Towards more relaxed dismissal law in the Netherlands?

• Netherlands

• Employment law

07-01-2014

Introduction

On 29 November 2013 a legislative bill has been submitted to the House of Representatives (“Tweede Kamer”) providing for, amongst others, changes to Dutch dismissal law, to the legal position of flexible workers and to various social rules, such as the Unemployment Insurance Act (the “Bill”). As the amendments proposed by the Bill are mainly based on an agreement the Dutch Government has reached with the Trade Unions and the employer’s associations in April 2013 (the “Social Accord”) it is likely that there will be sufficient support for the Bill to be adopted. As the Bill proposes fairly drastic changes, below we provide you with an overview of the most relevant thereof.

1. Changes to Dutch dismissal law – effective date 1 July 2015

One of the proposed major changes – which in the Dutch political arena has been subject of discussion for several decades – is the change of Dutch dismissal law.

Unilateral termination

The preventive dismissal assessment will remain in force. However, the Bill proposes that as from 1 July 2015 an employer can no longer choose between the following two existing dismissal routes for unilateral termination: (i) requesting permission from the governmental body UWV to give notice of termination or (ii) requesting the Cantonal Judge to dissolve the employment contract

Whether an employer may obtain permission from UWV to give notice or may request the Cantonal Judge to rescind the employment agreement will according to the Bill depend on reason(s) for dismissal. Dismissals for economical, organizational and/or technical reasons and dismissals relating to an employee’s long term sickness will only be dealt with by UWV or by a dismissal commission appointed in a collective bargaining agreement. If there are other (personal) grounds for dismissal, the employer must request the Cantonal Judge to rescind the employment contract.

Should there be two dismissal grounds as a result whereof both UWV and Cantonal Judge may be competent, the employer may still choose which dismissal route he chooses in accordance with the relevant dismissal ground. 

Dismissal with consent and mutual consent termination

The above two routes for termination of an employment agreement do not have to be followed if the employee agrees to dismissal in writing. As a novelty under the Bill, an employee may within 14 days of execution of the mutual consent termination agreement or after his written consent with his dismissal nullify the termination agreement or withdraw his consent in writing without giving any reason, as a result whereof the employment agreement will not terminate.

Pensionable age termination

Under current legislation is was already generally accepted that an employee reaching the (state) pensionable age could be ground for termination of the employment agreement. The Bill provides that an employment agreement may be terminated by giving notice without the preventative test by UWV being applicable when the employee reaches the (state) pensionable age 

Severance payment and transitional remuneration

In case of non renewal of a fixed term contract that has lasted at least 2 years and in case of dismissal either through UWV of the Cantonal Judge after at least two years of employment the employer has to pay the employee a so called transitional remuneration. Over the first ten years of employment, the employee will receive a remuneration of 1/6 monthly salary for every six months of the duration of the employment (this corresponds to a remuneration of 1/3 of the gross monthly salary for every year of service), and subsequently 1/4 of the gross monthly salary per six months that the employment contract lasted for the period over ten years (this corresponds to a remuneration of 1/2 of the gross monthly salary for every year of service). The remuneration will be capped at EUR 75,000 or one annual salary if the employee earns more than EUR 75,000 per year. Given their position on the labour market employees over 50 with at least 10 years of service, unless employed by an employer with less than 25 employees, will until 1 January 2020 be entitled to a higher transitional remuneration.

In principle the transitional remuneration must always be paid in case of termination or non-renewal at the employer’s initiative, unless the employer has been granted a moratorium, has been declared bankrupt or is in debt restructuring. No transitional remuneration must be paid if the employment agreement terminates at the employee’s initiative, unless such is the result of seriously culpable acts or omissions by the employer. Furthermore no transitional remuneration is due in case of a mutual consent termination – which should be distinguished from the employee consenting to dismissal in writing – as the parties then are expected to themselves agreeing on the terms and conditions of the termination of employment.

No (or lower) transitional remuneration may be due if the dismissal is the result of seriously culpable acts or omissions of the employee. Vice versa, in the case of seriously culpable acts or omissions of the employer the Cantonal Judge may grant additional severance payment.

Appeal and cassation

Contrary to current law appeal and cassation of a decision of the Cantonal Judge regarding termination of the employment agreement will be possible for both parties.

