Thursday, March 13, 2014

The Netherlands - Radical Changes in Dutch Dismissal Law Effective from July 1, 2015

In November 2013, a legislative bill for the Dutch Work and Security Act (Wetsvoorstel Werk en Zekerheid) was submitted to the lower house of the Dutch parliament. The proposal partly elaborates on the “Social Agreement” reached by the employers and unions in the spring of 2013 and relates to a radical reformation of Dutch dismissal law, an improvement of the position of fixed-term employees and the implementation of additional curbs on unemployment benefits effective from July 1, 2015. The lower house approved that bill on February 18, 2014, and the upper house (the senate) is expected to sign off on the plans soon.

I New Measures

The set of measures relates first to simplifying the procedural rules that govern the termination of employment contracts and setting a maximum on the severance payment in the event of such a termination. The measures also relate to the use of consecutive fixed-term employment contracts, probationary periods, and non-competition clauses and include an obligation for employers to inform fixed-term employees in a timely manner regarding whether their contract will be renewed. In addition, the legislation governing unemployment benefits will change.

The most important measures (some of which may be subject to minor changes) will be explained in more detail below.

II Flexible Labor Measures

Limitations on Fixed-Term Employment Contracts

The possibility of concluding successive temporary contracts with an employee will be limited. If successive temporary employment contracts are interrupted by no more than six months (currently three months), the last contract will be converted automatically into an open-ended contract (i.e. a contract for an indefinite term) if a) that contract is the fourth one in succession, or b) the temporary contracts have lasted a total of more than two years (currently three years).

Pursuant to a collective labor agreement, the maximum number of temporary contracts may be increased to six and the maximum duration to four years, but only in the case of temporary contracts through an employment agency or if the nature of the business operations in an industry make it necessary to deviate from the standard principle for certain jobs. However, it will not be possible for a collective labor agreement to deviate from the maximum interruption period of six months.

The provisions on successive fixed-term employment contracts will not apply in respect of employees who are under the age of 18 years who work fewer than 12 hours a week.

Duty to Inform

When a temporary contract or successive temporary contracts having a term of six months or more come to an end, the employer is obliged to inform the employee in writing, at least one month before the end date of the contract, whether the employer will extend the employment contract, as well as the conditions under which the contract will be renewed. If the employer fails to comply with this obligation, it will be required to pay one month's salary to the employee. If the employer does not inform the employee on time, the employee will be entitled to pro rata remuneration.

Non-Competition Clause

The employer will no longer be permitted to include a non-competition clause in an employee’s temporary contract unless it explains, in writing, the considerable business interests that make such a clause necessary. A non-competition clause that lacks such substantiation will be null and void.

Probationary Period

Temporary contracts for a period of six months or less may no longer stipulate a probationary period.

Transitional Provisions

The new provisions for successive temporary employments contracts will apply if, before or after the act comes into force, a temporary employment contract ends and, after the act comes into force, a new temporary contract is concluded within six months after the earlier contract expired. A temporary employment contract that has not yet been in force for two years when the act enters into effect but that was concluded for more than two years will not automatically be shortened to two years.
If an applicable collective labor agreement includes a deviation from the provisions governing successive contracts or the obligation to continue to pay salary, the former legislation will continue to apply in respect of employment contracts that are subject to that collective labor agreement if they were are concluded after the new legislation takes effect. The new legislation will apply as from the date on which the collective labor agreement expires, but in any event not later than 18 months after the legislation takes effect.

III Changes in Dismissal Law

Currently, an employer who wishes to terminate an employment contract is required to obtain permission (a dismissal permit) from the UWV benefits agency before it can give the employee notice. Another possibility is to seek to have the employment contract dissolved by the Cantonal Division of the District Court. The employer needs to show that there are reasonable grounds for termination, e.g. financial problems, in order to obtain a permit or have the Court dissolve the contract. The employer is free to choose whether to terminate via the UWV benefits agency or to opt for dissolution by the Court. Employees are usually awarded severance payments by the Cantonal Division of the Court in the event that their employment contracts are dissolved; the amount of the severance payment will depend on the employee’s age, the number of years of service at the company, and the salary (based on what is known as the “Cantonal Court Formula”).

