17 April 2018

Supreme Court – guidance for underperformance and damaged working relationship

The Dutch Supreme Court has clarified various important aspects of Dutch dismissal law in two recent judgments on dismissals for underperformance, dismissals due to a damaged working relationship, and the applicability of notice periods to dissolutions ordered by the Court of Appeal. The Supreme Court has further interpreted these specific grounds for termination, and more generally provides guidance on how the courts should handle requests for dissolutions based on reasonable grounds of a personal nature as provided under Dutch law.

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Proving underperformance and other reasonable grounds

One ground for seeking a dissolution of an employment agreement is the reasonable ground of “underperformance” (article 7:669(3)(d) BW). However, requests for dismissal on this ground are frequently denied due to the strict requirements that must be met. In short, dissolution can only follow if the employer can demonstrate that: (i) the employee is incapable of performing the agreed duties (for reasons other than medical reasons); (ii) the employer has informed the employee of the performance issues in time (sufficiently prior to pursuit of the termination); (iii) the employer has taken sufficient steps to enable the employee to improve performance; (iv) the underperformance of the employee is not caused by insufficient care of the employer to arrange training of the employee, or caused by poor working conditions.

Employers frequently struggle to successfully prove that an employee is underperforming. Employee performance is often not measured or recorded, making it difficult for an employer to produce objective data that can be presented to a court in support of a claim of underperformance. However, in a judgment on 16 February 2018, the Supreme Court ruled that an employer has a margin of discretion in assessing whether an employee’s performance is up to par. This clarification should aid employers to assess if pursuing a dismissal for underperformance is realistic or advisable.

In addition, the Supreme Court ruled that an employer is not always required to incontrovertibly prove that the employee is not performing to the required level. The actual test is that the employer should be able to reasonably demonstrate – whether or not by providing additional evidence – that there is a ”reasonable” ground for termination. This ruling does not mean that the requirements set out under (i) through (iv) should not still be met, but the Supreme Court made clear that employers have more leeway than previously considered in proving that an employment agreement should be dissolved by a court. Following this ruling, we believe the number of dissolutions based on underperformance may increase, as these termination requests, alongside requests under other ”reasonable” grounds with rather strict requirements, as laid down in article 7:669(3) BW, may well more frequently be granted.

Proving a damaged working relationship

Another reasonable ground frequently used as the basis for a request for dissolution of an employment agreement is that of a damaged working relationship (article 7:669(3)(g) BW). The threshold that must be met is that the working relationship has become so ‘disturbed’ or ‘impaired’ that the employer cannot reasonably be expected to continue the relationship. Employees, however, frequently raise the defence that the employee was not culpable for the relationship becoming damaged; it is not the employee’s fault. The Supreme Court, however, has now ruled that no form of culpability on the part of the employee is required in order to conclude that the working relationship is damaged and should consequently be dissolved. The Supreme Court also stated that the fact that an employer may be culpable for the damaged relationship is not a reason to deny the requested dissolution of an employment agreement on this ground. Again, the employer is required only to demonstrate that it cannot reasonably be expected to continue the employment relationship due to the damaged relationship.

Notice period not applicable in cases of dissolution by the Court of Appeal

Finally, the Supreme Court clarified whether the Court of Appeal should adhere to the applicable notice period when dissolving an employment agreement. Although a sub-district court must determine the termination date according to the applicable notice period (while being allowed to deduct the time of the procedure, and observing a minimum one-month period) there has been intense debate over whether this requirement should also be applicable on appeal.

The Supreme Court has now ruled that this is not the case: there is no requirement to adhere to a further notice period when a Court of Appeal dissolves an employment agreement after the court has denied the dissolution in first instance. The Court of Appeal is free to determine the date of termination, provided that such date is set in the future (that is, the Court of Appeal cannot dissolve an employment agreement from a date before the date of its ruling). This ruling means that a Court of Appeal can dissolve an employment agreement with a much shorter notice period than a court in first instance, and a Court of Appeal is not bound by a minimum one-month period. Employers should bear this in mind when considering whether or not to appeal a denied dissolution request in first instance; in the event of a successful appeal, the termination date may be determined as the earliest possible date after the Court’s ruling.