Christiaan Oberman, Partner, and Karol Hillebrandt, Senior Associate, at Palthe Oberman, L&E Global | The Netherlands, summarise the changes to the Dutch dismissal system and unemployment legislation.
The forthcoming changes to Dutch dismissal law have been discussed in politics and the media. The government intends that these changes will strengthen the position of flexible workers and that the Unemployment Insurance Act will make it easier for people to find work. The most significant elements of the new Act are discussed below.
Changes from 1 January 2015
A number of changes are being introduced, to restrict ‘flexible employment’ as far as possible, so that more employees can work towards obtaining a permanent contract more quickly than under the existing legislation to give them greater job security. These changes are outlined below:
Probationary periods will no longer be permitted for fixed term contracts of up to 6 months.
The basic premise is that non-compete clauses cannot be included in fixed-term contracts, except in exceptional circumstances, and provided the employer can prove they are required.
In principle, a fixed-term employment contract will end by operation of law, unless it has been agreed in writing that prior notification is required. However, as it is beneficial for employees with a temporary contract to be informed in good time by their employer if their employment contract will be terminated, employers must notify employees at least one month before the expiry of fixed term contracts for six months or more, whether or not they will extend the contract and if so, on what terms. If the employer fails to do this, a sum equal to one month’s salary will be payable to the employee, provided they submit a claim for this ‘notification fine’ to the court within two months of their employment terminating.
The notification period will not apply to employment contracts that terminate within one month of 1 January 2015.
Changes from 1 July 2015
The new legislation will apply to requests for dismissal submitted from 1 July 2015.
Provisions on succession of fixed-term employment contracts (the chain rule)
Currently, an employer may enter into a maximum of 3 fixed-term employment contracts with an employee within a three-year period. If a fourth employment contract is entered into, or if the three year period is exceeded, it will become an open-ended employment contract. The chain will only be broken if there is a break period of at least three months between employment contracts, in which case the “clock” restarts.
From 1 July 2015, there will be a permanent open-ended employment contract after a maximum of three temporary contracts within a two-year period. The break period will increase from three months to a minimum of six months.
One dismissal route
Currently, employers may opt to dismiss employees through the UWV (application for dismissal permit) or terminate employment through the Cantonal Court. In future, the reason for the dismissal will determine the termination route:
- dismissals on the grounds of economic reasons and long-term incapacity will be dealt with by the UWV.
- all other reasons for dismissal, such as poor performance or misconduct must be submitted to the Court. The possible reasons for dismissal are enumerated comprehensively in the new Act.
If the UWV issues a negative decision on a dismissal on the grounds of economic reasons, the employer can submit a request for termination to the Court. In addition, an employee who has been dismissed through the UWV may apply to the Court to reinstate the employment contract.
Appeal following dismissal
The current system does not provide any opportunity for appeal after a court has issued a judgment in termination proceedings. Under the new regulations, an employee can initiate an appeal, but the effect of this will be a longer period of uncertainty as to whether or not the employment contract has actually been terminated.
Termination by mutual consent
It will remain possible for the employer and employee to terminate the employment contract by means of a compromise agreement. An important difference under the new law is that the employer must include a provision in the termination agreement that the employee can revoke their consent within 14 days of the date of the termination agreement without stating their reasons. An employee can only make use of such a revocation once in a six month period.
Regardless of the dismissal route which is chosen, all employees with at least two years’ service will be entitled to a transitional allowance which can be used for education and training, among other things.
The allowance is calculated on the basis of length of service:
- under 10 years’ service: 1/6 month’s salary for each 6 months of service
- over 10 years’ service: 1/4 month’s salary for each 6 months the employee has been employed over 10 years.
For employees who are 50 years or older and have been employed for at least 10 years, a transitional arrangement applies until 1 January 2020. For these employees the allowance is 1/2 month for each 6 months the employee has reached the age of 50.
The allowance is capped at €75,000, or one year’s salary, whichever is the greater.
An exception has been drafted into the Act, which applies until 1 January 2020, for reduced payments for employers who:
- have on average fewer than 25 employees in service,
- have initiated termination proceedings on economic grounds, and
- are demonstrably in financial difficulties.
The transitional allowance may be reduced in certain circumstances, for example if the employee is guilty of serious misconduct. The Court may also award a dismissal payment (with no maximum limit) and additional compensation to the employee if the employer was at serious fault.
Changes from 1 January 2016
There will be important changes to the structuring of the Unemployment Insurance Act. Currently, it provides payment to unemployed individuals for a maximum of 38 months, and this will gradually be reduced to 24 months by 2019.
In addition, from 1 July 2015, a person receiving unemployment benefit will be obliged to accept any available job after six months. Currently, this obligation applies after 12 months.