An overview of the principal changes to dismissal law

On Monday, 29 October 2012, party leaders Rutte (VVD) and Samsom (PvdA) presented their coalition agreement, entitled ‘Building Bridges’. This article gives a brief account of the principal changes to dismissal law.

A more detailed discussion of all the changes for employers will take place on 20 November 2012 in Amsterdam and on 27 November 2012 in Utrecht.

Preventive dismissal assessment remains via compulsory request for advice to UWV

Under the coalition agreement, an employer who wishes to dismiss an employee must first ask the Employee Insurance Agency (UWV) for advice. The criteria based on which the UWV assesses the request for advice of the employer will be described in detail. In principle, the court may assess the dismissal only in retrospect. Thus, the UWV will play a larger part in the dismissal procedure.

The fact that the UWV will play a larger part whereas the court can make only retrospective assessments means a drastic change to our current dismissal system. Although the coalition agreement contains reference points for possible changes, it provides no absolute clarity.

The coalition agreement states that the UWV will process a request for advice within four weeks. After positive advice has been obtained, the employer can terminate the employment contract with due observance of the notice period.

Court proceedings only in particular situations

Based on the coalition agreement, an employer will in principle turn to the UWV to request advice about a proposed dismissal. This will only be different if there is a ban on termination (such as the ban on termination during illness) or if the employer wants to terminate a temporary contract where the employment contract does not provide for this possibility. In these situations, the employer can take the matter to court.

Retrospective court assessment possible

Under the coalition agreement, a dismissed employee who does not agree to his dismissal can still go to court retrospectively. If an employer disregarded the UWV’s negative dismissal advice, the court can annul the termination. The court will attach great weight to the UWV’s advice, and from now on the assessment performed by the court will be the same as that of the UWV.

Unlike current dismissal law, the coalition agreement does not provide parties with the option of lodging an appeal.

Reduction of termination benefit

The coalition agreement puts a cap on termination benefits. If the court rules retrospectively that the employee was wrongfully dismissed, or that the employer was predominantly to blame for the dismissal, the court can award the employee a termination benefit. This termination benefit should not exceed half of a monthly salary for each year of service. The maximum termination benefit is set at a gross amount of EUR 75,000.

Transition budget

The coalition agreement considerably increases protection for employees on fixed-term contracts. In the event of dismissal or the non-renewal of a temporary contract of at least one year, employees will be entitled to a notice period and a training allowance (transition budget). The notice period is one to four months, depending on the duration of the employment. The transition budget amounts to a quarter of the monthly salary per year of service, with a maximum of four monthly salaries. The only case in which a transition budget should not be paid is if the employer is in a poor financial situation and meeting this obligation will cause the employer to go bankrupt. We suspect that a situation of ‘we have little or nothing’ will be a reason for awarding a lower transition budget.

If the dismissal is based on economic grounds, the UWV will continue to apply the same assessment criteria it applies at present.

Financial benefit for employers?

The financial benefit which the reforms would bring employers is offset by an increase in the unemployment insurance contributions. The coalition agreement states that whether the level of the unemployment insurance contributions may be differentiated in cases of good employment practices will be examined. The details of this weighting are not as yet known.

Reinforcement of role of the trade unions

The trade unions will have a stronger role, since the coalition agreement provides for the possibility of deviating from the proportionality principle in the collective bargaining agreement (CAO) and abandoning the obligation of a preventative assessment by the UWV in the CAO if the CAO provides for a similar procedure.

Unemployment benefits shortened and reduced

The coalition agreement contains a drastic change with regard to unemployment benefits. At present, unemployment benefits are paid for a maximum period of 38 months, but under the coalition agreement the payment of these benefits will be limited to a maximum of 24 months. During the first ten years, employees will accrue one month’s unemployment benefits entitlement for each year worked, and thereafter this will be half a month for each year worked. The level will be adjusted as well: in the first year, the level of the unemployment benefits will be related to the most recent salary, capped at the maximum daily wage. (The gross maximum daily wage is currently EUR 193.09, including holiday pay.) In the second year, the unemployment benefits will be related to the statutory minimum wage.

Legal status of civil servants

Furthermore, the coalition agreement provides that the legal status of civil servants will be aligned with that of other ‘ordinary’ employees.

Cap on variable remuneration in financial sector

A banker's oath will be introduced for particular groups of employees in the financial sector, and the variable remuneration will be capped at 20% of the fixed salary. This could mean that both individual bonus arrangements and CAOs must be adjusted on this point.

To be continued

If the plans in the coalition agreement go ahead, it seems that employers may be able to dismiss employees more quickly and in any event may do so in most cases on payment of a lower benefit. However, the envisaged changes are far from concrete. It will therefore be interesting to see how these things will be worked out in legislation.