Labor Attorney

Dutch Labor Law – Netherlands

Written on January 3, 2010 by admin

Filed Under: Countries

Dutch labor law is intricate and, in certain respects, differs greatly from other legal systems. In Netherlands, the position of the employee, especially with respect to dismissal, is better protected than in many other countries.

Definition contract of employment at Dutch law

A contract of employment consists of three essential elements. Firstly, an undertaking by the employee to perform certain activities. The crucial factor in this respect is that the employee will be personally bound to the employer (i.e. he must perform the activities himself and may not appoint another in his place without his employer’s consent).

Secondly, an obligation on the part of the employer to pay the employee’s salary.

Thirdly, a relationship of subordination by virtue of which the employer is entitled to give the employee instructions which the latter must follow.

If all three elements are present, the relationship between the parties will be deemed a contract of employment. Conversely, the absence of any of these elements will preclude the existence of a contract of employment.

Form contract of employment

Contracts of employment are not required to have any particular form. Consequently, they may be concluded orally or in writing.

Contracts of employment may be entered into for a definite or indefinite period. A contract for a definite period in principle terminates by operation of law upon the expiry of that period. The duration of a contract of employment for a definite period is thus fixed in advance. The duration of a contract for an indefinite period, on the other hand, is not. Consequently, it does not terminate by operation of law but upon notice.

The parties to a contract of employment, whether definite or indefinite, may agree to a trial period during which either party may decide, without sanctions, that the contract should not continue. A trial period must be agreed in writing. If the contract of employment is entered into for an indefinite period, the trial period is subject to a maximum of two months. If the contract of employment is entered into for a definite period, the maximum trial period depends on the length of this definite period. If the definite period is less than two years, the maximum trial period is one month. If the definite period is two years or longer, the maximum trial period will be two months.

If the duration of a contract of employment is not defined with reference to time, but, for instance, with reference to the completion of a certain project, the trial period may not exceed one month. Only pursuant to a collective bargaining agreement may a one month trial period be extended to two months. At all times, the trial period should be of equal length for both employer and employee. A trial period which is longer for one party than the other, or which exceeds the maximum length, is void.

Employer’s obligations

The employer’ primary obligation, to remunerate the employee, derives from the definition of a contract of employment given above. In principle, the parties are free to decide on the amount of wages provided that a certain minimum, as set forth in the Minimum Wages and the Minimum Holiday Allowance Act, is paid. Employees of 23 and over are entitled to this minimum wage and younger employees to a percentage thereof.

This Act also provides that an employer is, in principle, obliged to pay a holiday allowance equal to a certain percentage, currently 8%, of the employee’s salary. 

In addition to a holiday allowance, an employee is entitled to holiday. Annual holiday entitlement is equal to at least four times the number of days worked per week under the contract of employment. An employee who works five days a week is therefore entitled to a minimum of 20 days’ holiday a year. It is the employer who determines, after consultation with the employee, the times at which the employee may take holiday. In the event of illness, an employee is entitled to receive at least 70% of his salary for a period not exceeding 52 weeks.

An employer may not discriminate between men and women, for example, with respect to pay. This obligation is laid down, inter alia, in Article 119 of the EC Treaty which provides that men and women shall be entitled to equal remuneration for the performance of the same work. In this respect, remuneration means basic salary plus all other benefits, whether in money or in kind, which an employer pays an employee by virtue of the contract of employment. Employers may not discriminate between men and women in any other respect either, whether this concerns the conclusion of a contract of employment, the provision of training facilities, other conditions of employment, the policy with respect to promotions, or the termination of the contract of employment.

The employer is under a further obligation to take measures in connection with the safety of the enterprise. This obligation refers to the lay-out and maintenance of the work place, the materials to be used in the course of the work, and also the instructions to be given to the employee in connection with this work, and is aimed at protecting the employee, insofar as possible, against injury and disease.

If an employer fails to prove that he has fulfilled this obligation or fails to prove gross negligence on the part of the employee, he will be liable for any damage suffered by an employee.

