An increasing number of employers are facing the negative consequences of the current economic crisis. In some cases, these consequences are so serious that employers are being forced to implement cost-cutting measures in order to guarantee the continuity of their business.
In practice, one of the measures considered by many employers is a temporary or permanent change to the employment conditions of employees, such as reductions in the number of working hours, salary reductions or a decision not to pay out bonuses.
The question arising in such situations is whether an employer is entitled to impose such changes unilaterally, i.e. without the relevant employee's consent. In practice, it is difficult for employers to do so. This is because the general rule – which can only be deviated from in exceptional circumstances – is that a change to the employment conditions requires the consent of both parties. An employer could implement the changes unilaterally, but it is very likely that one or more employees will then object to the changes and take the matter to court.
In this article, we will discuss how the courts assess unilateral changes to employment conditions and the compelling circumstances required in this regard.
Unilateral changes clause
The first question to be considered is whether the relevant employment contract contains a unilateral changes clause. Pursuant to Article 7:613 of the Dutch Civil Code, an employer can invoke such a clause if he/it "has such a compelling interest in the change as to outweigh, applying the standards of reasonableness and fairness, the interest of the employee that would be harmed by the change". The employer will therefore have to prove that there are compelling circumstances. If he/it succeeds in doing so, the employer can change the employment conditions unilaterally. In the next section of this article, we will discuss what can constitute compelling circumstances.
If the contract does not contain a unilateral changes clause, the employer will have to invoke the principle that, under certain circumstances, refusal by an employee of a proposed change to his/her employment contract is contrary to the standards of reasonableness and fairness, and to the conduct befitting a good employee. In such a case, what the employer proposes is not a unilateral change but a change by agreement between the employer and the employee, in which the employee should reasonably cooperate. The burden of proof is also on the employer here. Case law has shown that reliance on these grounds is rarely successful. The test applied by the courts is very similar to that applied in relation to a unilateral changes clause.
Compelling circumstances and the employee's interests
When exactly are circumstances compelling? And when do they outweigh the employee's interests? Case law shows that the courts can be very reticent if the relevant changes pertain to primary employment conditions such as the number of working hours or the amount of salary.
Under case law, unilateral changes to the primary employment conditions, in particular the amount of salary, in connection with compelling circumstances on the part of the employer have only been allowed in a very limited number of cases. These cases all concerned a single individual, usually an employee who had taken on or was going to take on a lower position as a result of illness. Another characteristic of these cases is that the employer in question offered a gradual reduction of salary to reflect the new situation, as a result of which the court deemed the change reasonable.
Despite the fact that there are no concrete precedents regarding unilateral changes to primary employment conditions in connection with the financial crisis, it can be anticipated that the court will probably investigate whether the proposed change is necessary and proportional. "Necessary" here means that the continuity of the relevant business will be at risk if the change is not implemented. Furthermore, the change must be a remedy of last resort. Only if the employer has virtually no other options will the court deem the proposed change reasonable. If any other cost-saving measures can be taken, these must be investigated first.
- Other factors that could also play a role in the court's assessment include the following:
- Has the employer obtained permission from the works council to implement the proposed change?
- Has the employer consulted the unions and reached agreement with them?
- Have the majority of the employees accepted the change?
- Is the measure in question a temporary one?
- Will the change be implemented in stages in order to reduce its effects?
An affirmative answer to all these questions does not necessarily mean that the court will approve the proposed change.
For the sake of completeness it should be pointed out that, in most cases, a decision to implement unilateral changes to employment conditions is subject to the prior approval of the works council.
Where a bonus scheme has been set up, this is usually part of the primary employment conditions. However, the actual awarding of a bonus is not. In many cases, the rules of a bonus scheme explicitly state that it is at the discretion of the board or another body whether or not a bonus is awarded. In such a case and depending on the exact wording of the rules, the employer may have the right to decide not to award bonuses in a particular year. This does not affect the existence of the bonus scheme. However, if the employer decides to abolish the scheme, this constitutes a unilateral change, which will have to meet the strict criteria described above.
Unilateral changes to employees' primary employment conditions appear to be a suitable measure for cutting costs in an attempt to guarantee business continuity. However, in most cases implementation of such a measure will require the approval of the works council and, furthermore, is likely to meet with resistance on the part of employees. Moreover, it is unlikely that the court will agree to the implementation of such measures.
Depending on the exact wording of your bonus scheme rules, you may have the right to decide not to award bonuses this year. Before you take any decisions in this respect, we recommend that you seek legal advice on whether the bonus scheme rules indeed offer this possibility.
In practice, we see that employers sometimes succeed in obtaining the employees' consent to a change in the primary employment conditions. In order to do so, however, the employer must properly inform his/its employees on the necessity of the measure, and also undertake to reverse the measure once conditions improve.