Whereas the employer may, if a request for permission to give notice has been denied by UWV, initiate proceedings for rescission with the Cantonal Judge, the employee may also initiate separate legal proceedings with the Cantonal Judge after permission to give notice has been granted. An employee could appeal the decision of the UWV.

General expectations and recommendations

The Bill intends to make the dismissal system more consistent as a result whereof it may become easier for employers to terminate employment contracts by mutual consent. However, during the first years after the implementation of the changes, we expect more legal proceedings (i.e. regarding the interpretation of the new regulations and for claims for (higher) severance). Given the new rules on transitional pay and severance we also expect that the Trade Unions and the Works Councils will be more actively involved in the (preliminary stages of the) dismissal procedures, more specific in reorganizations as regards social plans. Considering the foregoing it should be kept in mind that the preliminary stage will be important to make the correct decisions and preparations for reorganizations.

In the event of long term agreed Redundancy Plans, it is recommended that employers check if the arrangements made are in accordance with the Bill. If not, these arrangements may be null and void, e.g. if a specific dismissal route is prescribed. Further, it may be recommended for employers, Works Councils and Trade Unions to agree on appointment of a dismissal committee in a Redundancy Plan, provided the Redundancy Plan will have the status of a collective bargaining agreement. 

2. Flexible labour – effective date 1 July 2014

Notification of fixed term employees

The Bill proposes that an employer will be obliged to inform an employee on a fixed term employment contract of at least six months or longer ultimately one month prior the termination date of the fixed term employment contract whether or not the contract will be renewed. If the employer fails to do so, the employer is obliged to pay the employee up to one monthly salary.

Currently, there is no obligation in this respect, but it is general practice to inform employees at a certain moment whether or not the fixed term employment contract will or will not be extended.

Consecutive fixed term contracts

Under current legislation consecutive fixed term employment contracts will be converted into an employment contract for indefinite term by operation of law if either (i) the aggregate duration of consecutive fixed term employment contracts exceeds three years or (ii) more than three fixed term employment contracts are concluded consecutively with intervals of three months or less. This is known as the “chain rule” (“ketenregeling”). The Bill proposes that as of 1 July 2014 the chain rule of 3x3x3 will be changed to 3x2x6 (3 contracts in 2 years with an interval of no more than 6 months).

As a result of the Bill we expect there will be less flexibility for employers to enter into fixed term employment contracts.

Probationary period

Unlike under current law, it is proposed that of 1 July 2014 a probationary period can no longer be agreed in a fixed term employment contract for 6 months or less.

It is anticipated that this, in conjunction with the amendments to the rules on consecutive fixed term contracts, will lead to lesser use of short term employment contracts.

Non-compete clause

Pursuant to the Bill as per 1 July 2014 non-compete clauses in fixed term employment contracts will in principle be banned, unless the employer in the employment contract can explicitly show which overriding business interests he has that require protection by a non-compete clause.

Whereas the foregoing will likely lead to a reduction of the possibilities to include a non-compete clause in a fixed term contract, it appears that a (properly drafted) non-solicitation clause still may be agreed upon.

In view of the proposed changed regarding non-compete clauses, it is recommended that employers have their template fixed term contracts reviewed and, where necessary, amended.

3. Unemployment Act

The length of eligibility for unemployment benefits will as from 2016 gradually be decreased from a maximum of 36 months to a maximum of 24 months. The Bill provides for the possibility for the social partners to agree upon a supplement for a maximum duration of 14 months through collective bargaining agreements.

In the Social Accord it was proposed that the social unemployment premiums shall be paid by both employers and employees to fully finance the unemployment benefits. Such payment of the social premiums on a 50/50 basis is not yet provided for in the Bill. The Social and Economic Council will render advice in this respect by mid 2014.

Should payment of the social premiums by both the employer and the employee as yet be introduced such will effectively lead to lower unemployment costs for the Dutch state and a potential (further) increase of costs for employers and employees. Furthermore employers may pursuant to a collective bargaining agreement (also) have to pay the social unemployment premiums to cover for the third year of unemployment of an employee.

4. Further information

The foregoing is merely a summary of the main proposed changes. Should you wish to receive more detailed information please contact one of our employment partners below. Eversheds will keep you updated on developments on the Bill and otherwise.