An employer is not under an obligation to provide an employee with actual work. It will nevertheless often be in the employee’s interest to perform work. This will be the case, for example, if his salary is performance-related or performance will increase the likelihood of his retaining the employment or will favour his position in the labour market. Case law has established that an employer may not prevent an employee from performing the agreed work without a well-founded reason, failing which, he will, broadly speaking, be obliged to put the employee to work. If a well-founded reason does exist, a weighing up of the employer’s interest in not allowing the employee to do the agreed work, on the one hand, and the employee’s interest in performing that work, on the other, will usually ensue.

Employee’s obligations

An employee is under an obligation to perform the agreed work to the best of his abilities and to follow the employer’s instructions. An employee will not be liable to an employer for damage he causes to third parties in the course of his employment unless the employer proves that this resulted from willful or reckless misconduct on the part of the employee.

Termination of the employment contract

It is with respect to the termination of contracts of employment that Netherlands’ employment law differs markedly from most foreign legal systems, in particular with respect to the high degree of protection against dismissal.

There are five ways in which contracts of employment may, in appropriate cases, be terminated under Netherlands law:

1. At will during the trial period;
2. By notice;
3. By mutual consent;
4. By summary dismissal;
5. By judicial rescission.

Each of these methods will be discussed below.

 I. Termination during trial period

During the trial period either party may terminate the contract of employment at will, that is, with immediate effect.

II. Termination by notice

With respect to termination by notice, a distinction must be made between contracts for a definite period and contracts for an indefinite period.

The original term of a contract of employment for a definite period terminates by operation of law at the end of this period. In principle, therefore, prior notice is not required, although an obligation to give notice may be stipulated in the contract. The same rule applies to a second and third contract of employment for a definite period which succeed the original contract of employment for a definite period provided that the total duration of all such contracts of employment does not exceed three years.

The second and third contracts, like the original contract, terminate by operation of law at the end of the respective definite periods. If a fourth successive contract of employment for a definite period is entered into or the three year limit is exceeded, the fourth or last contract of employment, as the case may be, is considered to have been entered into for an indefinite period and the above rule concerning termination by operation of law does not apply any more.

However, by way of exception, a contract for a definite period of three years or longer may be succeeded by a contract for a definite period not exceeding three months without the second contract being regarded as one for an indefinite period, unless otherwise agreed pursuant to a collective bargaining agreement. If the time span between contracts of employment for a definite period is three months or longer, they are not regarded as successive but rather as separate contracts of employment for a definite period which therefore terminate by operation of law at the end of the period.

Neither the original nor extended term of a contract for a definite period may be terminated by notice before the expiry of the period, unless agreed otherwise. This follows from the very nature of such a contract. (A contract for a definite period may, however, be terminated by mutual consent, summary dismissal or judicial rescission before the end of the period).

A contract for an indefinite period, as the name suggests, does not expire on a particular date but continues indefinitely until terminated by notice, or by one of the other methods discussed in this section.

Before notice to terminate may be given, permission from the director of the regional labour office (“Regionaal Directeur van de Arbeidsvoorzieningsorganisatie” or “RDA”) in the form of an RDA permit must be obtained. In the absence of such a permit, the notice will be voidable. This requirement is based upon Article 6 of the Decree on Labour Relations of 1945, which provides that the permission of the Minister of Social Affairs and Employment must be obtained before an employment relationship may be ended. The authority to grant this permission has been delegated to the directors of the respective regional labour offices. Article 6 applies whenever the termination by notice of a contract of employment is deemed to affect the socio-economic interests of the Netherlands labour market, even if the contract of employment is not governed by Netherlands law.

In general, such interests will be deemed to be involved if the work is permanently performed in or from the Netherlands (and the employee is likely to claim unemployment benefits in the Netherlands as a result of the termination). It should be noted that a permit is not required in respect of termination I. during the trial period, II. by mutual consent, III. by (justified) summary dismissal, IV. in the event of the employer’s bankruptcy or V. in respect of the termination of the contract of employment of a managing director of a company with limited liability.

