Friday, December 21, 2012

Netherlands - New Dutch Government Announces Drastic Changes in Dutch Dismissal Rules

By Els de Wind, VanDoorne

On 5 November 2012 the new Dutch cabinet was formally sworn in by Queen Beatrix. On 29 October 2012, the two party coalition had unfolded their new plans with respect to the Dutch labour market. If the plans are implemented they will have a major impact on employee dismissal protection and an unemployed person’s entitlement to state unemployment benefits. Although the new dismissal system still has to be worked out in detail, some of the proposed amendments of Dutch employment law and social security rules will be highlighted. We will have to wait and see if the announced rules will eventually be implemented. It is not expected that new dismissal or unemployment benefits rules and regulations will be implemented before 2014.

Dismissal: from prior approval to non-binding advice

Currently under Dutch law, if the employer and the employee do not reach a mutual settlement on their separation, someone's employment can be terminated by the court or with prior approval of the Labor Office (UWV WERKbedrijf). An employer who is choosing the Labor Office route needs prior approval of the Labor Office before giving notice of termination. If such approval is not obtained, the employer can ask the court to terminate the employment of the employee. According to the new plans, the employer wanting to unilaterally dismiss an employee will not have a choice and must ask prior advice of the Labor Office before it can give notice of termination to the employee. The Labor Office's advice is non-binding: regardless of what the advice is, the employer will be allowed to terminate the employee’s employment. If the employee does not agree with the termination, he or she may initiate court proceedings in order to be awarded termination compensation or to have the court annul the dismissal (see below). Alternative dismissal procedures can be agreed in collective bargaining agreement provided that the agreed procedure is comparable to the statutory procedure in terms of both duration and outcome

Under the proposed system no major role remains for the court in dismissal procedures. If an employee claims in court that the dismissal is unfair, the court will have to assess the case applying the same criteria as the Labor Office. The court can only award termination compensation if it finds the dismissal wrongful or that the employer is mainly to blame for the circumstances which have led to the dismissal. If the employer disregarded the negative advice of the Labor Office and went ahead with the termination, the court may annul the termination. Further, the court will be involved in cases in which the employer seeks termination of the employment of an employee who is working on the basis of a limited term employment contract without the possibility of termination during the term and in cases in which a legal prohibition to give notice of termination exists, such as for instance cases of sickness, pregnancy and works council membership. There is no appeal against the court´s judgment.

We expect that it will still be possible for the employer and the employee to end their relationship by mutual consent without the employee losing his/her rights to state unemployment benefits.  
Transitional budget and termination compensation

An employer unilaterally terminating an employee´s employment or not extending a temporary employment contract with a duration of at least one year, must provide a so-called "transitional budget" to the employee, which is to be used for schooling purposes and for improving the employability of the employee. The transitional budget will amount to one fourth monthly salary for each service year and is capped at four monthly salaries. An employer does not have to pay the transitional budget if the dismissal is due to the employer's poor financial situation and the employer would go bankrupt if it would have to pay the transitional budget. 
The severance payment which may be awarded by the court is capped at half a monthly salary per service year up to a maximum of EUR 75.000 gross.

State unemployment benefits

The maximum period during which an unemployed person may receive state unemployment benefits pursuant to the Unemployment Act (Werkloosheidswet) is shortened from maximum 38 to maximum 24 months. During the first 12 months the unemployment benefits will amount to a certain percentage of the last earned salary up to a certain maximum. During following 12 months the unemployment benefits will amount to a certain percentage of the statutory minimum wage.

The period during which an employee is entitled to state unemployment benefits depends on the number of service years (for different employers). For each service year during the first 10 years of service, the employee becomes entitled to one month of unemployment benefits. After the first 10 years of service, half a month of unemployment benefits is granted for each service year. Service years built up prior to the coming into force of the amendments to the Unemployment Act will be respected.

Employees 55 years and over may become eligible for additional benefits. In order for these employees to become entitled to these additional benefits, they will have the obligation to apply for jobs, as is also the case for eligibility for benefits generally under the Unemployment Act.