The Dutch government submitted a legislative proposal for the Work & Security Act to the Dutch Lower House on 29 November 2013. The proposal details plans to reform the law governing dismissal, unemployment benefits and flexible employment as agreed in April 2013 by the government, trade unions and employers’ organisations in the Social Agreement. In earlier publications we gave you a broad outline of this along with envisaged implementation dates. In this newsflash we will discuss the most important aspects of the legislative proposal.
Flexible work (envisaged implementation date: 1 July 2014)
Provisions on successive fixed-term employment contracts
A limit will be set on the possibilities to conclude successive temporary contracts with an employee. If successive temporary employment contracts are interrupted by no more than six months (currently three months), the last contract will be converted by law into a contract for an indefinite period if a) that contract is the fourth one in succession, or b) the temporary contracts have lasted a total of more than two years (currently three years).
Under present Dutch law, a collective labour agreement may depart from these provisions to the disadvantage of employees. The bill sets limits on this: a collective labour agreement may raise the maximum number of temporary contracts to six and the maximum duration to four years, but only in the event of temporary contracts through an employment agency, or if the nature of business operations in an industry makes it necessary to depart from this for certain jobs. As examples, the explanatory memorandum to the bill names work with project-based funding in e.g. the media or cultural or scientific projects. It will not be possible for a collective agreement to depart from the maximum interruption period of six months. A collective agreement may only depart, without limit, from the provisions on successive fixed-term employment contracts to the disadvantage of directors of legal entities.
The provisions on successive fixed-term employment contracts will not apply to employees under the age of 18 who work fewer than 12 hours per week or to employment contracts to be designated by the minister of Social Affairs and Employment (these will basically be contracts concluded with a view to the training of employees, so-called work-study programmes). The Minister can also give his consent to a collective agreement declaring the provisions inapplicable to jobs in industries that can only work with temporary contracts, for example professional football.
Duty to disclose whether a temporary contract will be extended or not
When a temporary contract or successive temporary contracts of six months or more come to an end, the employer will have to inform the employee in writing, at least one month before the contract ends, as to whether or not it will extend the employment contract, as well as the conditions under which the contract will be renewed. If the employer fails to meet this obligation, it will be required to pay one month’s salary to the employee. If the employer does not inform the employee in good time, it will owe pro rata remuneration to the employee.
It will no longer be permissible to include a non-competition clause in a temporary contract unless the employer explains, in writing, the considerable business interests that make such a clause necessary. A non-competition clause in a temporary contract without stating reasons is null and void.
Trial period clause
Temporary contracts lasting six months or less may no longer include a trial period.
Obligation to continue to pay salary for hours not worked
Under present Dutch law, an employer can make written arrangements with an employee stating that the obligation to continue to pay a salary for the hours the employer has not provided work will not apply for the first six months of the employment contract. This period can be extended without limit by collective agreement. This is often the case for standby contracts. The bill sets a limit on the possibility of extending such arrangements: the length of time for which the obligation to continue to pay a salary can be excluded can only be extended in a collective agreement for specific jobs designated in that agreement, the duties of which have no fixed scope and are of an incidental nature. At the request of the Employment Foundation ( Stichting van de Arbeid), the Minister may order that no departures will be allowed from the obligation to continue to pay salary in certain industries. Zero hours contracts will be prohibited in certain parts of the care sector.
The new provisions for successive temporary employments contracts will apply if, before or after the act comes into force, a temporary employment contract ends and, after the act comes into force, a new temporary contract is concluded within six months after the expiry of the earlier contract.
A temporary employment contract that has not yet been in force for two years when the act takes effect but that was concluded for more than two years will not automatically be shortened to two years.
If a collective agreement includes a departure from the provisions on successive contracts or the obligation to continue to pay a salary, then the former legislation will continue to apply to employment contracts that are subject to that collective agreement and are concluded after the new legislation takes effect. The new legislation will apply as from the date of expiry of the collective agreement, but in any case 1 ½ years after the legislation takes effect.
Law governing dismissal (envisaged implementation date: 1 July 2015)
The UWV or sub-district court must give prior permission to terminate employment
Under the new law an employer will need permission from the Employee Insurance Agency (“UWV”) to terminate an employment contract on account of a reorganisation or an employee’s long-term incapacity for work. For termination on other grounds, the employer must apply to the sub-district court. Under the new law, the employer will no longer be able to choose between termination with a permit from the UWV or applying to the sub-district court to set aside an employment contract.
To obtain permission from the UWV or the sub-district court, an employer will have to have a reasonable ground for terminating the employment contract. These grounds are to be stated in the Dutch Civil Code. A request for termination on the grounds of unsatisfactory performance may be refused if the employer has not done enough to provide sufficient training for the employee.
