17 April 2018

Update on legislative proposal regarding employment and dismissal law

In mid-2017, the Dutch government announced a number of envisaged amendments to existing Dutch employment and dismissal law (as discussed previously here). These amendments will affect employers, employees and independent contractors. The proposals are now becoming more concrete, following the publication of a first draft legislative proposal on 9 April 2018. Internet consultation will be open until 7 May 2018; this means that the content of the proposed legislation may be subject of change. You can find a link to the legislative proposal here (Dutch only).

The most important proposed amendments are listed below.

Longer trial period

The government has observed that employers are still hesitant to offer employees permanent contracts. One of the reasons for this hesitation may be that employers do not know if an employee is suitable for the job. Therefore, the government proposes allowing a longer trial period:

  • in a permanent contract, parties can agree to a maximum trial period of five months, instead of the current two-month maximum
  • in a temporary contract with a minimum period of six months and a maximum of two years, parties can agree to a maximum trial period of two months instead of one month
  • in a temporary contract for longer than two years, parties can agree to a maximum trial period of three months instead of two months.

The possibility of agreeing on a longer trial period is a once-only right, and does not apply to successive agreements, unless the successive agreement significantly requires different skills and responsibilities on the part of the employee.

Additional statutory dismissal ground

Under current legislation, an employer can only terminate an employment agreement if one of the statutory, reasonable grounds for dismissal is fulfilled. As a result, the threshold for termination is rather high – too high, according to many employers and the government. Therefore, an additional reasonable ground for dismissal (known as the “i-ground”) is proposed. The i-ground allows employers to terminate an employment agreement if, although none of the statutory reasonable grounds is completely fulfilled, a combination of factors and circumstances referred to in the statutory grounds for dismissal occurs and gives rise to the conclusion that an employer cannot reasonably be expected to continue the employment agreement. If the court terminates the employment agreement based on the i-ground, the court can grant the employee an additional remuneration of up to 50% of the transition payment.

Transition payment

Accrual and calculation

Under the current system, an employee is not entitled to the transition payment if the employment agreement is terminated during the first two years of employment. As a result, employers have an incentive to enter into temporary agreements for less than two years. The government would like to encourage employers to offer longer-term or permanent agreements, and therefore proposes removing the condition of two years of employment in determining entitlement to the transition payment.

The government also proposes a new method for calculating the transition payment. Each year of employment will have the same value for the accrual of the transition payment; for each year of service, the employee will accrue one third of the gross monthly salary as a transition payment. The differentiation that is currently made between the first ten years of employment (one third of monthly salary) and the period afterwards (half of monthly salary) will disappear.

Compensation

According to the government, the duty to pay a transition payment can in some cases lead to excessively high costs for employers and thus to undesirable situations. Therefore, the government proposes compensating employers that have to pay a transition payment in two specific situations:

  • for the dismissal of an employee who has been ill for more than two years
  • for the business cessation of a small employer due to the retirement or illness of the employer.

Rules on successive employment agreements

To make temporary contracts less attractive to employers, the government also proposes some amendments concerning the law on successive employment agreements. Under current legislation, a chain of successive temporary agreements convert into a permanent agreement upon entering into a fourth successive temporary agreement, or after two years have passed since first entering into an employment agreement. Employment agreements are successive if six months or less have passed between two employment agreements. First, the government proposes changing the two-year period back to a three-year period, as it was previously. Second, the possibilities to deviate from the six-month period between different employment agreements will be expanded.

Rules regarding Payrolling

Payrolling is a specific form of hiring staff, where a payroll company hires an employee and then proceeds to second these employees to a specific client who, in turn, is responsible for recruiting the candidate and will be the material employer throughout the employment period.

Following two Supreme Court rulings dated 4 November 2016, payrolling is currently considered a form of temporary agency work. Therefore, the legislative regime specifically designed for temporary agency workers also applies to payroll employees, which means that:

  • the payroll company may end the employment agreement if the hirer terminates the contract with the payroll company.
  • the provisions on successive temporary employment agreements only applies after 26 weeks. This period can be extended to a maximum of 78 weeks by collective agreement.
  • the exception to the obligation to continue to pay wages if an employee is unable to work due to a reason caused by the employer, applies. This means that this obligation will only arise after 78 weeks of employment.
  • employees who are employed by a payroll company are not entitled to the same terms of employment as the employees of the hirer because they are generally not covered by the same collective agreements.

The government believes that the current legislative situation gives rise to unfair competition among employees and businesses. To mitigate these negative effects, the government suggests the following legal framework for payroll employees:

  • the proposal includes a legal definition of payrolling, which previously had yet to be defined.
  • payroll companies must offer their employees the same primary and secondary terms of employment as the employees of the hirer (with the exception of the employment conditions on pensions).
  • statutory provisions on successive temporary employment agreements will apply. The proposal includes a possibility to divert from the provision by collective agreement.
  • the exception to the obligation to continue to pay wages if the employee is unable to work due to a reason caused by the employer only applies if this exception is also regularly used with the employees of the hirer, or if the possibility arises from a collective agreement that applies to the employees of the hirer.
  • payroll employees have a right to participate in an adequate pension scheme. What constitutes an adequate pension scheme will be addressed in a specific general administrative measure (algemene maatregel van bestuur).

On-call contracts

Notice period

Current legislation does not provide rules on the notice period required between the moment the employer calls the employee and the moment the employee must report to work. This leads to the employee having to be permanently available, which the government finds undesirable. Thus, the government proposal includes a provision that requires a four-day notice period. If an employer alerts an employee within a shorter period, the employee is not required to report to work.

The notice period also applies in situations where the employer wants to cancel a work request. If the employer fails to adhere to the notice period, the employee is entitled to a wage payment for the hours that would have been worked if the employer had not cancelled. Finally, the government has applied the same notice period of four days for situations where an employee wishes to terminate the contract with the employer.

No more “min-max” and “zero-hour” agreements

The government proposes making the legal presumption related to working hours applicable to min-max contracts. In the case of min-max contracts, the government proposes that the presumed working time should not be the agreed-upon minimum number of working hours (as is currently the case), but the average of the hours worked by the employee in the previous three months.

In addition to this, the government proposes that in the case of employment agreements without “guaranteed working hours”, the employer should offer the employee a contract with guaranteed working hours in the 13th month of employment. The offered guaranteed working hours in the new employment agreement should be the calculated on the basis of the average hours the employee has worked over the previous 12 months. If the employer fails to make such a proposal, the employee is entitled to compensation for the working hours not worked.

Conclusion

Generally, the first draft legislative proposal does not include any surprises, as most of the policy changes had already been announced in the coalition agreement. The proposed changes regarding payrolling are, however, more far-reaching than predicted. Also, the changes regarding the law on dismissals have caused quite a stir. If the changes regarding the law of dismissal are implemented, we will abandon our rather new, closed system of grounds for dismissal. Instead, we will return to the previous system, but without the luxury of the sub-district court formula (de kantonrechtersformule).

The new proposal has not been universally popular; the FNV and CNF trade unions believe that the new legislative measures will encourage the further flexibilisation of the labour market, which will lead to less certainty for employees. On the other hand, the employer’s association, MKB Nederland, is critical about the increased costs that will arise through stricter regulation of payrolling and temporary agency work.

Internet consultation will be open until 7 May 2018. After this date, the government will review all responses to the draft legislative proposal. This means that the content of the proposed legislation is subject to change. Minister Koolmees plans to send a new draft legislative proposal to the Council of State before the summer, and afterwards to the House of Representatives. We will keep you updated.