2 April 2025
The works council has a legal right of consent when an employer plans to change a remuneration system.
However, it is not always clear where the line is when it comes to decisions that relate to primary employment conditions, which do not fall under this right. In this blog, based on a recent court ruling, we explain how a works council can still have influence when changes are made to pay structures.
We also look at the role of a Dutch subsidiary’s works council when the (foreign) parent company makes decisions, such as changing a bonus scheme. The Dutch works council is certainly not powerless in such situations.
If an employer changes the rules for how bonuses are awarded, this counts as a change to a remuneration system under Article 27(1)(c) of the Dutch Works Councils Act (WOR). This was the case in a ruling by the Rotterdam Subdistrict Court on 3 October 2024.
In that case, employees who were previously entitled to a guaranteed bonus above a certain pay grade would now need to meet performance targets, and a maximum budget would apply. This meant fewer employees would qualify for a bonus, and the ranking between employees would change. The court ruled that this kind of change requires the consent of the works council.
The usual questions to determine whether the works council has a say are:
If there is a clear break from previous practice, the works council is more likely to have consent rights.
Sometimes a works council is told that the (foreign) parent company has decided to change the bonus system at the Dutch subsidiary. However, this does not mean the works council has no say.
If a decision is made by another entity but directly impacts the employees of the subsidiary, the works council of the subsidiary can still be involved. The key is whether there is a close relationship between the parent company and the subsidiary and whether the type of decision is something the subsidiary could have made itself.
If this is the case, the decision by the parent company can be treated as a decision by the subsidiary, giving the works council full participation rights. If the decision has a major impact on employees, the works council is more likely to be involved.
This issue also came up in the Rotterdam ruling mentioned earlier. The U.S. parent company had decided to change the bonus system worldwide. The court ruled that there was a close link between the U.S. parent and the Dutch subsidiary, and the decision had a direct effect on the pay system in the Netherlands.
This kind of pay policy is exactly the type of matter that the Dutch works council was created to help oversee. According to the court, the Dutch subsidiary could not hide behind decisions made in the U.S. The decision was attributed to the Dutch subsidiary, and the works council was right to challenge it.
It is important that works councils carefully review the employer’s reasoning behind any changes to pay systems. This helps assess whether the change significantly affects employees’ terms of employment. The works council can do this by asking questions during meetings with the employer.
Even if the decision comes from the parent company, the works council still has rights. Our employment and corporate law specialists know their way around works council law and are happy to assist
Do you have questions about this article? Or would you like advice in a similar case? Feel free to contact us.
This blog is an adaptation of the article ‘Consent rights of the works council in pay system changes: how it works’, published in OR/net in November 2024.
