘BYOD’) policies
• installing proper security management tools, by using end-point monitoring and detection on these devices
• reviewing and amending fair processing notices and your internal privacy policies
• implementing specific guidelines on the use of solutions and the storage of both confidential information or information relating to personal data
• printing from home, archiving and retention. Can you disable that functionality for a ‘work from home’ network within your company?

These are just a few important examples that provide more food for thought than one would initially consider. There is no one-size-fits-all approach; every organization should do its own careful assessment, considering the needs and characteristics of the organization.

We have all faced these sudden issues, without time for proper preparation or planning. One would expect, or at least hope, that authorities, like the Data Protection Authority, will take this into account and will not act too aggressively at this stage of adaption of this new reality. However, we would recommend that this becomes an urgent topic for your board agenda. At this stage, force majeure arguments are unlikely to succeed with the supervisory authorities, or with your clients, all of which could result in data related disputes.