Netherlands Law Impacts Contract Employment, Dismissal

By Roy Maurer Sep 9, 2014
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Dutch law governing temporary employment contracts, employee termination and unemployment benefits will be significantly changed beginning January 2015.

The Work and Security Act, passed by the Netherlands Senate in June 2014, reforms numerous provisions for temporary employment contracts, creates a new statutory entitlement to severance pay and reduces the maximum duration of unemployment benefits beginning in 2016.

“The Work and Security Act is one of the most significant changes to Dutch labor laws in years,” said Kristle Jessurun, an Amsterdam-based legal consultant at Towers Watson. “The act is intended to address various aspects of the legal framework where labor law and practice are perceived as inflexible and costly, particularly regarding termination of employment.”

Employment Contract Reforms

The changes to contract employment aim to close the gap between temporary and permanent employment in the Netherlands and are scheduled to go into effect Jan. 1, 2015.

“The changes will be significant, and it is extremely important that Dutch employers review existing contractual arrangements with staff, particularly with temporary employees,” said Marielle Daudt, a partner in the Amsterdam office of Jones Day.

According to Daudt, key changes include:

Restricting probationary periods in employment contracts of six months or less. This applies to contracts concluded on Jan. 1, 2015, or later, but not to contracts that were already in effect before that date.

Restricting noncompete clauses in temporary employment contracts concluded on or after Jan. 1, 2015, unless deemed necessary on account of compelling business interests. Noncompete clauses already in force on Jan. 1 will continue to apply. According to the law’s Explanatory Memorandum, business interests must relate to temporary and specific duties or specific positions in which the benefits to the employer of including the noncompete clause outweigh the drawbacks for the employee. “Unfortunately, the legislator has not given any specific examples of such compelling interests,” Daudt said.

Requiring employers to notify contracted employees of six months or more in writing, at least one month before the contract ends, of whether or not the contract will be extended and on what conditions. “If an employer has failed in any way to inform an employee as to whether it intends to continue the contract, then it must pay the employee one month’s gross salary,” Daudt said. She added that “If an employer is late in informing the employee—for example, less than one month before the contract ends—then for every day that the employer has failed to timely inform the employee, it must pay the employee one day’s gross salary.” Daudt recommended that companies mark down the dates by which fixed-term employees need to be notified about contract extensions and that they have a standard notice letter in place.

Limiting number of consecutive contracts. Currently, temporary contracts may be extended twice (for a maximum of three successive contracts), provided the total duration of the three contracts does not exceed three years. If contracts are interrupted by a period of more than three months, the contracts are no longer considered successive. Beginning July 1, 2015, employees with fixed-term contracts will be entitled to permanent employment after two years of successive contracts instead of three. Additionally, if six months or more have lapsed between two contracts, the chain of consecutive contracts starts again instead of after three months.

Dismissal Law Changes

Effective July 1, 2015, Dutch dismissal law will change drastically, said Daudt. “The government’s aim is to make the laws governing termination of employment fairer, less technical and less costly.”

Employers will no longer have the choice between obtaining prior permission for dismissal from the public employment service or bringing the matter to court, said Jessurun. “Dismissal for economic or business reasons or due to long-term disability will go through the Employee Insurance Agency. Termination for personal performance reasons will go through the court system,” she said.

Employees with at least two years of service will be entitled to severance payable on dismissal or at the end of fixed-term employment. The benefit will not be payable in the event of termination for serious misconduct, resignation, dismissal at normal retirement age or if employment is ended by mutual agreement, said Jessurun.

Severance will accrue at a rate of 16.5 percent of monthly pay for every six months of employment for the first 10 years of service, increasing to 25 percent of monthly pay for each six-month period of service over 10 years. The maximum statutory benefit will be €75,000 or one year’s gross annual pay.

“Companies should ensure that they are well-advised with respect to the drastic reform of the Dutch dismissal law, particularly if they intend to implement a reorganization resulting in staff becoming redundant,” said Daudt.

Decreased Unemployment Benefits

The maximum duration of unemployment benefits from social security will gradually decrease from 38 months to 24 months between Jan. 1, 2016, and 2019.

Additionally, as of July 1, 2015, a person receiving unemployment benefits for a period of six months or more will be obliged to accept any available job as suitable employment. Under current rules, the duration is one year.

Roy Maurer is an online editor/manager for SHRM.

Follow him at @SHRMRoy

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