In the seventh of our international monthly series of articles by guest contributors, Dirk Jan Rutgers and Merel Goldschmidt of Rutgers & Posch look at unfair dismissal protections in the Netherlands.
International Series #7 – The Netherlands: Unfair Dismissal Protections
Under Dutch law there is a strict employee protection. This is reflected in the fact that Dutch employment law does not permit unilateral dismissal. Therefore it its necessary to obtain consent in advance from either the Employee Insurance Agency (usual Dutch abbreviation “UWV”) or the court before dismissals can take place. The employer has the obligation to prove valid reasons for the dismissal (e.g. as a result of a reorganizsation or unsatisfactory performance). These reasons should be based on a background file of information which has been compiled by the employer.
Pursuant to Dutch law there are three ways to terminate a permanent employment contract (besides a dismissal for urgent reason): (i) by giving notice after approval of the UWV has been obtained, (ii) by means of a court procedure, and (iii) by mutual consent. These procedures are be set out below.
A permanent employment contract ends by operation of law upon expiration of the agreed-to time period.
Approval of the UWV
The request for approval of the UWV must state the reasons for the intended termination. The UWV has the authority to refuse the dismissal permit if it holds the opinion that the underlying reasons for the request for termination are unreasonable. The UWV has no authority to impose a compensation on the employer. However, the employee could start legal proceedings afterwards, claiming compensation on the basis of unfair dismissal – please see below.
A party to an employment contract may request the court to terminate the employment agreement based on changed circumstances. The court will assess the employer’s reasons put forward for the termination and the possible consequences for the employee. Upon balancing the interest of both the employer and the employee, the court is authorised to refuse the termination. In the event the termination is approved by the court, it will immediately give a decision with respect to the amount of compensation that needs to be paid by the employer as a consequence of the termination of the employment contract.
In the Netherlands the severance payments are calculated using a court formula. According to this formula, a severance payment is calculated by multiplying three factors: A x B x C. Factor A is the number of years that an employee has worked for the employer, factor B is the gross monthly salary and factor C is the adjustment factor reflecting special circumstances.
Neither the employer nor the employee have the right to appeal against the court’s judgment.
Termination by mutual agreement
In the event of a termination by mutual consent, the employer offers a termination proposal to the employee, in order to avoid legal proceedings and to obtain certainty in the short term. The main elements of such a proposal should include the date of termination and the amount of severance to be paid by employer. In the event the employee agrees to the employer’s termination proposal, the arrangements must be set out in a settlement agreement.
Dismissal for urgent cause
A party to a contract of employment may be confronted with an urgent situation which means he cannot reasonably be expected to continue the employment (e.g. theft or intentional damaging of property). If this situation is caused by the employee, the employer is entitled to terminate the contract of employment without notice and with immediate effect. No UWV permit is required.
Obviously unreasonable dismissal proceedings
If, despite compliance with the requirements imposed by law, the applicable collective labour agreement and the contract of employment, the effects of termination on the dismissed employee are “obviously unreasonable”, the employee may seek redress in court. Severance payment may be claimed, or reinstatement of the employement might be requested. The latter is rarely granted.
The law identifies a number of situations that may be considered obviously unreasonable:
- when no reason, or a mere pretext, is given for the termination;
- when, with due regard to financial arrangements made for the employee and his prospects of finding new employment, the hardship endured by the employee is disproportionate to the interests of the employer; and
- when termination deviates from a seniority rule in the particular enterprise (unless there are overwhelming reasons for such deviation).
There are no statutory uniform rules regarding severance payments. The rule a court would have to apply in deciding the issue of compensation, is the rule of reasonableness. Each case is decided in accordance with the specific circumstances.
Changes in the legislation on the termination of employment
For years there has been a discussion in the Netherlands regarding the Dutch law on dismissal. In 2012 a new government proposed new plans in this respect. These plans has been developed into a “social agreement” by the social partners.
According to the current timetable these plans will be developed in new legisalation and become effective as of 1 January 2016. The most relevant changes in the legislation on the termination of employment are as follows:
- It will no longer be possible to choose whether an employer prefers to terminate the employment contract either through a court discission or after approval of the UWV. Based on the new legislation, the procedure to be followed depends on the grounds for dismissal. Furthermore, the employer and employee have the right to appeal against these decissions.
- In addition to a possible severance payment awarded by a judge an employee (i) employed for at least two years and (ii) in the event of an involuntary termination of employment, is entitled to a “transition allowance”.
We note that there is still a lack of clarity regarding the proposed new legislation. We are more than happy to keep you informed on these developments.