VVD – PvdA coalition agreement: what measures should you expect?
The new government policy was announced in the coalition agreement of 29 October 2012. The plans include a number of drastic changes in the field of employment law and social security. The emphasis is on a short interval between jobs, with the shortest possible dependency on benefits. A brief summary of the most notable changes is presented below.
Whereas employers can currently follow either the Subdistrict Court procedure or the procedure via the UWV WERKbedrijf (Employee Insurance Agency) in order to terminate an employment contract, the Subdistrict Court procedure will be abolished. The Subdistrict Court Judge will therefore no longer assess the dismissal beforehand, but only in arrears. Employers will only be able to apply to the Subdistrict Court in case of termination of an employment contract with an employee to whom a prohibition of termination applies (e.g. in the event of illness) or with an employee who has a temporary employment contract that does not provide for an early termination.
Employers will in future have to apply for dismissal advice (rather than a dismissal permit) from the UWV before terminating an employment contract. The intention is to handle “the majority” of the applications within four weeks (currently six to eight weeks). If a collective employment agreement provides for a procedure that is similar in terms of content and speed, the employer is not required to request such advice. If the UWV’s advice is positive, the employer can terminate the employment contract while observing the notice period. It is apparent from the coalition agreement that an employment contract can also be terminated if the advice is negative, but that involves risks in light of possible proceedings after termination (see below). The criteria for lawful dismissal will be accurately described. The criteria for termination on economic grounds (such as the proportionality principle) will remain the same, but it is permitted to depart from the proportionality principle in collective employment agreements.
In the event of dismissal at the employer’s initiative, or if a temporary contract of at least one year is not extended, the employer will owe a transition budget for training purposes equal to a quarter of a month’s salary per year of service, subject to a maximum of four months’ salary. Employees with a temporary contract will therefore be better protected than under current law. If the dismissal is based on the employer’s poor financial situation and the employer would become insolvent if it were forced to comply with that obligation, no transition budget is due.
Dismissed employees can apply to the court. The court will then apply the same criteria as the UWV, whose advice will weigh heavily. If the employer has followed the UWV’s advice but the court nevertheless considers the dismissal unjustified or believes the employer is primarily to blame, severance pay can be awarded. The severance pay will be limited compared with the current situation, in which the subdistrict court formula applies. The severance pay will amount to a maximum of half a month’s salary per year of service, subject to a maximum of €75,000. If the employer has departed from the UWV’s advice, the court can also revoke the dismissal, in stead of awarding severance pay. The judgment is not subject to appeal.
The coalition agreement does not mention the possibility frequently used in practice of terminating an employment contract by mutual consent. That possibility will most likely continue to exist.
Both the duration and the amount of unemployment benefits will be limited. The duration of unemployment benefits will be reduced from 38 months to a maximum of 24 months. In the new regime employees will accrue one month of entitlement to unemployment benefits per year worked during the first ten years of employment history and half a month per year worked after that period. Existing rights will be respected with regard to the accrual of unemployment benefits, although the new maximum period of 24 months will also apply to existing cases. During the first 12 months the amount of the benefits will be based on the most recent salary; in the last 12 months the benefits will be based on the statutory minimum wage. After that period an unemployed person will be dependent on welfare. It will furthermore be included in the Unemployment Act that all work is considered suitable work after six months (rather than 12 months). The recovering of the first six months of unemployment benefits from employers that was recorded in the Spring Agreement will not go ahead. However, the financial benefit that employers would have as a result of the reforms in dismissal law is offset by an increase in the unemployment insurance contributions.
The state pension age will be gradually increased to 66 in 2018 and to 67 in 2021. The increase will then be linked to the increase in life expectancy. A transitional arrangement will be drawn up for people who take part in an early retirement or pre-pension scheme on 1 January 2013 and who have not been able to prepare for the increase in the state pension age. A “bonus” will furthermore be introduced for employees aged 61 to 65 with a low income. Employees who continue working to the age of 65.5 can retire 1.5 years earlier on average, without any financial loss.
With regard to supplementary pensions the coalition agreement provides that as from an income level of €100,000 there will no longer be any tax facilities for supplementary pensions. The maximum annual accrual rate for new pension accrual will be reduced by 0.4%. For the customary average salary pension, this means that there will be tax facilities for a maximum accrual of 1.75% a year of the pensionable salary.
It is also notable that the coalition agreement provides that the amount of the maximum variable remuneration in the financial sector will be set by law at 20% of the fixed remuneration. The aim is also to improve the statutory protection of different types of flexible work, and initiatives will be taken to improve the balance between flexible and fixed work. Finally, as from 1 January 2015 a 5% quota will gradually be introduced for hiring disabled persons, with a penalty on non-compliance. An exception to the quota arrangement will apply to companies with fewer than 25 employees.
It will take a great deal of time before the proposed measures enter into force. The proposed introduction date of the reforms in dismissal law and the unemployment system is 1 July 2014. The increase in the unemployment insurance contributions has been scheduled for 1 January 2014. The coalition agreement provides that the aim is to reach agreement with the social partners on a social agenda in which these plans are included. This means that the government will negotiate with the employers’ organisations and trade unions. The measures will then have to be recorded in legislative proposals which, after obtaining the advice of the Council of State, will be debated in the Lower House and the Upper House. In sum, the question is to what extent these measures will be embodied unamended in legislation and in what manner the announced measures will be worked out in detail. We will of course keep you informed.