On 31 March 2020, the Dutch Minister of Social Affairs and Employment published the conditions for the NOW framework. The aim of NOW 1.0 was to support employers, big and small, whose revenues had been reduced by at least 20% as a result of the coronavirus outbreak. Many employers were eligible to receive up to 90% of capped salary costs in the form of subsidies during a three-month period. On 20 May 2020, the Dutch government announced that NOW will be extended for another four-month period. Employers can apply for a NOW 2.0 subsidy from 6 July 2020 to 31 August 2020.
NOW requires multi-angle expertiseNOW is a set of emergency rules that do not include extensive guidance covering all types of businesses and scenarios. To fully understand and apply for NOW, employers need the assistance of an expert who can look at each individual situation from the employment, tax, corporate and subsidy legal angles, as well as from an accountancy perspective. In this article, we discuss what the framework means for our clients from an employment law perspective.
Conditions and obligationsUnder NOW 1.0, employers were eligible to receive a subsidy for salary costs between 1 March and 31 May 2020 if they experienced a revenue loss of 20% or more for a period of at least three consecutive months between 1 March and 31 July 2020. Applications for NOW 1.0 subsidy ended on 5 June 2020. Under NOW 2.0, employers will be eligible to receive a subsidy for salary costs between 1 June and 30 September 2020 if they experience a revenue loss of 20% or more for a period of at least four consecutive months between 1 June and 30 September 2020. Employers can apply for a NOW 2.0 subsidy from 6 July 2020 until 31 August 2020. Now 1.0 introduced several material obligations for employers, non-compliance of which could affect the amount of the subsidy. The employer must:
- maintain salary costs at the same level “as much as possible” during the period for which it received the subsidy;
- use the subsidy exclusively for the payment of salaries;
- inform the works council, employee representation or employees about awarded subsidies; and
- not submit a request for dismissal on economic grounds during the period for which it received the subsidy. Filing a termination request for economic reasons would result in a penalty on the subsidy;
- no bonus payouts are to be made to the board of directors or dividends to shareholders over 2020 until after the general shareholder meeting in 2021, where the financial statements will be adopted;
- the employer may not buy back its own shares; and
- the employer must submit an audit report which confirms the revenue loss.
Establishing revenue lossIn order to establish the level of revenue loss for NOW 2.0, an employer’s revenue for accounting purposes over a period of four consecutive calendar months, starting on 1 June, 1 July or 1 August 2020 for a subsidy under NOW 2.0, will be offset against the reference revenue. That reference revenue is 25% of the employer’s annual revenue in 2019, as published in its annual accounts for 2019. The employer does not need to demonstrate a causal link between the revenue loss and the coronavirus. Example In 2019, employer’s total revenues were EUR 123 million. The reference revenue is therefore EUR 41 million. The employer will calculate the combined expected revenue in each of the potential measurement periods starting on 1 June, 1 July or 1 August 2020. In the worst-performing four-month period, the total combined revenue is expected to be EUR 20.5 million. The employer chooses to apply that period as the measurement period to apply NOW. The revenue loss will be established at 50%. If a subsidy application was submitted under NOW 1.0 for the period March-May 2020, the measurement period for the extended application under NOW 2.0 must directly follow the period selected in the first application.
Establishing salary for compensationNOW compensates employers for the salary costs of employees with permanent and temporary employment agreements, as well as for employees with flexible working hour arrangements (zero-hour contracts and “min-max” contracts). Subject to certain exceptions (that are not discussed here), under NOW 2.0, the monthly salary costs that qualify for preliminary compensation of up to 90%, will be established for each employee as follows: (salary in March 2020) x 1.4, with a cap of EUR 9,538 (gross) per individual employee “Salary” for this purpose is salary as defined in Article 16 of the Dutch Social Insurance Financing Act, excluding holiday allowance and minus any social security benefits the employer has received for employees during the subsidised period. The salary is multiplied by 1.4 in order to account for holiday allowance, social insurance and pension premiums and other pro-rated additional remuneration components. An auditor should be able to identify employer’s costs that qualify as “salary” for purposes of NOW. Upon retroactively verifying the subsidy, the UWV will no longer take the salary costs in March 2020 as a benchmark, but will look at the actual salary costs over the subsidised period.