This preventive dismissal assessment will remain in force. However, with effect from July 1, 2015, the “dual system” will be replaced with a “one-route system,” in which the route to be followed will depend on the grounds underlying the dismissal.

In summary, the following are the most important new procedural rules:

a. In the event of a dismissal for commercial reasons or on account of long-term disability, the employer should obtain a dismissal permit from the UWV benefits agency before giving notice of termination. In the event of a dismissal for other reasons related to the employee, and in the case of a severely impaired employment relationship, an employer will have to request the Cantonal Division of the District Court to rescind the employment contract. The employer will no longer be able to choose between termination by means of a permit from the UWV benefits agency or applying to the Cantonal Division of the Court to terminate an employment contract.

b. To obtain permission from the UWV benefits agency or the Cantonal Division of the Court, an employer will have to demonstrate that it has a reasonable ground for terminating the employment contract. A request for termination on the ground of unsatisfactory performance may be refused if the employer has not done enough to provide sufficient training for the employee.

c. The “proportionality principle” (afspiegelingsbeginsel, pursuant to which job terminations must affect all age groups of the employed staff equally) will continue to be the starting point for selecting the employees to be considered for dismissal for economic reasons. However, a collective labor agreement may deviate from that principle in respect of a maximum of 10% of the employees who would be considered for dismissal on the basis of that principle. To be eligible for such a deviation, an employee would have to perform at a level that is demonstrably higher than average or must have a future potential that is greater than average. If an employer is to be permitted to make such deviation, it must pursue a clear policy in advance so that the employees are given equal chances and know the consequences their performance may have on a possible future dismissal. This option does not apply to the age categories of 15-25 or 55 and up.

d. The dissolution of the employment contract by the Cantonal Division of the District Court will be the appropriate route if an employer elects to dismiss an employee for reasons that relate to the employee personally, such as unsatisfactory performance, culpable acts or omissions by the employee, an impaired working relationship, or refusal to perform work on account of serious conscientious objections. The Cantonal Division of the Court can also dissolve the employment contract if regular illness on the part of an employee has unacceptable consequences for the employer’s business operations. Finally, the Cantonal Division of the Court can dissolve an employment contract on account of other circumstances as a result of which the employer cannot reasonably be required to continue the employment contract.

e. The act provides for the possibility to establish a committee to assess the request to terminate the employment contract instead of applying to the UWV benefits agency. The committee members must be independent of the employer and the assessment procedure must meet certain requirements: both sides must be interviewed, confidentiality must be observed, and reasonable reply periods must be allowed.

f. The employer may deduct the time actually required for the procedure conducted by the UWV benefits agency (which is currently fixed at one month) or the committee from the notice period, provided that the remaining notice period is not less than one month. The time required for the procedure runs from the day on which the UWV benefits agency or the committee receives the complete request for termination until the day of its decision. The decision must state the amount of time that was required for the procedure, so that the remaining notice period can be calculated.

g. If an employee accepts the notice that was given to him, he may retract his consent in writing within 14 days, without being required to state his reasons for doing so. In addition, if a settlement agreement containing the terms and conditions of the employee’s dismissal has been concluded, the employee may terminate that agreement 14 fourteen days without stating his reasons for doing so. These employee's rights may not be excluded.

h. The act provides for the possibility (unless the parties have agreed otherwise in writing) to terminate the employment contract without permission from the UWV benefits agency as of or after the day on which the employee reaches the state pension age (AOW) or an alternative agreed retirement age (which may be higher or lower). The state pension age is currently 65 years and 2 months but will increase up to 67 in 2023. If the contractual retirement age is lower than the state pension age, permission from the UWV benefits agency will not be required for a dismissal upon reaching that lower age, but such a dismissal may still be in conflict with the rules on equality. If the parties concluded an employment contract for an indefinite period after the employee reached the state pension age or another retirement age, permission from the UWV benefits agency will still be required.

