20 June 2019

New labour law: flexible work more expensive, dismissals more flexible

The Dutch Senate recently voted in favour of the Labour Market in Balance Bill, which will reform Dutch labour and dismissal laws once again, after the changes introduced by the Work and Security Act in 2015.

One of the novelties is the introduction of a “cumulative” ground for dismissal based on a combination of grounds. In dismissals based on the cumulative ground, employees can be entitled to an additional payment of up to 50% of the transition payment, on top of the transition payment. Moreover, employees will be entitled to a transition payment as of their first day of work, instead of the current “two-year employment” requirement. Another change extends the maximum duration of temporary contracts from two to three years, which reverses the rule introduced by the Work and Security Act. Payroll employees will be entitled to better employment conditions and employers will pay higher unemployment premiums for those employed under temporary contracts.

Overall, flexible work will become more expensive for employers and dismissals will generally become more flexible.

The Bill contains a number of measures that aim to make temporary work less attractive for employers and to promote the use of permanent contracts. Employers will, once again, be able to offer employees three temporary contracts within three years. However, they will have to pay a transition payment at the end of the employment, regardless of the duration of the contract. This means that even employees dismissed during their trial period will be entitled to a transition payment. Employers who enter into temporary employment agreements in the second half of 2019 that end on or after 1 January 2020 will already have to take into account that employees will be entitled to a transition payment upon termination. The calculation of the transition payment will be the same for all employees: 1/3 of a gross monthly salary for each year of employment. The different calculation for employees with more than 10 years of service, for older employees and for employers with less than 25 employees, will be abolished.

The new cumulative ground for dismissal will offer employers more flexibility if a combination of reasons result in a decision to terminate, even if each individual ground is not fully fulfilled. For example, if there is ongoing discussion about an employee’s underperformance, and this leads to a damaged working relationship, these two circumstances can be combined into one dismissal ground. Under current law, one of eight statutory dismissal grounds must be fully met for a district court to dissolve the employment agreement. If the district court dissolves an employment agreement based on the cumulative ground, it can grant the employee an additional payment of up to 50% of the transition payment, on top of the transition payment, as well as an equitable payment if the employer committed a seriously culpable act.

Despite the increased flexibility to terminate through the district court, the majority of terminations are expected to continue to take place by mutual agreement. Although employees are not entitled to a transition payment if they terminate by mutual agreement, it is common practice for a severance payment to form part of their termination package. The amount of the transition payment is generally the starting point for termination negotiations by mutual agreement, which – under current law – can lead to high severance payments if the employer cannot fully demonstrate one of the eight statutory dismissal grounds. The new cumulative ground may offer employers an argument to cap the severance payment at the transition payment plus 50%, which may have a downward effect on severance payments in general.

Employees hired through payroll companies will be entitled to the same employment conditions as regular employees including, as per 1 January 2021, an adequate pension plan. The flexible regime regulating temporary agency work, such as an extended chain of temporary contracts and the possibility to terminate at any moment during the first six months of employment, will no longer apply to payrolling. This form of “cheap”, flexible labour will probably lose its appeal for employers, who in the past turned to payrolling for cost considerations.

The new law is expected to enter into force on 1 January 2020.

 

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