Under Dutch law, it is often easier to seek termination due to economic or organizational reasons rather than personal reasons (e.g. employee's poor performance). Employers have discretionary power regarding the decision to restructure their organisation. 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.
Employers must have a sound business case based on reorganizational 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;
- organizational 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 (e.g. 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.
A recent Dutch cantonal court decision illustrates the importance of substantiating a business case resulting in redundancies (e.g. by means of organizational 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, employers must verify that the request for dissolution of the employment contract is unrelated to membership of the works council. There is a ban on terminating employment for a reason relating to membership of a works council.
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 reorganization, 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 organizational 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.
The substantiation of redundancies due to restructuring is likely to assume even greater importance under the new dismissal legislation due to come into force on July 1 2015. Under the new regime, a request to terminate an employment contract due to organizational reasons should, in principle, be submitted to the Employee Insurance Agency (UWV) and not the court. The UWV is likely to assess applications in a more rigid and formalistic manner than the court. By contrast, the court's the court's approach has been to factor in deficiencies in the employer's business case by imposing a higher severance award.