Dutch employment and labour law is elaborate and relatively complex. Dutch employment law is divided into individual and collective law and is closely related to social security law. Substantial and fundamental changes were made to Dutch employment and labour laws in 2015, including the introduction of stricter requirements for dismissals. These stricter requirements seem to have led to more settlement agreements being used.

Issues arising on hiring individuals

Immigration

If the employer wants to hire a foreign employee, the employee must have a residence permit that authorises him/her to work. The employer may also obtain a work permit and/or residence permit on behalf of the employee.

Employees who are Dutch nationals or who are from one of the countries of the European Economic Area (other than Croatia) are exempt from these rules.

Employment structuring and documentation

Under Dutch law, an employment contract may be concluded verbally or in writing. Under the Dutch Civil Code, the employer will nonetheless need to inform the employee in writing of (among other things): (1) the name and residence of the parties;(2) the place where the work is to be carried out; (3) the position; (4) the date employment commences; (5) if the employment contract is for a fixed period of time, the time period; (6) the salary and the payment intervals and, if payment is dependent on work being performed, the amount of work to be performed per day or per week, the price per item and the time that will be involved in performing the work, etc.

An employment contract can be agreed for a fixed period (fixed-term contract) or for an unspecified period of time (an indefinite or permanent contract). An employer is allowed to offer an employee three consecutive fixed-term contracts (with intervals not exceeding six months) in a period of 24 months. If there is a fourth contract or if the period of 24 months is exceeded, the contract will become an indefinite contract by operation of law.

A probationary period must be laid down in writing. In the case of both an employment contract for an indefinite period and for a fixed period of two or more years, the maximum probationary period is two months. In other cases, the maximum probationary period is one month. A probationary period is not allowed in an employment contract for a fixed period of six months or less.

Issues arising during the employment relationship

Wages, annual leave and working time

In principle, employer and employee are free to agree the employee's wages. However, the Act on Minimum Wages and Minimum Holiday Allowances contains certain minimum wages and minimum holiday allowances, which are normally adjusted twice a year. A Collective Bargaining Agreement (CBA) may also contain salary scales that are binding on individual employees.

The amount of working hours depends on the industry and the kind of work performed. In general, an employee is only allowed to work a maximum of 12 hours per day, for a maximum of 60 hours per week. Over a period of four weeks the average maximum number of working hours is 55 per week. Over a period of 16 weeks the average maximum number of working hours is 48 hours per week. Provisions on working hours in an individual employment contract which do not conform to the Working Hours Act may be null and void.

Employees are entitled to a statutory minimum number of days' annual leave, equivalent to four times their weekly working hours. In other words, a full-time employee is entitled to a statutory minimum of 20 days' leave per year.

Trade unions

Trade unions play an important part in collective dismissals (where there are 20 or more dismissals within three months). Under the Collective Redundancy Notification Act employers must inform the unions when they report their intention to implement collective dismissals to the Work Placement Branch of the Employee Insurance Agency. Failure to follow the rules under the Act may lead to the dismissals being void. After the report has been made, the employer and the trade unions discuss the possibility of avoiding collective dismissals or of reducing the number of employees to be dismissed, as well as the possibility of alleviating the consequences of dismissal. To that end, in most cases a social plan (i.e. termination package) is negotiated, including the statutory transitional payment (see below) or an equivalent provision (in the event that the social plan has a CBA status).

Social insurance

The Dutch social security rules can be subdivided into social insurance benefits (sociale verzekeringen) and social welfare benefits (sociale voorzieningen). The difference between these two is in the funding. Social insurance is funded by compulsory contributions paid by employees and employers. All employees are automatically insured. Social welfare benefits are financed from central government funds.

Issues arising on termination of the employment relationship

Business transfers

The employer must consult with the works council (or another employee representative body) about a proposed decision regarding the transfer of activities. The employer must provide the works council or employee representative body with information about the basis for the proposed decision, the consequences for employees, and the proposed "measures" to be taken to alleviate the consequences for employees. The employer must also inform the individual employees about the transfer and the consequences for those employees.

Under Dutch law, in the case of a transfer of undertaking, all of the transferor's employees automatically transfer, to the transferee on their existing terms and conditions of employment. For one year after the transfer, the transferor and transferee are jointly and severally liable for the obligations under the employment contracts insofar as these obligations accrued before the transfer.

Terminating employment

A fixed-term employment contract or a contract for a specific project will end by operation of law on expiry of the term or completion of the project without notice being given. However, for employment contracts that have a fixed-term of six months or more, the employer must notify the employee one month before the term ends whether the employment contract will be extended and, if so, on what terms. If the employer fails to do so, they will owe the employee compensation equal to one month's salary. If the employer does give notice but does so too late, the employer will owe the proportionate part of that compensation (i.e. for the days on which the notification was late). It is possible to give notice in advance, at the time the contract is entered into, that the contract will not be extended.

An open-ended employment contract can be terminated by: (1) the employer giving notice after receiving permission from a government organisation; (2) court proceedings; (3) mutual consent; (4) dismissal because of an urgent reason; or (5) notice by the employee.

The employer must either ask the Employee Insurance Agency (UWV) for permission to terminate an employment contract (other than summary dismissal or dismissal during a trial period and specific categories of employees for which an exception can be made) or must start legal proceedings to set aside the employment contract at the sub-district court. This involves what is known as the preventive review for the intended dismissal of the employee.

The law determines which dismissal route to follow, depending on the grounds for dismissal. Employers must apply for permission to give notice at the Employee Insurance Agency, in the case of business-economic grounds (i.e. jobs becoming redundant) and long-term incapacity for work. For all other grounds, the employer must go to the sub-district court.

Terminating or setting aside the employment contract is possible only if there is: (1) a reasonable ground for dismissal and 2) reassignment within a reasonable period is not possible or is not appropriate, with or without training. There is an exhaustive list of the reasonable grounds for dismissal. Every ground, in accordance with the intention of the legislature, is strictly assessed by the Employee Insurance Agency or the sub-district court.

The employer and employee may appeal against the decision of the sub-district court, firstly to the Court of Appeal and then to the Supreme Court. They may also appeal against the decision of the Employee Insurance Agency, firstly to the sub-district court, then to the Court of Appeal and then to the Supreme Court. The employee may ask to be reinstated or alternatively may ask for fair compensation on appeal. If the first request for termination is denied, the employer may again ask to terminate the employment relationship at the sub-district court (against a decision of the Employee Insurance Agency), the Court of Appeal, and then at the Supreme Court.

In July 2015, the statutory transitional payment was introduced. Every employee is entitled to this payment if their employment contract is terminated (even by operation of law) and they have at least 24 months' service, subject to a few exceptions (including dismissal for urgent cause). The payment amounts to roughly one-third of a month's salary for each year of service.

Published in collaboration with L&E Global an alliance of employers’ counsel worldwide

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