Dismissal law

The Dutch coalition agreement, which was presented on 10 October 2017, proposes a number of amendments to Dutch employment and dismissal law that will affect employers, employees and independent contractors alike. One of these amendments introduces the possibility of combining several partially materialised statutory grounds for termination. This instrument, currently unavailable to Dutch courts, will allow a court to dissolve an employment agreement even when no single statutory dismissal ground has fully materialised. The coalition agreement proposes that the employee be awarded a higher severance payment for a termination based on this ‘cocktail of dismissal grounds’ than for terminations based on other grounds. Further, the way in which the statutory severance payment (the “transition payment”) is calculated will change. This will mainly affect employees with over 10 years of service, or employees who have been employed for less than two years.

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1.1  Changes to statutory termination grounds

One of the suggestions included in the coalition agreement is the introduction of a ‘combination’ or ‘cocktail’ of statutory dismissal grounds. In 2015, Dutch dismissal law changed significantly, introducing a fixed number of statutory dismissal grounds that have to be fully met before an employer can dismiss an employee. A combination of statutory dismissal grounds that have not fully materialised cannot lead to a dismissal. For example, in case of a ‘partly’ disrupted employment relationship with an employee who is also ‘partially’ underperforming and who has engaged in ‘partially’ culpable behaviour, the employer cannot terminate the employment agreement because neither of the three dismissal grounds has fully materialised. In practice, this results in a relatively high number of court petitions for termination being rejected.

The coalition agreement proposes that an additional statutory dismissal ground will be introduced, allowing for the termination of an employment agreement based on a combination of facts that are part of several different statutory dismissal grounds. In the above example, a court will be able to allow the dissolution of the employment agreement in the future. In these cases, the employee can be entitled to a higher severance payment of up to 50% of the statutory transition payment, on top of the transition payment that is currently due in individual cases. This change will affect one of the leading arguments underpinning current legislation, that ‘not fully materialised’ termination grounds cannot be compensated by granting a higher severance.

The ultimate effect of the contemplated changes will become clear when an actual proposal is filed for amendment. Based on the intentions set out in the coalition agreement, we assume that the introduction of the ‘combination’ ground will make it easier, albeit more expensive, to dismiss employees.

1.2  Changes to the calculation of the transition payment

As of 2015, an employee with an employment record of at least 24 months is entitled to the statutory severance payment - known as the transition payment - upon the termination of the employment agreement, save for specific circumstances. The calculation of the transition payment is rather extensive and includes a higher accrual of severance entitlements after ten years of employment.

The coalition agreement proposes the following changes to the calculation of the transition payment:

  • All employees will be entitled to the transition payment from the first day of employment instead of only after two years of service.
  • The calculation of the transition payment will be simplified – and the outcome will be lower – as each year of employment will have the same value for the accrual of the transition payment. Currently, years of service after the tenth year have a higher value in the transition payment than the first ten years, as these subsequent years each count for half a gross monthly salary, while the first ten years of service each only count for one third of a gross monthly salary. The coalition agreement proposes that all years of service will accrue one third of the employee’s gross monthly salary as a transition payment, including those after the tenth year. This change will make transition payments lower for employees who have accrued many years of service.
  • The employer will be able to deduct from the transition payment the costs of internal training and education incurred to prepare the employee's move to another position within the company. Currently, the possibilities to do this are limited.
  • Certain employers (mostly small businesses) will be compensated for transition payments made to employees who have been dismissed after two years of illness. This legislative proposal is scheduled to enter into force on 1 July 2019.

To read the full coalition agreement (in Dutch), please click here: https://www.kabinetsformatie2017.nl/documenten/publicaties/2017/10/10/regeerakkoord-vertrouwen-in-de-toekomst

1.3  Chain of contracts and trial periods

One of the pillars of the legislative changes in 2015 was making temporary contracts less attractive to employers. Under these new rules, no more than three consecutive fixed-term contracts can be offered within two years. After two years, or when a fourth contract is entered into, the fixed-term contract automatically converts to a long-term contract, unless a minimum period of six months has lapsed between two contracts.

The coalition agreement proposes two important changes to these arrangements. First, the two-year term will increase to a three-year term, allowing for three consecutive fixed-term contracts in three years. In addition, the possibilities to deviate from the six-month ‘gap’ in a collective labour agreement will be expanded. Currently, this deviation can only be used for certain seasonal work.

The rules relating to the trial period will also change. If an employer offers a long-term contract at the start of employment, a probationary period of up to five months may be agreed. Currently, the maximum trial period is two months. If an employer offers a long fixed-term contract (i.e. longer than two years) a trial period of three months may be agreed.