Under present law, no permission is needed from the UWV to terminate the contracts of employees who on the basis of an employment contract work in the public service, for people employed in special education and for holders of spiritual offices. In future a permit will be required for their dismissal. For other employees whose dismissal does not now require a permit, such as directors under the articles of association, permission will not be required under the new legislation either.
Redundancy committee instead of UWV
The bill makes it possible to ask a committee to assess the request to terminate employment instead of the UWV, provided that a procedure for this type of assessment has been included in the collective labour agreement. The committee must be independent of the employer and the assessment procedure must meet certain requirements: both sides must be heard, confidentiality must be observed and reasonable reply periods must be allowed.
Termination with the permission of the UWV or redundancy committee; notice period less the time required for the procedure
The employer may deduct the time actually required for the procedure (this period is currently fixed at one month) conducted by the UWV or the committee from the notice period provided that the remaining notice period is not less than one month. The time required for the procedure starts on the day that the UWV or the committee has received the complete request for termination up to the day of its decision. The decision must state the amount of time that was required for the procedure, so that the remaining notice period can be calculated.
Having an employment contract set aside by the sub-district court
The setting aside of the employment contract by the sub-district court will be the appropriate route if an employer wishes to dismiss an employee on account of ‘reasons lying in the person of the employee’: unsatisfactory performance, culpable acts or omissions by the employee, a damaged working relationship or refusal to perform work on account of serious conscientious objections. The sub-district court can also set aside the employment contract if regular illness on the part of an employee has unacceptable consequences on business operations. Finally, the sub-district court can set aside an employment contract on account of other circumstances as a result of which the employer cannot reasonably be required to allow the employment contract to continue.
The employee’s assent to dismissal; fourteen-day period of reflection
If an employee assents to his dismissal, he may retract his assent in writing within fourteen days without stating reasons. If a termination agreement has been concluded, the employee may terminate this agreement within fourteen days without stating reasons by informing the employer of this in writing. The employee’s right of retraction and right of termination may not be excluded.
Termination due to the employee reaching retirement age and afterwards
The proposed legislation will make it possible (unless the parties have made other arrangements in writing) to terminate the employment contract without the permission of the UWV as of or after the day on which the employee reaches the state pension age or another agreed retirement age (whether higher or lower). If a retirement age lower than the state pension age has been agreed, then permission will not be required for dismissal on reaching that lower age, but such dismissal may still be contrary to the rules on equality. If the parties concluded an employment contract for an indefinite period after the employee reached the state pension age or some other retirement age, then permission to terminate this contract will be required.
If the employer terminates an employment contract that has lasted for 24 months or more, it will have to make a transition payment to the employee. It makes no difference whether the contract was temporary or for an indefinite period. In this case the legislature takes termination to mean dismissal, setting aside or non-continuation after expiry of a temporary contract.
There is no entitlement to a transition payment on termination by mutual consent. However, the transition payment will undoubtedly play a role in negotiations about such termination. An employer is not required to make a transition payment if the initiative to terminate came from the employee, unless the latter did so on account of serious culpable acts or omissions on the part of the employer. Nor is the employer required to make a transition payment if the employee has carried out serious culpable acts or omissions. No transition payment is due on termination of an employment contract for less than 12 hours per week with an employee under the age of 18, or on termination of an employment contract as of or after the day on which the employee reaches the state pension age or another agreed retirement age (whether higher or lower).
The transition payment is calculated as follows: for the first 120 months of the employment contract, the transition payment is one-sixth of the monthly salary for each six-month period that the employment contract was in force. After these 120 months the payment is one-quarter of the monthly salary for each subsequent six-month period. The proposed text of the act makes it clear that in calculating the transition payment, the legislature worked with six-monthly steps, whereas the sub-district court formula works with years of service. Just as is the case for the provisions for successive contracts, successive employment contracts interrupted by a maximum of six months are added together. If an employee takes up the same or nearly the same work for the next employer, and if the next employer has been able to gain sufficient insight into the employee’s skills, then the employment contract with the former employer is also taken into consideration in calculating the transition payment. The transition payment is subject to a maximum of € 75,000 or a maximum of one annual salary for an employee who earns more than € 75,000 per year. The parties may decide to agree a higher transition payment when they conclude the employment contract.
Until 1 January 2020 employees aged 50 and over on their dismissal and who have been in employment for ten years or more will be entitled to a higher transition payment for the years in which they were employed after their 50th birthday, namely one half of a monthly salary instead of one-quarter of a monthly salary for each six-month period. This special scheme will not apply to employers with less than 25 employees in the last half year before the year in which the employment contract was terminated.
By analogy with the sub-district court formula, monthly salary is deemed to be the gross monthly salary plus fixed salary components such as holiday allowance, a fixed 13th month payment, habitual overtime pay and a fixed shift allowance. The minister will announce in an order in council in what very exceptional cases the employer’s share in the pension contribution, the company car, expense allowances, the employer’s contribution towards health care insurance and incidental and non-agreed salary components can be part of the transition payment.
