An overview of the Changes in Dutch Labour Law in 2015

uTDlMJlu_9_pVSyoVg2Dutch labour is often being called difficult. Especially when it comes to dismissal law foreign companies often frowned upon the Dutch legislation.

In 2015 the Dutch labour law legislation is being changed drastically. In this short article these changes will be explained. The changes will take place in three parts:

I         changes per January first 2015

II        changes per July first 2015 and finally

III       changes per January first 2016

Why are these changes important? From an historical point of view these changes are the most radical since the second World war. In the Netherlands there was still a rule applicable since 1945: the Extraordinary Labour Relations Decree 1945 (BBA 1945) will be extinguished.

In accordance with this rule you needed to have permission from a government institution (the ‘UWV’). These proceedings are still possible, but with completely different requirements. From a legal point of view there is a huge difference between the law before 1 July 2015 en after this timeframe.

We would like to make some reflections upfront regarding these changes before these changes are outlined.

Employees can ask for golden parachutes when they negotiate their employment terms. Especially employees who have reasonably high salaries have an interest to negotiate a severance compensation upfront. Just to prevent that only the transition compensation will be paid. Companies have to be aware of the risks involving these severance compensations.

We expect it to be harder to dismiss an employee. It is often that cases are not clear cut in the sense that the file is not complete. This will lead to a denial of the dismissal request. This can only be solved by negotiations.

Changes per January first 2015:

Probation period

In the case of an employment contract of six months or less it is not permitted to agree to a probation period. This means that in the case of a fixed term employment contract longer than six months, a probation period is still allowed. Reason why a lot of companies agree to an employment agreement of at least 7 months. Just to be safe.

Non-competition clause

For a fixed term contract it will no longer be allowed to conclude a non-competition clause, unless the employer has a predominant business interest and motivates this interest in writing upon agreeing to a non-competition clause. Failing to give this motivation or failing to prove sufficient ground for the non-competition clause will render the clause invalid.

Announcement that the fixed term contract ends

An obligation for the employer is introduced to notify the employee in writing in case the employer decides not to extend the present fixed term contract nor offers the employee a new contract. So contrary to the present law, the fixed term contract does not expire without the employer is required to take action. The announcement of ending the fixed term contract should be made in writing no later than one month before the end of the fixed term. Failing to do so or to do so in time will cause the employer to be liable to pay a penalty to the employee equal to the amount of one month of the gross salary [including holiday allowance].

Changes per July first 2015:

Number of contracts for a defined period of time

The rules regarding to the number of contracts for a defined period of time before it causes a contract for an undefined period of time, are being changed too.

Under present law an employer may conclude up to three fixed term employment contracts, for a total of three years. Concluding a fourth contract for a defined period of time or exceeding the maximum of three years in total [intermissions of three months or less will not be taken into account] will cause the employment contract to automatically become a contract for an undefined period of time.

Under the law after July 1 the fixed term contracts will be restricted to a maximum of three over a period of two years with intervals of six months.

Legal proceedings terminating the contract

The present two-tier system with regard to dismissals changes. The employer can no longer choose between the UWV [Employee Insurance Agency] or the cantonal judge. All dismissals on the basis of economic reasons or long term illness (more than two years) are decided upon by UWV. All dismissals for personal reasons are being judged by the cantonal judge.

As of July 1st 2015 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 – without permission 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 (now 67 years), without an employer having to pay any severance/compensation.

Consideration after settlement agreement

Completely new is a so called “cooling off period” for termination agreements. The employee can revoke his written agreement [with termination] within fourteen days without specifying his reasons.

The employer has the obligation to inform in writing the employee of the possibility to revoke his written agreement in the termination agreement. This can be done in the termination agreement itself or within two working days after the termination agreement has been signed. If the employer does not comply with his obligation to inform the employee, this cooling off period is extended to three weeks.

If within six months after the employee has revoked his written agreement, a new termination agreement is concluded, the cooling off period does not apply anymore.

Compensation

The current formula on compensation used by the cantonal judges will be replaced by a new formula: the transition-compensation. This transition compensation will be available to all employees who are dismissed and had a contract that lasted for twenty four months or more. So this also includes fixed term employees (with a contract over more than 24 months), who under the present law are not entitled to any compensation.

The transition compensation is [globally] calculated as follows: for the first ten years of the working career the compensation consists of one third of a regular monthly gross salary for each full year of employment. For the years exceeding ten years, the compensation consists of half of a regular monthly salary for each full year of employment.

There is a maximum to the compensation payable of € 75.000 or the amount that equals to one annual salary if the employee earns more than € 75.000 per year.

Given their (possibly) difficult position on the labour market, employees over fifty with at least ten years of service (and companies of which the employer has more than 25 employees),  will be entitled (till January first 2020) to a higher transition compensation. These employees are entitled to a transition compensation equal to one monthly salary per full year of employment after they have reached the age of 50. This compensation is also capped by the maximum of € 75.000 or the amount that equals one annual salary if the employee earns more than € 75.000 per year.

No [or a lower] transition compensation may be due if the dismissal is resulted of the employee who is severely to blame for the dismissal. Vice versa, in the case of seriously culpable acts or omissions of the employer, the judge may ground an additional sufferance payment that is not capped.

Appeal

In the present law there is (with some limited exceptions) no possibility for an appeal against a judgment given by the cantonal judge regarding termination of the labour agreement. This will be changed.

Appeal [and as a next step the so called “cassation” at the High Court] of the decision of the cantonal judge regarding the termination of the labour contract will be possible for both parties.

A new rule is as well that if a request for permission giving notice to the employee has been denied by UWV, the employer may initiate proceedings for rescission with the cantonal court. The employee may also initiate separate legal proceedings with the cantonal court after permission to give notice has been granted by UWV.

Changes per January first 2016:

As of January first 2016 through 2019 the period of unemployment benefits will be gradually reduced from a maximum of 38 months to a maximum of 24 months.

Bram Bogaard
Managing Director - Intl Employee Benefits

Posted In : Announcements, Auto Enrolment