Dutch Dismissal Law: reform dismissal law

In this series of articles I will keep you informed of developments relating to the Dutch Dismissal Law. I will try to translate this into practice: what are the consequences, what are the opportunities and the threats? In the first article I outlined the background of the law. In the second article, position of the flexible workers. Now, in this article I will describe the proposals made on reforming the dismissal law. It is certainly not my intention to be exhaustive; it is impossible to be at this point as it is still a bill at this stage and not a law. This is mainly to inform you of what’s to come.

The below legislation will come into effect on 1 July 2015. It does not provide much on transitory law. The dismissal route is greatly determined by the starting date of the new law. The transition compensation will also have to be paid over the period of employment before the law takes effect. There will be a different way of calculating the compensation for people aged 50+.

Current situation

The dismissal law is regulated in two laws: the Dutch Civil Code and the Extraordinary Labour Relations Decree. These are also the two ‘routes’ which can be followed after dismissal. The first is dismissal via the district judge; termination of the contract. The second runs via the UWV (Employee Insurance Agency) and involves something called an ontslagvergunning, which can freely be translated as a license or permission for dismissal. Upon termination of the contract through a district judge the employee will almost always receive compensation, this is not the case with dismissal via the UWV. It is up to the employer to choose which route will be taken. This creates legal inequity, according to the government. The fact that the judge does not have to abide by the rules that the UWV uses for dismissal , is also something the government feels needs to be changed, which is why both laws will be amended.

The new route

Preventive reviewing of dismissal will be maintained. The reviewing will be conducted by the UWV or the district judge, depending on the reasons for dismissal. Dismissal related to economic reasons or after long-term disability will be reviewed by the UWV. Planned dismissal due to alleged dysfunction, neglect or culpable acts of the employee, other employee related reasons or due to distorted working relations will be judged by the district judge. Meaning, an employer can no longer choose which route to take following the dismissal of an employee. The route itself will be clearer, but the district judge loses a lot of his freedom to deviate from the policies set by the UWV. Moreover, parities can now appeal against any rulings, all the way up to the Supreme Court.
If an employee has been discharged, he can file an appeal, but the dismissal will still be in effect. All of this to, eventually, ensure more uniformity in dismissal law.

Resignation with mutual consent

The ability to terminate a contract with mutual consent will continue to exist. In practice, this will be included in a settlement agreement. If this agreement meets certain conditions, the employee’s unemployment benefits will not be jeopardised in principle. At the moment the agreement is valid on the day it is signed. As soon as the new dismissal law takes effect the employee will have two weeks to think about it. During those two weeks he can terminate the settlement agreement without giving any reason or to start new negotiations for example. He is allowed to do this once. If negotiations start again and the employee agrees to the terms, the employee is bound by the agreements. If the employee terminates the settlement agreement within two weeks, the employment contract stays in effect until a new settlement agreement has been closed and finalised. The settlement agreement often includes an agreed upon fee. It can be higher or lower than the transition compensation every employee is entitled to if the employment has lasted for at least two years.

Transition compensation

If an employment contract has lasted for two years or more and ends or will not be continued, the employer has to pay compensation. Compensation based on the ‘district judge’s formula’ will be lapsed. It is important to know that in the case of a subsequent employer, the newer employer will have to pay the transition compensation for the entire employment period. Especially for payroll companies, this is something to consider when taking over personnel.

The amount of transition compensation is determined on the basis of a fixed formula and is capped at €75,000 – or one year’s salary, whichever is higher. Even the district judge is bound by these rules. For almost everyone this amount is lower than it would be using the current district judge formula. A 45 year old employee earning €6000 gross and has been with the same employer for 10 years can expect to receive €60,000 based on the old formula and €20,000 with the new system. The difference can be even greater for older employees.

Therefore, a transitional arrangement has been created which will last until 2020. This arrangement is aimed at employees who are over 50 years old, but it doesn’t apply to companies with less than 25 employees.

Arrange in advance

The rules regarding the size of one’s severance package are negotiable when signing the employment contract. High severance pay for ‘greedy CEOs’ will certainly not disappear…

Also for dismissal after illness

The current proposals include the need to pay the transitional compensation if the employer dismisses the employee after two years of disability. So first, two years of continued pay of wages and then a transition compensation, whereby the two years of illness count towards the duration of employment.

Dismissal for payroll labor force

The current rules state that – quickly summarized – it is easier to dismiss payroll forces, because they are not covered by the principle of proportionality through the client. As of right now, that rule will be amended and payroll forces will be covered. That could mean that ‘own’ employees can be dismissed whilst payroll forces can stay. This will especially hit the payroll companies whose main focus lies on taking over personnel and less so the payrollers with a more flexible character. Their employees will most likely be subject to attrition; their employment contract will not be renewed.

Security or false security?

The employee will probably have less security, was the conclusion in my previous article. The impression I get from the changes in dismissal law won’t help its cause either I believe. I do not believe the employer’s wish of making the law more flexible will come true. Consequences of the new dismissal law, as I see it, seem to give more security and certainty to employees who already have a permanent employment contract and less to new employees.
Marcel Reijmers is a partner at FlexKnowledge and is a strategic advisor for, among others, Holland Payroll in the fields of legislation, sectoral payroll, collective labour agreements and remuneration schemes. He is also a columnist for FlexNieuws and editor of the FlexWijzer and CAOWijzer. Reijmers has 20 years of experience of working in the flex market.