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Termination of Employment Contracts in The Netherlands

1. Grounds for Termination

A fixed-term employment contract or a contract for a specific project ends by operation of law upon expiration of the term or completion of the project, without notice being required. The employer is obliged to inform an employee who has a fixed-term contract about vacancies with an open-ended employment contract. An open-ended employment contract can be terminated under certain circumstances.

Regarding (a) Termination by giving notice

In case of dismissal on economic grounds or because of long-term incapacity of work, an employer can terminate an employment contract by giving notice after the Employee Insurance Agency has given permission to do so by a dismissal permit. The Employee Insurance Agency will grant permission only if there is a reasonable ground for dismissal and redeployment within a reasonable period of time is not possible (even after training) or reasonable. The Employee Insurance Agency procedure takes approximately four weeks as soon as it has received all the necessary information.

After permission has been granted, notice is to be given with due observance of the notice period. Due to the time involved in obtaining permission from the Employee Insurance Agency, the employer can deduct the duration of the procedure from the notice period (provided that at least one month of notice remains).

Regarding (b) Employee giving consent

In case an employer has given notice without permission of the Employee Insurance Agency, an employee can give his/her consent concerning the termination of the contract. However, there is a reflection period of 14 days, during which the employee can withdraw his/her consent.

Regarding (c) Termination by Court proceedings

A judge can terminate an employment contract in case a reasonable ground for dismissal exists and redeployment within a reasonable period of time is not possible (even after training) or reasonable. An employment contract can be terminated by court decision by filing a petition for dissolution citing certain factors for the judge to consider. Since the 1st of July 2015, there is a possibility of appeal against a court’s decision.

Regarding (e) Dismissal because of an urgent reason

The employer may summarily dismiss an employee if the employee has engaged in such misconduct that the employer cannot reasonably be expected to continue the employment relationship any longer. An urgent reason must exist, in which case the employment contract will be terminated with immediate effect. The urgent reason must be communicated to the other party immediately and the employment contract must be terminated without notice.

Regarding (f) Notice given by the employee

An employee is always permitted to terminate the employment contract with due observance of the applicable notice period.

2. Collective Dismissals

If an employer wants to dismiss 20 employees or more within a term of three months within one of the working areas of the Employee Insurance Agency, it must notify and consult the relevant trade unions and notify the Employee Insurance Agency of its intention to do so. It is also necessary to take into account all employments contracts that will be terminated by mutual consent. If the employer fails to comply with its obligation, the employee has a right to nullify the termination of his/her employment contract.

3. Individual Dismissals

a. Is severance pay required?

Until 1 July 2015, Dutch employment law did not provide a statutory severance payment. Until that date the Dutch courts generally applied the ‘Cantonal Court Formula’. This formula was also often used to calculate the severance payment in case of termination of the employment contract by mutual consent.

As from the 1st of July 2015, a statutory transition payment is introduced. Every employee is entitled to this payment when an employment contract has lasted at least 24 months and is terminated on initiative of the employer or by operation of law, subject to a few exceptions (including dismissal for urgent cause).

Fair dismissal payment

In addition to the statutory transitional payment, the Court may also award a fair dismissal payment. In case of seriously culpable acts and omissions on the part of the employer. This only applies to exceptional situations.

4. Separation Agreements

a. Is a Separation Agreement required or considered best practice?

In Dutch employment law separation agreements are used when the employment contract will be terminated with mutual consent; the so-called settlement agreement. In an agreement as such the employer and employee arrange under which conditions they terminate the contract. A settlement agreement is not a legal requirement, but considered best practice (as an employee is also able to apply for unemployment benefits after concluding a (legally correct) settlement agreement).

b. What are the standard provisions of a Separation Agreement?

The settlement agreement usually includes provisions – among others – on:

  • The names of the parties involved
  • The reason of termination
  • The dismissal payment (can be zero)
  • The termination date
  • Whether or not the employee will be exempted for work
  • Payment of the maintaining number of holidays (if any, or in derogation of the statutory provision)
  • The right of the employee to dissolve the settlement agreement within 14 days after conclusion. If this is not included in the agreement, the reflection period will be extended to 21 days after conclusion.
  • Usually full and final discharge when all the provisions of the settlement agreement are fulfilled.

c. Does the age of the employee make a difference?

Under Dutch law everyone from the age of 16 years old is considered to be legally competent to sign a (employment) contract. However, when the employee is under 18 years old, the legal representative of the underage employee can void a signed contract.

d. Are there additional provisions to consider?

Possible additional provisions in the settlement agreement to be considered are how to settle the non-competition, non-solicitation and non-poaching clauses (if any), to reconfirm the secrecy clause and penalty clause, to return company property and to refrain from negative statements about one other.

5. Remedies for employee seeking to challenge wrongful termination

After concluding a settlement agreement, the employee has a reflection period of 14 days. During that period the employee can withdraw the given consent at any time, without having to give an explanation for his/her change of mind. When this period is over, it is still possible under Dutch law to void a contract. A contract is voidable if for example one of the parties misused the circumstances that the other party was in while signing the settlement agreement, or if a party was misled into signing the contract by the other party. The time limit for invoking a voidable settlement agreement on one of the above-mentioned terms is 3 years.

For more information on these articles or any other issues involving labour and employment matters in Netherlands, please contact Christiaan Oberman, Partner at Palthe Oberman (www.paltheoberman.nl) at oberman@paltheoberman.nl
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