Calculation and payment of the subsidyThe amount of the subsidy for each employer is 90% of the salary costs in relation to the reduction in revenues. The UWV will pay 80% of the preliminarily established subsidy in advance. Example Employment costs that qualify for compensation under NOW are established at EUR 1.5 million. An employer expects a revenue loss of 60% during the measurement period. The preliminary subsidy will be established at 54% (90% of 60%): EUR 810,000. The UWV will pay 80% in advance: EUR 648,000. NOW 2.0 states that the Ministry has 13 weeks to make a decision. This means that advance payments would start only 15-17 weeks after the submission of a subsidy request. In the explanatory statement, the Ministry has stated that it would like to start paying the advance payments of 80% within 2-4 weeks after submission of the application. Actual revenue reductions during the subsidised period will be determined retroactively. As a result, the employer may receive an extra payment of subsidies or have to return part of the advance payment.
Obligation to keep salary costs at the same levelNOW requires employers to take all possible measures to maintain existing salary costs at the same level. The employer is encouraged to continue paying the full employment costs of individual employees, even if they work less as a result of the crisis. The employer is further encouraged not to terminate, but rather to extend or renew, the employment agreements of employees with temporary or flexible employment arrangements. This also provides income security to those employees with less contractual employment or income security. While NOW encourages this commitment, in our view, it is not a condition for receiving a subsidy. The consequence of reducing the aggregate salary costs during the subsidised period is a lower subsidy. In the explanatory statement to NOW, the government has stated that the coronavirus crisis qualifies as an extraordinary reason for not entirely fulfilling work duties, which does not come at the risk and expense of the employee as referred to in article 7:628 (1) of the Dutch Civil Code. In the first few court rulings since the start of the coronavirus crisis, the courts seem to follow this line of reasoning: employees can be entitled to continued and full salary payment, despite working less because of the coronavirus crisis.
Dismissals on economic groundsIf an employer intends to terminate an employment agreement due to economic reasons, the mandatory route is to file for a dismissal permit at the governmental labour authority UWV stating that there is a reasonable, statutory ground (redundancy) for dismissal. The UWV procedure to obtain a dismissal permit requires the employer to substantiate the economic reasons for the dismissal. If the employer filed a termination request for economic reasons between 18 March and 31 May 2020 while receiving a subsidy under NOW 1.0, the employer will face a penalty for the first period of subsidy: 150% of the salary of the dismissed employee would be deducted from the total salary costs eligible for compensation on the basis of NOW. Under NOW 2.0, this penalty no longer applies. However, employers submitting a notification for a collective dismissal within one operational area and filing for dismissal permits at the UWV for 20 employees or more based on economic reasons, will face a reduction of 5% of the total amount of subsidy received. The employer can avoid this reduction by reaching an agreement with the trade unions, or another employee representative body, regarding the necessity and the number of dismissals.
Informing the works councilEmployers receiving a salary subsidy on the basis of NOW must inform the works council or other employee representation about the subsidy. We advise informing the works council regularly (weekly or every two weeks) about all measures resulting from or aiming to mitigate the effects of the crisis. This will keep the works council up to date on all of the efforts that the company is making to deal with the crisis.
Groups of companiesFor the purpose of NOW, one or more subsidiaries and a parent company as defined in Article 2:24a of the Dutch Civil Code will be regarded as a group of companies. Groups need to be aware that each employer within the group will have to submit a separate request for a subsidy under NOW. Applying for subsidies as a group is not possible. Subsidiaries containing only personnel, but which do not generate revenue (personeels-bv’s) cannot apply for a subsidy. In principle, the group as a whole will need to suffer a revenue loss of 20% to become eligible for salary subsidies under NOW. In the event that one incorporated group company meets the requirement of 20% loss in revenue, in contrast with the group as a whole, additional must be met to be eligible for salary subsidies. The parent company and the group company applying for a subsidy will have to declare that they will not, over the course of 2020:
- pay dividends to shareholders;
- pay bonuses or profit sharing to board members; and
- buy its own shares.