Introduction
Decision

Comment


Introduction

Under Dutch law, it is often easier to seek termination due to economic or organisational reasons rather than personal reasons (eg, non-performance of an employee). Employers have discretionary power regarding the decision to restructure their organisation. Moreover, this discretionary power applies with regard to the structure of the organisation, as well as to the number of positions that will be made redundant.

However, employers must have a sound business case based on reorganisational reasons for the restructuring, redundancies and termination of employment contracts. This means that employers must substantiate the intended restructuring with objective arguments, documents and figures – including, for example:

  • the reasons for the restructuring;
  • organisational charts for the period before and after restructuring; and
  • the consequences of the restructuring for various divisions and positions.

If cost reduction serves as a reason for redundancy, a company must substantiate it with documents and figures, which explains:

  • why redundancy is necessary; and
  • what alternatives have been implemented and considered (eg, alternative cost-saving measures).

In assessing an employer's business case, the courts tend to apply a test of reasonableness or marginal review. The courts will verify whether the employer has exercised its discretionary power in accordance with the principles of reasonableness, fairness and good employment practices.

Decision

A recent Dutch cantonal court decision illustrates the importance of substantiating a business case resulting in redundancies (eg, by means of organisational charts or personnel overviews), notwithstanding the employer's discretionary power and the marginal review of a court. Where the position of a member of the works council is terminated, it should be ascertained that the request for dissolution unrelated to membership of the works council (a ban on termination applies).

In this case, the employer argued that an employee's position would become redundant due to a transfer of activities to Romania. The works council rendered negative advice in respect of the proposed reorganisation, as it was of the opinion that the transfer of activities was unnecessary. The employer nevertheless implemented the proposed restructuring.

Dissolution proceedings were initiated in order to terminate the employment contract. The employee challenged the business case and questioned whether his position would become redundant as a consequence of the transfer of activities. This was not refuted conclusively by the employer. The employer failed to submit any organisational charts or personnel overviews showing the number of employees per division and their activities in order to substantiate that the employee's position would become redundant. The court ruled that it could not verify whether the employee's position would become redundant and rejected the employer's request to dissolve the employment contract. In other words, according to the court, the business case was insufficiently clear.

Comment

The substantiation of redundancies due to restructuring is likely to assume even greater importance under the new dismissal legislation due to enter into force on July 1 2015. Under the new regime, a request to terminate an employment contract due to organisational reasons should, in principle, be submitted to the Employee Insurance Agency (UWV) and not the court. The UWV's decision may be appealed by the employer or employee. The UWV may assess applications in a rigid and formalistic manner, while the court may factor any areas lacking in the business case into a higher severance payment. This will no longer be the case as of July 1 2015.

For further information on this topic please contact Danielle Pinedo at Baker & McKenzie, Amsterdam NV by telephone (+31 20 551 7555), fax (+31 20 626 7949) or email (danielle.pinedo@bakermckenzie.com). The Baker & McKenzie website can be accessed at www.bakermckenzie.com.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.