Dutch employers have to have regard to the mandatory provisions of Dutch employment law. In that respect, key decisions have to be taken sometimes on how to deal with those mandatory provisions. Clause 7:668a of the Dutch Civil Code ("DCC") provides for the so called provision on the succession of fixed term employment contracts (the "Succession Rule"). On the basis of the Succession Rule as of 1 July 2015 the fourth consecutive employment agreement in a string of employment agreements for a fixed term within a period of two years and a consecutive employment agreement in a string of employment agreements commencing two years after the start of the first employment agreement transfer into employment agreements for an indefinite term by operation of law. On 9 January 2015 the Supreme Court confirmed that it is not possible to circumvent the Succession Rule.

The case that the Supreme Court was asked to consider can be seen as a classic example of the applicability of the Succession Rule. The employer - a ship yard - hired an employee who already had three consecutive fixed term employment agreements with the relevant employer. The employer was prepared to offer the employee a fourth employment agreement. However, contrary to the Succession Rule the employer insisted that the employment agreement should again be agreed for a fixed term. The employer in this case recognised the applicability of the Succession Rule but was of the opinion that a solution to circumvent the applicability of the Succession Rule had been found. Namely, the fourth employment agreement was entered into for an indefinite term, as provided for by the Succession Rule. At the same time that the employment agreement was entered into, the employer and the employee agreed on a settlement agreement that provided for the termination of the employment agreement on 1 January 2012. It was clear from the settlement agreement that the parties realised that the employment agreement had been entered into for an indefinite term. The employee objected to this, but realising that the only other alternative would be no employment at all, accepted the solution provided by the employer.

In December 2011 the employee claimed that the settlement agreement was void because it was in breach of the Succession Rule, as provided for in clause 7:668a DCC. The employee alleged that the employer had to continue his salary payments after 1 January 2012. The sub district court ruled in favour of the employee. The sub district court considered that the mandatory nature of the Succession Rule could not be circumvented by way of an agreement. In addition, the sub district court concluded that the settlement agreement had not been entered into with the aim of avoiding or settling a dispute, as required by Dutch law in the case of settlement agreements.

The employer appealed against the decision of the sub district court, submitting that his conduct had been in accordance with the law. The court of appeal in 's-Hertogenbosch decided that the employment agreement had been entered into for an indefinite term, but that the parties had agreed to terminate the employment agreement with the settlement agreement. In the court's opinion the settlement agreement was entered into with the aim of avoiding or settling a (future) dispute with respect to the termination of the employment agreement. Furthermore, the court determined that mandatory laws can be set aside by entering into a settlement agreement, unless the (entering into) the settlement agreement would conflict with the public order or public morality. The argument of the sub district court that the conduct of the employer attempted to circumvent the mandatory provisions of the Succession Rule did not conflict with the legal validity of the settlement agreement. The court of appeal ruled that the settlement agreement did not conflict with the public order or public morality, which resulted in the fact that the employment agreement was terminated as of 1 January 2012.

The Supreme Court, however, ruled that the court of appeal had not reflected the connection between the fourth employment agreement and the settlement agreement in its decision. The settlement agreement could not affect the nature of the employment agreement which had been entered into for an indefinite term. The Supreme Court further considered the argument that the settlement agreement could only be in breach of mandatory laws if at the time of entering into the settlement agreement a dispute was in existence and that consequently if this was not the case, the settlement agreement could be used preemptively to set aside mandatory laws. According to the Supreme Court this was not in line with the intention of the legislator. The Supreme Court, therefore, annulled the decision of the court of appeal.

It is our view that the conclusion reached by the Advocate General of the Supreme Court is more appropriate - it should not be possible to circumvent mandatory employment law by using a settlement agreement as this would affect the nature of the protections granted against dismissals and other employment protection rules. The decision of the Supreme Court is more balanced but reaches the same result: the Succession Rule is a mandatory provision that cannot be circumvented.