Employment law

A typical example of the Dutch “polder model” is the Dismissal Law (Wet Werk en Zekerheid) of 2015. This law aimed to adapt the employment law to the changed circumstances in society. Due to the “poldering” however, several mechanisms laid down in this law do not function properly. Further changes therefore are being prepared. If you are going to work in the Netherlands or if you are going to recruit people as an employer, you will face – amongst others – the following questions:

  • Do you qualify as a self-employed person or as an employee?

In practice, many self-employed persons (“freelancers”) are not considered as an entrepreneur for the income tax by the Tax authorities. This results in the relationship between client and contractor being qualified as employment relationship, which leads to payroll taxes imposed on to the client – who will in that case be qualified as employer.

  • Is it possible to conclude another fixed-term contract or will this result in a permanent contract?

The legislator has limited the number of successive fixed-term contracts in the so-called ‘ketenregeling’ (chain rule). Under this rule, only three successive fixed-term contracts can be concluded within a period of no more than 2 years. The 4th successive contract in all cases will be legally regarded as a contract for an indefinite period. The same goes when the total duration exceeds a period of 2 years. The ‘chain’ will be restarted after an intervening period of more than 6 months (this leads to a ‘chain’ of 3x2x6). Adjustments are being prepared, amongst others with respect to the period after which successive fixed-term contracts will automatically lead to a contract for an indefinite period. This period will be increased from 2 to 3 years, resulting in a ‘chain’ of 3x3x6.

  • Is it possible to terminate an employment contract, even though a notice period is provided for (with due observance of the notice period)?

Each party can in principle terminate the employment contract by giving notice with due observance of the notice period. However, the employer can only terminate the contract when this termination is based on a reasonable ground and reassignment of the employee to a suitable position is not possible. The law provides for an exhaustive summary of reasonable grounds: (a) economic reasons, (b) long-term illness, (c) frequent sick leave, (d) unsatisfactory performance, (e) culpable action, (f) conscientious objection employee to the work, (g) disrupted employment relationship, (h) other circumstances.

  • More generally, how can an employment contract be terminated?

(1) During the trial period agreed up, each party can one-sidedly terminate the contract with immediate effect.
(2) The fixed-term contract will terminate by operation of law when the time for which the contract was concluded, expires.
(3) If agreed upon, the contract for an indefinite period will terminate upon reaching the pensionable age. If this has not been agreed upon, the employer can terminate the contract, without a permit for dismissal, upon or after reaching the pensionable age.
(4) In case of compelling reasons for dismissal, the employer can terminate the contract one-sidedly with immediate effect and without due observance of the termination provisions (instant dismissal). The employer is obliged to inform the employee about the reason for dismissal and the dismissal has to be granted immediately.
(5) An employer can terminate the contract with written consent of the employee.
(6) Employer and employee can terminate the contract by entering into a termination agreement.
(7) Each party can in principle terminate the contract – with due observance of the notice period agreed upon between parties – by giving notice. The employer however can only terminate the contract when this termination is based on a reasonable ground (exhaustively enumerated within the law) and reassignment of the employee to a suitable position is not possible. For a legal termination by the employer without the consent of the employee the employer requires a resignation license issued by the UWV should the dismissal be based on economic reasons or long-term illness. If the employer wishes to terminate the contract based on one of the other grounds stipulated in the law and the employee does not agree to this, the employer will have to initiate proceedings with the district court to dissolve the contract.

  • Is a severance payment due?

If an employee has been employed for (over) 2 years and was working on a temporary or permanent contract, he will receive severance payment, also in case the temporary contract will not be extended. The condition is that the initiative for termination lies with the employer. This payment is called ‘transition payment’. Under certain circumstances this transition payment is not due, for example in case of seriously culpable conduct of the employee. However, even in such circumstances a judge can rule that, although seriously culpable conduct is the case, to standards of reasonableness and fairness it is unacceptable to pay no transition remuneration at all, in which case the judge can order the employer to pay a (partial) severance payment. In addition to a transition payment an employee can be eligible for a so called fair compensation in certain circumstances, for example in case of seriously culpable conduct by the employer. However, it is also possible that, depending on the financial situation of the employer, the age of the employee or the method of termination, no transition payment is due.

  • Which rules apply for employer and employee in case of illness?

When an employee becomes incapacitated and long-term absenteeism is likely, the employer together with the employee has to build up a re-integration file. During the first 2 years of incapacitation of the employee the employer has an obligation to continue to pay his wages. When the employee has been incapacitated for 2 years or when the contract of the employee terminates, the UWV will assess the re-integration file. If the employer has made enough effort with regard to the re-integration of the employee on sick leave, the UWV will take over the obligation to pay the wages as well as the re-integration file. If this is not the case, the UWV can impose a so-called wage penalty on the employer with a maximum of 1 year.

  • When are a competition and relation clause legitimate and what is the scope thereof?

A competition and a relation clause are only legitimate when agreed upon in writing with an adult. In a temporary contract the competition and relation clause are only legitimate when the necessity for this competition and/or relation clause because of substantial business interests is explained by the employer in a written explanation to the contract. In case the competition clause contains wide restrictions on duration, location and activities (for instance the prohibition to work for a telecom company in any way during a period of 5 years), these restrictions can be moderated by negotiation or by presenting the clause to a judge.

In addition to the points above, you of course may have to deal with employment law in many other ways. As the director of a company for example you are in both an employment relation as well as a corporate relation to this company.  This should be taken into account, for instance at the resignation of a statutory director. But also with the sale of your business or in case of the outsourcing of certain business activities employment law comes into play. Based on the Law on the transfer of undertaking (Wet overgang van onderneming) the employees concerned in principle pass over automatically to the buyer or insourcer while maintaining their rights and obligations.