Netherlands – The Labour Market Reform Program

By Els de Wind
Van Doorne N.V.

The Dutch government and social partners have recently reached agreement on a package of short-term measures to stimulate economic recovery and adapt the labour market to the current needs. They proposed an active approach towards preventing unemployment and helping employees move from one job to another. The goal of the program is to minimise the time spent on unemployment benefits for the good of employees, employers and public finances. To ensure equal treatment, compulsory procedures for the termination of employment will be introduced. Employees who are made redundant will no longer be entitled to a severance pay, but will receive a transition fee instead, enabling them to train for a new job, improve their employability and generally increase their chances to get a new job. The position of employees working on temporary employment contracts will be strengthened. Employees coping with occupational disability will be better assisted in finding suitable work. When the reform program was launched, it was announced that in case Dutch economy would not have improved by September 2013, the measures will need to be renegotiated. We will keep you informed on developments around the announced reform program.


Flexible employment

In order to achieve a better balance between the degree of protection enjoyed by temporary employees and permanent employees, proposals are made to strengthen the position of temporary employees as from 1 January 2015. Employees with a temporary contract will qualify for a permanent contract sooner and will enjoy more security. No more than three consecutive contracts can be agreed by the same parties (intervals of up to six months - which used to be three months - do not ‘break the chain’). The fourth contract will make the contract permanent. Parties might even be in a situation that two or more employment contracts is the maximum: the total duration of two or more consecutive temporary contracts may not exceed a total duration of 24 months (this used to be 36 months). Again: intervals of up to six months do not count. These rules do not apply to employment contracts of persons under the age of 18. It is allowed to agree in a collective bargaining agreement that instead of a maximum of three contracts in 24 months, a maximum of six contracts in 48 months can be entered into before the contract becomes permanent.

Probation periods may no longer be included in temporary employment contracts for six months or less. Where a non-compete provision may currently be agreed in temporary contracts, this will no longer be allowed, unless under (yet to be defined) ‘special circumstances’.



Termination of employment

As from 1 January 2016 the procedural rules on the termination of employment contracts will be simplified. Currently employers have the choice to go through a Labour Office (UWV) or a court procedure if they want to terminate an employment contract. The court can award severance pay to the employee (or the employer), but the Labour Office cannot, forcing employees to initiate a court procedure to claim severance pay. Employees in the same situation are therefore not always treated equally, as the different procedural routes may have a different outcome. Under the new rules, the Labour Office procedure will be compulsory if the employment contract is terminated for economic reasons or for incapacity for work due to illness longer than two years. The court procedure will be compulsory if the employment contract is terminated for performance related reasons. If the Labour Office rejects a request for termination of employment, the employer can appeal to the court and request the termination by the court. If the Labour Office has given approval for the termination, the employee can appeal to the court and claim reinstatement. There will be no appeal to the court’s judgment, save in extraordinary situations in which procedural rules have been violated by the court. Sector wide or company wide collective bargaining agreements may provide for a sector committee, which may decide on the termination of employment contracts and which will be allowed to deviate from the general selection criteria which apply to collective dismissals.

If the employer and the employee agree to terminate their employment relationship by mutual consent, a mandatory two week reflection period will apply, during which the employee can revoke his or her consent to the termination of employment.

Notice periods

After the employer has obtained the approval of the Labour Office to terminate an employment contract it will have to give notice of termination, taking into consideration the applicable contractual or statutory notice period. A new rule will be that the employer may diminish the notice period by the time spent on the Labour Office procedure, provided at least one month notice remains. The same applies for the court procedure: the court can take the time spent on the court procedure into account when determining the termination date, as long as there is at least one month between the date of the court judgment and the date of termination of the employment.


Transitional fee

An employee who has been employed for two years or longer and whose employment has been terminated will not be entitled towards the employer to severance pay but to a so-called transitional fee. This fee is meant to facilitate the employee in finding a new job more easily or even switching careers. The money can be used for training or outplacement purposes. The fee will amount to 1/3 gross monthly salary for each of the first ten service years and 1/2 gross monthly salary for each consecutive service year, up to a maximum of the higher of EUR 75.000 gross or a gross annual salary. Employees who are 50 years or older and who have been employed for ten years or longer, are entitled to a transition fee of one month per service year, unless the employee is working for an employer employing less than 25 employees. No transition fee will have to be made available to employees younger than 18 years old, if payment of such fee would impact the continuity of the employer, if it would lead to additional dismissals and the employer has made an effort to replace the employees or if the employee is to blame for the termination. If the employer and the employee agree that the employee will be provided outplacement services or training, the cost thereof may be deducted from the transition fee. If the employer is mainly to blame for the termination, the court may award the employee an additional severance pay.


Unemployment benefits

Starting January 2016, the maximum duration of unemployment benefits will gradually be reduced by one month for each quarter of a year to a maximum of 24 months where the maximum is now 38 months. An additional 14 months of unemployment benefits can be agreed upon in collective bargaining agreements. For each service year during the first ten years of service, the employee will become entitled to one month of unemployment benefits. For each consecutive service year, the employee will be entitled to half a month of unemployment benefits. Service years built up prior to the coming into force of the new rules will be taken into account when calculating to the total number of service years.


Pensions

Due to earlier plans of the Dutch government, the maximum tax friendly pension accrual percentage will be reduced from 2,25 to 1,85 per cent of the pension base. Furthermore, it will no longer be possible to accrue pension in a tax friendly manner over pensionable salary in excess of an amount of EUR 100.000. To maintain consumer purchasing power, the government has called on the social partners to reduce pension premiums payable into pension funds. Currently it is expected that these pension premiums will not decrease, as pension funds intend to use any financial margin to improve their financial situation. To keep old-age provisions on a comparable level as was the case in the past, social partners have announced that they will seek alternatives or supplements in the third pillar. A legislation proposal providing for this has - despite fierce criticism - been recently adopted by the parliament. Whether or not the senate will do so as well remains to be seen.

As per 1 January 2013, the state pensionable age was raised, for the first time since its introduction, by one month. Under current legislation the pensionable age will be increased to 67 years in 2023. However, the government intends to accelerate this process in order to set the pensionable age at 67 years in 2021. A bridging scheme will be introduced for employees on salaries up to a certain threshold who take part in an early retirement scheme and who are unable to make provisions for this increase. In response to the social partners' request to widen the scope of admission for this bridging scheme, the government will extend its scope to include participants earning up to 200% of the statutory minimum wage (300% for couples).