The transition payment is meant to compensate the employee for dismissal and also to enable him to increase his chances of finding a new job through training or a coaching programme to help him find different work. An employee is not obliged to use the payment for training purposes. The minister will announce in an order in council what costs the employer may deduct from the transition payment. This will involve costs of training, outplacement, a longer notice period than the statutory one or other costs incurred by the employer during the employment period to make the employee capable of performing a variety of jobs.
In addition to a transition payment, the sub-district court can also award an employee fair compensation if the case involves seriously culpable acts or omissions on the part of the employer. This fair compensation will depend on the circumstances of the case. The so-called consequences criterion (is the dismissal reasonable in light of its consequences for the employee as well as the measures taken by the employer?), which now plays a role in the procedure for manifestly unreasonable dismissal, is taken into consideration in the transition payment. The manifestly unreasonable dismissal procedure, which an employee may now conduct if his employment contract was terminated with the permission of the UWV, will also end if this bill is adopted.
Departure from the so-called proportionality principle (afspiegelingsbeginsel)
The proportionality principle will continue to be the starting point for determining the order in which the employer wishes employees to be considered for dismissal for economic reasons. However, a collective agreement may depart from the proportionality principle for at most 10% of the employees who would be considered for dismissal on the basis of that principle. To be eligible for such departure, an employee will have to perform at a level that is demonstrably higher than average or have a future potential greater than average. If an employer is to be permitted to make such a departure, it must pursue a clear policy in advance so that employees are given equal chances and know the consequences their performance may have on a possible future dismissal. This option does not apply to the age categories of 15-25 or 55 and up. If an employee objects to the departure from the proportionality principle, the objection will have to be assessed by a committee set up by the parties to the collective agreement that is independent of the employer.
Payroll employees and work-disabled persons
In the bill, the legislature has announced more detailed rules to strengthen the position of payroll employees. Their protection from dismissal will then become the same as that for employees who are employed directly by the employer. At the request of the employer, it will be possible to leave work-disabled persons outside the scope of the proportionality principle.
Objection to the UWV decision
If an employee is of the opinion that the UWV wrongly gave its permission for dismissal, or if he was dismissed without the permission of the UWV, he will be able to ask the sub-district court to reinstate the employment contract, or to award him fair compensation instead. The employee must do so within two months after the end of the employment contract. If the UWV has refused its permission for dismissal, an employer may apply to the sub-district court to set aside the employment contract. The judge will assess the request against the same criteria as the UWV.
The bill allows an appeal against a decision to set aside an employment contract (in contrast to the present regulation). But an appeal will not suspend implementation of the decision of the judge of sub-district court. This means that an employment contract terminates when an application to have it set aside is allowed, even if the employee lodges an appeal. If the decision to set aside the contract is rejected on appeal, the judge can order the employer to reinstate the employment contract or to award the employee fair compensation instead. If the judge decides on appeal that an application to set aside the contract was wrongly rejected in the first instance, he will decide on what date the employment contract will terminate.
Unemployment benefits (envisaged implementation date: January 2016)
Limitation of maximum duration of unemployment benefits
Between 1 January 2016 and 1 July 2019 the maximum duration of unemployment benefits will gradually be shortened by one month per quarter, from the present 38 months to 24 months. In their collective agreement, trade unions and employer organisations can agree a maximum extension of 14 months for unemployment benefits. In principle, the Minister of Social Affairs and Unemployment will extend such agreements to apply to a whole industry where the collective agreement already applies to the majority of employees in that industry.
More limited accrual of entitlement to unemployment benefits
Under present law, each year of employment history leads to one extra month of entitlement to unemployment benefits. This will still be the case for the first ten years of employment history, but each subsequent year will lead to only half a month of unemployment benefits. The employment history built up until 2016 will be honoured. This means that each year of employment history before 2016 gives entitlement to one month of unemployment benefits, but never more than the maximum that applies to an employee when he becomes unemployed. For example, an employee who is entitled to 38 months of unemployment benefits as of 1 January 2016 who then becomes unemployed on 1 August 2016 will be entitled to unemployment benefits for 35 months because the 3 elapsed calendar quarters are deducted.
In anticipation of the limitation on the maximum duration of unemployment benefits, the definition of suitable work will be tightened as of 1 July 2015. At present, for the first six months of his entitlement to unemployment benefits a person may focus on work at the same level as the work he has just lost. After six months, work for which a lower level of education is required is deemed to be suitable work as well and after one year, all work is deemed to be suitable. As of 1 July 2015, just six months after a person becomes unemployed, all work will be deemed to be suitable. This stricter definition will also apply to the term suitable work in the Sickness Benefits Act.