Work and Security Act vastly changes the Dutch employment environment

With effect from 1 July 2015, the Work and Security Act (WWZ) came into force and resulted in substantial changes for Dutch employment legislation. In this article, we have summarized the most significant changes that apply.

Contract chain rule

The amendment of the contract chain rule will have a big impact on the conversion of temporary employment contracts into permanent employment contracts. Now, no more than three fixed-term contracts are permitted, up to a combined maximum contract term of 24 months. If successive fixed-term contracts are interrupted by gaps of more than six months, the contract ‘chain’ is broken and the counting of the combined duration of fixed-term employment contracts starts from the beginning. 

What to do?

Employers must be wary that – compared to the old employment law – temporary employment contracts will more quickly convert into permanent employment contracts. When deciding on the duration of contracts, the new contract chain rule should be taken into account. For example, when hiring a new employee, you may consider a contract term of seven months for the first contract and eight months for the second and third contract. This way, the total length of the ‘chain’ will be 23 months which is less than the maximum duration of 24 months, which avoid the employer having to pay a transition payment to the employee (see paragraph 3 below for discussion of transition payments).

Termination of employment

Termination routes

Two fixed routes apply, as a result of which employers may no longer choose between termination through the Employee Insurance Agency (UWV) and the Sub district Court. The dismissal route to be pursued will be based on the reasson for dismissal:

• a termination based on business economic reasons or due to long-term incapacity for work must be approved via the UWV; and
• where a dismissal case is based on other (personal) reasons, the employer must apply to the Sub district Court. 

The possibility of termination by mutual consent will continue to exist. Parties are free to negotiate the terms and conditions, such as the severance payment (see paragraph 3). If the employment contract is terminated by mutual consent, the employee will have the right to a reflection period of 14 days, within which period he or she may withdraw their consent to the severance agreement. The employer must inform the employee of the right to the 14-day reflection period in writing and within 2 working days of signing the termination agreement. If the employer fails to do so, the reflection period is extended to 3 weeks. Therefore we advise employers to incorporate this right in the termination agreement. 

Reasonable ground

The courts no longer have the ability to dissolve an employment contract without a reasonable ground for termination against compensation. The dismissal of an employee requires a reasonable ground. The list of reasonable grounds is exhaustive and the grounds cannot be combined. 

N.B: to be in as good a position as possible to negotiate a favorable severance package, employers must ensure that the termination file is in accordance with the procedural rules for termination and choose the correct route for termination. 

Appeal

Employees now have the right to file an appeal (or an appeal in causation at the Supreme Court) against permission from the UWV or subcourt for termination. This may leave the employer in uncertainty for a longer period of time.

Transitional payment

Employees, who have been employed for 24 months or more, gain a legal entitlement to severance compensation in event that their employment is terminated, regardless of the route of termination. This is known as a “transition payment“. The employee is entitled to this compensation if the employment is terminated by the employer after having obtained permission by UWV, is dissolved by a cantonal judge at the request of the employer or in case of a temporary employment agreement ending by operation of law which the employer does not wish to extend (provided they have been employed for more than 24 months). 

The new transition payment (gross) will be calculated as follows:

• First 10 years of service: 1/3 monthly salary per year of employment (1/6 monthly salary per half year).
• After 10 years of service: ½ monthly salary per year of employment (1/4 monthly salary per half year).

For older employees, the transition payment will be calculated as follows (this arrangement expires on 1 January 2020 and does not apply to small companies with fewer than 25 employees):

• Employees older than 50 years old with more than 10 years of service are entitled to a compensation of one month’s salary per year for the period of employment after reaching the age of 50.

The compensation will be capped at €75,000 or at an annual salary if the relevant employee earns more than €75,000 per year.

There are exceptions to the standard calculation for transition payments as set out above. In particular, no transition payment needs to be paid if an employee acted culpably (similar to a “for cause” dismissal).I In addition to the right to transition payment, the judge may award an equitable compensation, but only in exceptional cases.

Training

The new legislation introduces an obligation on employers to provide training to its employees. The employer must enable the employee to follow such training as is necessary for the employee to perform his/her job. 

An employee’s contract cannot be terminated for under-performance if his/her unsuitability is the result of insufficient attention paid by the employer to the employee’s training. N.B: The employer may not terminate an employment contract if the employee can be reassigned to a different, suitable position, with or without training.