Significant Changes to Dutch Employment Law Take Effect
The Situation: Several changes to Dutch employment law took effect January 1, 2020, most notably those resulting from the Labor Market in Balance Act.
The Result: Businesses in the Netherlands must be aware of and comply with various new legislative developments, including changes in the law governing termination grounds, transition payments, and fixed-term and on-call employment contracts.
Looking ahead: Additional employment law changes will take effect in the coming months. For example, employers who post workers in the Netherlands will be obligated to notify Dutch authorities. Additionally, starting in April 2020, companies may be able to submit claims for reimbursement of transition payments made to long-term disabled employees.
Various Dutch employment law changes took effect on January 1, 2020, and several more take effect in the coming months. We summarize many of these changes below.
The Labor Market in Balance Act
The Labor Market in Balance Act ("WAB") took effect January 1, 2020. As explained below, the WAB creates an additional ground for termination, changes how to calculate the statutory severance (called a transition payment), and modifies requirements applicable to fixed-term and on-call employment contracts, among other changes.
Additional Termination Ground. The Dutch Civil Code previously provided eight statutory reasonable grounds for dismissal (i.e., a-h grounds). The WAB introduces an additional ground—the i-ground—that enables employers to combine different grounds for dismissal into one. The i-ground may be used only if the request for termination is submitted after January 1, 2020. If the request is submitted before that date, an employer cannot combine different grounds for dismissal even if the appeal is submitted after that date.
Calculation of Transition Payment. The WAB modifies the transition payment. If the termination procedure is initiated after January 1, 2020, the new calculation method applies, while the old method applies if the termination procedure was initiated before that date. The new calculation method is one-third of monthly gross salary for each full year of service and pro rata for each month or day of service.
Duration of Successive Fixed-Term Employment Contracts. As of January 1, 2020, employers can use the extended period of 36 months for fixed-term employment contracts. The maximum number of consecutive fixed-term contracts, three in total, remains unchanged.
On-Call Employment Contracts. Starting the first of the year, unless agreed otherwise in a Collective Labour Agreement, employers must provide on-call employees with at least four days advance notice and must pay those employees if work is cancelled within those four days.
Also, employers must offer fixed working hours (based on the average hours worked in the past 12 months) to employees who have been on an on-call contract for at least 12 months and must make the offer within one month thereafter. For on-call contracts already lasting a year or more on January 1, 2020, employers must offer fixed working hours before February 1, 2020.
Registration of Workers Posted in the Netherlands
Employers from countries in the European Economic Area and Switzerland that post workers in the Netherlands must notify the Dutch government through an online submission as of March 1, 2020. This obligation also applies to intragroup postings. Notification of temporary postings may be submitted as of February 1, 2020. The notification must include what work will be performed, the expected duration of the posting, and evidence that shows where social security contributions will be paid. The Dutch Social Affairs and Employment Inspectorate may impose fines for noncompliance.
Transition Payment Reimbursement Act—Dormant Employment Contracts (slapende dienstverbanden)
All employees, including long-term disabled employees, became entitled to transition payments in 2015. As a result, some employers chose not to terminate the "dormant employment contracts" of long-term disabled employees, which avoided having to pay the transition payment.
Given the burden of making a transition payment after already paying two years of continued wages, and in an attempt to end the "dormant employment contract" phenomenon, the Dutch parliament passed the Transition Payment Reimbursement Act ("WCT"). Under the WCT, employers can ask the Dutch Employee Insurance Agency ("UWV") to reimburse transition payments made to long-term disabled employees after two years. The rules applicable to such requests are set out in the Compensation for Transition Payment Regulations (Regeling compensatie transitievergoeding) ("CTPR").
Last November, the Dutch Supreme Court ruled that with CTPR, an employer is, in principle, obliged to end a "dormant employment contract" at the employee's request and pay the transition payment, unless the employer has legitimate interest to continue the employment contract. An example of a legitimate interest could be realistic possibilities of rehabilitation. Reaching the retirement age in the near future is not a legitimate interest.
The CTPR takes effect April 1, 2020, and applies retroactively to July 1, 2015. The amount of reimbursement is limited to the transition payment the employee was entitled to receive after two years of illness. In order to file a request for compensation, an employer must have kept documentation, such as the employment agreement, proof of payment of the transition payment, and documents showing termination of the employment agreement due to long-term disability (letter of notice after approval from UWV, an order for termination of the sub district court, or a termination agreement).
Three Key Takeaways
- The WAB took effect on January 1, 2020, so employers should be aware of changes in Dutch employment law relating to termination grounds, the calculation of the transition payments, the duration of successive fixed-term contracts, and requirements concerning on-call employment agreements.
- Employers in the European Economic Area (EU Member States, Norway, Liechtenstein, and Iceland) and Switzerland should be aware of their upcoming obligation to register workers posted to the Netherlands.
- Employers who have terminated employment agreements with long-term disabled employees after two years should evaluate whether reimbursement is available pursuant to the CTPR when it takes effect April 1, 2020.