11 September 2014

Changes Dutch labour law

By Godelijn Boonman

Starting January 2015 a new Dutch labour law will be the source of many changes.

It will have a large effect on employment contracts.  There may be some repair legislation and formal changes pending 2014, but for now, the following can be considered rather definite.

  • Obligation of notification of termination. One month before the termination of a definite contract of six months or longer, an employer must notify the employee whether the employment agreement will be extended or not. If the employer does not notify the employee, the employee has a right to claim salary during the period in which the employer is too late, up to a maximum of one month’s salary. This obligation will enter into force immediately on January 1st 2015, so will also apply to already existing contracts that will expire after January 1st 2015;
  • Prohibition of a trial period in fixed term contracts of 6 months or less. This prohibition will be applicable to contracts that will commence after January 1st 2015;
  • Prohibition of a non-competition clause in fixed term contracts (unless the contract specifies the necessity of such a clause in light of severe company interests). Applicable to all contracts that are entered into after January 1st 2015;
  • “No labour, no salary”: the current stipulation, that an employee is not entitled to salary when not performing activities, will change to “no labour, still salary, unless the non-performance must be seen as at the risk of the employee”. This change will secure a deviation of the burden of proof in favour of the employee. It is still possible to exclude applicability of this clause for the first 6 months of the contract, but the exclusion can no longer be extended indefinitely by collective labour agreement.

The current regulation (article 7:668a of the Dutch Civil Code) stipulates that an organisation can employ an employee on the basis of fixed term contracts for three times and/or for a period of no more than 3 years and that the chain is cancelled when there is period of at least 3 months and one day between following contracts. As of July 1st 2015 this article will be changed in a way that an employment agreement for an indefinite period will occur when:

  •  a maximum of three contracts is exceeded;
  •  the maximum time frame of 2 years is exceeded;
  •  and in both of the abovementioned situations a period of no more than six months and one day have been taken into account within following contracts.

To sum it up

The amount of temporary contracts remains the same, however the period that those contracts comprise, cannot be more than 2 years. Furthermore, the employer will need a “time-out” of at least 6 months and 1 day to cancel the chain. For example, as of July 1st 2015 it is possible to get a fixed contract of 6 months which is then extended with another 6 months, to end with a contract of 1 year. A chain of following 1-year-contracts will however result in an agreement for an indefinite period after 2 contracts (i.e. after 2 years).

As of July 1st 2015 there will be routes for termination of employment agreements. Termination based on extensive incapability ór economic reasons, must be executed through UWV. Termination based on “personal” reasons, like malfunctioning, disturbed relationship, must be addressed by the Cantonal Judge. Please note this change will leave the possibility of an amicable settlement unaffected.

After July 1st 2015, the employer is entitled to unilaterally – and without permission/consent of UWV or the Cantonal Judge- terminate the employment agreement with an employee once the employee has reached the General Old Age Pensions Act (AOW)- eligible age, without an employer having to pay any severance/compensation. Irrespective of the termination-route (UWV of Cantonal Judge) the employer will have to pay a “transition compensation”. This compensation replaces the severance payment and is calculated differently. The transition compensation will be calculated as follows: for every year of service less than 10 years, the employee receives 1/3 of his monthly salary. For every year of service that exceeds 10 years, ½ of his monthly salary is granted. A maximum of € 75.000,- in total applies, unless the employee’s yearly salary exceeds that amount (in which case this higher amount counts as maximum). The transition compensation will not be due in case of severe culpability of the employee, for example in case of termination with immediate effect due to an urgent cause. Temporary employees are also eligible for the transition package, as soon as the temporary employment relation reaches a period of two years (without renewal/extension of the contract);

  • In case of severe culpability of the employer, a Judge may grant the employee an additional, “reasonable”, compensation. No criteria have been formulated to determine the amount of such a compensation.
  • Finally, the Extraordinary Labour Relations Decree 1945 (BBA 1945), will be extinguished.
  • Most likely, common case law will make some sort of guideline in time;
  • Given the above, the Cantonal Judge formula will no longer apply in procedures that are entered into after July 1st 2015. In negotiations on amicable terminations, the transition and possible additional compensation will be leading;
  • The procedure on “manifestly unreasonable dismissal” will no longer exist;
  • In case of amicable termination (mutual consent, settlement agreement), a reconsideration period of 14 days will be introduced on behalf of the employee. Within those 14 days, the employee may withdraw his consent, which leads to continuation of the employment agreement or reopens negotiations. The employer is obliged to inform the employee about that possibility;
  • Obligation to provide education. This stipulation will especially be of importance in cases concerning malfunctioning. The present practice already requires the employer to provide a malfunctioning employee with sufficient tools to improve, but our expectation is that the legal stipulation will be applied more strictly in those circumstances;
  • All termination decisions (Cantonal Judge, as well as UWV) can be appealed in front of the Court of Appeal and the Supreme Court.
  • Finally, we would like to make some observations regarding these new and expected changes. Employees can ask for golden parachutes when they negotiate their employment terms. Especially employees who have high salaries and who do not want to be “punished” by only being paid the transition compensation, will want to agree upon a severance upfront.

We expect further complications with regard to the fact that there will be only one route which an employer must take when wanting to terminate an employment agreement. As most cases are not clear cut in the sense that they are either requested because of economic reasons or extensive incapability (which would mean the UWV-route) or personal reasons (meaning the route of the cantonal judge). Employers will want to prevent having to go to court. Employees can use this to negotiate a higher compensation. We expect that most employers will want to not deviate from the transition compensation calculation, especially because a judge will only grant an additional compensation in case of severe culpability of the employer, but there will probably be some trial cases in the second half of 2015 determining what is meant by severe culpability and determining which route (UWV or cantonal court) must be followed. At the same time the old cantonal formula might have some lasting effects even though it does not apply anymore, especially because employers will not be certain which route to take. Of course we will keep you informed of developments, such as on transitional law and the relationship between the changes and ongoing collective agreements.

Godelijn Boonman

Godelijn Boonman

Lawyer / partner

Godelijn Boonman has focused entirely on employment law for over 20 years, with international employment law playing an increasingly important role in her practice.

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