i. If an employee is of the opinion that the UWV benefits agency has granted a dismissal permit on unfounded grounds, or if he was dismissed without permission from the UWV benefits agency, he will be able to apply to Cantonal Division of the District Court to reinstate the employment contract, or alternatively to award him fair compensation. The employee must lodge an objection against the UWV benefits agency’s decision within two months after the employment contract has ended. If the UWV benefits agency has refused to grant permission for dismissal, an employer may apply to the Cantonal Division of the District Court to dissolve the employment contract. The judge will assess the request based on the same criteria that the UWV benefits agency applies.

j. The act allows for an appeal against a decision to dissolve an employment contract, but the appeal procedure will not suspend the implementation of Court’s ruling. If the decision to dissolve the employment contract is rejected on appeal, the judge can order the employer to reinstate the employment contract or award the employee fair compensation in lieu.

IV Transition Payment

In the event that one or more consecutive employment contracts have been in effect for two years or more (both temporary and permanent contracts), if the employer terminates the contract prematurely or does not extend a temporary contract it will be required to pay a transition payment; the maximum amount of that payment is EUR 75,000 gross or one year’s salary if that amount is higher. The transition payment will be calculated as follows: one-third of one month’s gross salary per year of service for the first 10 years of service and one-half of one month’s gross salary for every year of service thereafter. For employees aged 50 or over who have been employed for at least 10 years, a more favorable transitional arrangement (i.e. one month’s gross salary per year of service as per the age of 50) will apply until January 1, 2020.

The monthly salary is deemed to be the gross monthly salary plus fixed salary components, such as the holiday allowance, a fixed ‘13th month’ bonus, habitual overtime pay, and a fixed shift allowance. In very exceptional cases the employer's part of the pension contribution, the company car, expense allowances, the employer's contribution to health insurance premiums, and incidental and non-agreed salary components can be included in the transition payment.
The costs for redeployment arrangements, training and education, etc. that are paid by the employer in the context of the dismissal may be deducted from the transition payment. No transition payment will be due if the employee is seriously culpable for the dismissal.

The Cantonal Division of the District Court may award additional compensation to the employee if the termination of the employment contract is due to serious imputable acts or omissions on the part of the employer. Conversely, the employee will not be entitled to the transition payment if there is serious culpability on his part.
No transition payment will be due in respect of the termination of an employment contract for less than 12 hours a week with an employee under the age of 18 or in respect of termination of an employment contract as of or after the day on which the employee reaches the state pension age or another agreed retirement age (whether higher or lower).
If an employee takes up the same or nearly the same work for the next employer, and if the next employer has been able to gain sufficient insight into the employee's skills, the employment contract with the former employer will also be taken into consideration in calculating the transition payment. The transition payment is subject to a maximum of EUR 75,000 or a maximum of one year’s salary for an employee who earns more than EUR 75,000 per year. The parties may agree on a higher transition payment when they conclude the employment contract.

V Unemployment Benefits

Limitation of the Unemployment Benefits Term
The period during which an employee is entitled to receive unemployment benefits will be reduced from the current 38 months to a maximum 24 months during the period from January 1, 2016 through January 1, 2019. Collective labor agreements can provide for an extension of this period of 14 months. During the first 10 years’ service, employees will accrue one month of unemployment benefits per year of service and thereafter half a month for each year of service.

Suitable Work

In anticipation of the limitations on unemployment benefits, the definition of suitable work will be limited as of July 1, 2015. At present, for the first six months of his entitlement to unemployment benefits a person may focus on work at the same level as the work he just lost. After six months, work for which a lower level of education is required is deemed to be suitable work as well, and after one year all work is deemed to be suitable. As of July 1, 2015, all work will be deemed to be suitable only six months after a person becomes unemployed.

By Dennis Veldhuizen
HDK Attorneys at Law and Tax Attorneys (Amsterdam, the Netherlands)