The current economic crisis is causing unprecedented turmoil. A large number of businesses are faced with the necessity of carrying out reorganisations in order to keep their heads above water. Although employers are allowed to cut jobs for financial reasons, they are bound by a number of rules. Which rules apply, and what does the employer have to keep in mind?
The following Acts, decrees and sets of rules are of particular significance in the event of a reorganisation:
- the Extraordinary Labour Relations Decree (Buitengewoon Besluit Arbeidsverhoudingen, "BBA"),
- the Dismissals Decree (Ontslagbesluit) and the UWV Werkbedrijf's Policy Rules on the Assessment of Dismissal Permits ("UWV Werkbedrijf's Policy Rules"),
- the Notification of Collective Dismissals Act (Wet melding collectief ontslag, "WMCO"), and
- the Works Councils Act (Wet op de ondernemingsraden, "WOR").
The WMCO applies when an employer proposes to dismiss at least 20 employees in one UWV Werkbedrijf district within a three-month period. The purpose of this Act is to protect employees as much as possible from the negative consequences of a reorganisation. Accordingly, for example, the WMCO requires an employer that intends to carry out a collective dismissal as described above to notify the relevant trade unions and the UWV Werkbedrijf of this intention in writing.
The employer has two options: (i) to apply to the UWV Werkbedrijf for dismissal permits or (ii) to apply to the sub-district court for rescission of the employment contracts in question. In practice, and especially where the reorganisation involves more than 10 to 15 redundancies, employers often select the first option: termination of an employment contract by notice after obtaining a dismissal permit.
The BBA, the Dismissals Decree and the UWV Werkbedrijf's Policy Rules
The BBA, which was introduced in 1945 and forms the basis for Dutch employment law, requires an employer to obtain a dismissal permit if he wishes to terminate an employment contract by notice. More detailed rules on dismissal permits are laid down in the Dismissals Decree and the UWV Werkbedrijf's Policy Rules. These rules also apply when a dismissal permit is requested for financial reasons.
Content of the dismissal request and notification requirement for collective dismissals
The UWV Werkbedrijf applies the following criteria when assessing requests for collective dismissals for financial reasons. In practice, the relevant information is often provided by the employer prior to the formal request for permission to implement the dismissals.
- Have the financial reasons for the elimination of the position(s) been sufficiently substantiated?
- Have the right employees been selected for dismissal? In other words: have the criteria on proportionality set out in the UWV Werkbedrijf's Policy Rules been correctly applied?
- Has the employer provided sufficient arguments that the employees concerned cannot be reallocated to other jobs?
Substantiation of financial reasons
The UWV Werkbedrijf applies strict requirements concerning the financial information to be provided by employers. An employer must in any event submit its annual accounts for the preceding three years, as well as a substantiated projection for the next six months. We recommend that employers provide the UWV Werkbedrijf with information not only on the intended reduction of personnel costs, but also on other cost-saving measures (whether anticipated or already implemented). The abovementioned financial information must also be included in the request for advice from the works council.
Selection of employees to be dismissed
In practice, it is the application of the principle of proportionality that leads to many problems and a great deal of discussion. The employer must apply the principle of proportionality for each category of interchangeable positions, for each location and for each age group. Only in highly exceptional cases can the principle be disregarded (e.g. in the case of employees that are hard to replace or employees with a weak position on the labour market).
The employer must prove that the relevant employees cannot be reallocated to other jobs within the employer's business or organisation.
After the employer has taken the three steps outlined above, he must formally notify the UWV Werkbedrijf, and request its permission for, the proposed collective dismissal. The employer must at the same time notify the relevant trade unions of the proposed collective dismissal. The notification must include, inter alia, the following data:
- an overview of the number of employees including a breakdown by position, age and sex;
- the proposed date of termination by notice; and
- the method used to calculate the redundancy payments.
After the UWV Werkbedrijf receives the request, it will put the latter aside for one month. The purpose of this delay is to enable the employer and the relevant trade unions to discuss, and negotiate on, the proposed reorganisation and the measures to be taken with regard to the employees in question. At the same time, the employer should commence the process of obtaining the works council's advice.
Trade unions and social plan
A social plan is a scheme in which the consequences for employees affected by a reorganisation are laid down, particularly the arrangements on redundancy payments. In principle, negotiations on the social plan fall within the scope of action of the relevant trade unions. A social plan will only have to be discussed with the works council if the enterprise does not have any ties with one or more trade unions.
A comprehensive social plan will contain not only redundancy payment arrangements, but also an outplacement plan as well as measures regarding the reallocation and/or training of employees. The starting point for determining the amount of redundancy payments is usually the sub-district court formula; however, the amount can be lower if the employer's financial situation so dictates.
Works council's advice
Under Article 25 of the WOR, the employer must give the works council the opportunity to advise it on any proposed decision regarding a reorganisation or the discontinuation of all or a major part of the enterprise's activities. The employer must request the advice in advance and at such a time that it can have a material effect on the decision to be taken. In the case of a reorganisation, the request must in any event set out (i) the background to the proposed reorganisation, (ii) the proposed implementation method and (iii) the anticipated consequences for the employees.
If the works council advises fully in favour of the proposed decision, the reorganisation can be implemented. If not, the employer must suspend the implementation for a period of one month, during which the works council must deliberate further on its position. If the works council agrees to the organisation's decision before the end of the one-month period, it can choose to waive the rest of the period. If it still disagrees, the works council may lodge an appeal with the Enterprise Chamber of the Amsterdam Court of Appeal. In such a case, the Enterprise Chamber will apply a strict test: whether, in weighing the interests involved, the employer could reasonably have arrived at the decision in question. This means that the Enterprise Chamber mainly examines whether the employer has complied with the rules; it does not place itself in the employer's "shoes". However, if the Enterprise Chamber decides that the works council's complaint is well-founded, the employer is back to square one and must submit another request for the works council's advice.
Key points for employers
- It is important to carefully prepare the reorganisation before informing the trade unions, the works council and the UWV Werkbedrijf;
- To save time, the negotiations with the trade unions on the social plan should run in parallel with the process of obtaining the works council's advice;
- To prevent a deadlock between the works council and the trade unions, the negotiation process and the respective parties' duties and responsibilities should be determined in advance. Employers should avoid a situation where, on the one hand, the works council states that it can only render its advice after agreement has been reached with the trade unions on the social plan and, on the other hand, the trade unions postpone agreement to the social plan until the process regarding the works council's advice has been completed;
- The usual starting point for redundancy payments, as provided for in the social plan, is the sub-district court formula;
- It is strongly advisable to comply with the rules of the game, because the UWV Werkbedrijf and the Enterprise Chamber may impose sanctions if errors as to form/procedure are made (UWV Werkbedrijf: one month of extra waiting time for the processing of dismissal requests in the event of a failure to comply with the notification requirements under the WMCO; Enterprise Chamber: the process of obtaining the works council's advice must be recommenced).