The RDA will only grant a permit if, in balancing the employer’s and employee’s interests, he deems the proposed termination reasonable. Consequently, the person who submits the request must indicate the grounds on which that request is based while the person against whom it is made may submit a defence. Thus, permission is not granted automatically. The procedure should, in principle, be completed within eight weeks although in practice it may take longer.

Once an RDA permit has been obtained, notice of termination may be given, subject to the prohibitions described below. The statutory notice period to be observed by an employer is equal to:

Only by means of a collective bargaining agreement may these statutory notice periods be shortened. They may be made longer either through a collective bargaining agreement or an individual contract of employment.

The statutory notice period to be observed by an employee is one month. An employee must observe a notice period of one month. This statutory period may be increased or decreased in his individual contract of employment. In the former case, the maximum period which the employee can be required to observe is six months and the notice period to be observed by the employer must be at least twice as long as the period to be observed by the employee, unless otherwise agreed in a collective bargaining agreement.

If notice is given after an RDA permit has been obtained, the statutory notice period to be observed by the employer is reduced by one month, provided that a minimum period of one month is observed, unless otherwise agreed in a collective bargaining agreement.

Even after an RDA permit has been obtained, the giving of notice is prohibited by law in certain situations, such as while the employee is unable to perform his work due to illness, unless the employee has been ill for at least two years or the employee has reported being ill after the RDA received the request for a permit. Nor may a contract of employment be terminated by notice while an employee is pregnant or doing military service.

Notice of termination may not be given to an employee who is a member of a works council or to an employee on account of his membership in a trade union or his activities in connection with a trade union, unless carried out during working hours without the employer’s permission.

Furthermore, an employer must first obtain the permission of the court (“kantonrechter”) if he wishes to terminate by notice the employment of a candidate for election to a works council or an employee who was a member of a works council less than two years prior to the notice. The prohibitions or restrictions on giving notice discussed in this paragraph do not apply if the termination is on account of the business activities of the employer being discontinued.

III. Mutual consent

Contracts of employment for definite and indefinite periods may be terminated by mutual consent, in which case no notice is required. However, case law has established certain strict requirements with respect to the validity of the termination of a contract of employment by mutual consent since this often has detrimental consequences for the employee (for example, loss of entitlement to unemployment benefits). In order for it to be held valid, the employee’s consent must have been given explicitly and unequivocally.

IV. Summary dismissal

If an urgent cause exists, an employer may summarily dismiss an employee. In such a case, the contract of employment is not terminated by notice and consequently the provisions which apply to termination by notice do not have to be observed. An urgent cause is a circumstance or set of circumstances which are such that the employer cannot in all reasonableness be expected to allow the contract to continue. An urgent cause may exist, inter alia, if an employee is guilty of theft or embezzlement or divulges confidential information.

In reality, however, whether an urgent cause actually exists will depend on the specific circumstances of the case. It goes without saying that an urgent cause for summary dismissal will only exist very rarely. If an employer is hesitant in effecting a summary dismissal, it will be void regardless of whether an urgent cause did actually exist.

If an employee who has been summarily dismissed wishes to contest the existence of an urgent cause, he may, in principle, take two courses of action. He may claim that the termination was void since no RDA permit was obtained or he may acquiesce in the termination but seek to recover damages on the grounds that it was unlawful. These damages are limited to the amount of salary which the employee would have received during the notice period had it been properly observed, or to the actual damages directly resulting from the dismissal. In most cases, the employee claims that the termination was void, especially if he has become unemployed as a result. If the contract of employment contains a non-competition clause, however, the employee may prefer to recover damages, since, as a consequence of this liability, the employer is precluded from invoking such a clause.

V. Rescission by the court

Both employers and employees may request that the court rescind a contract of employment on the grounds of “serious cause”. A serious cause will be deemed to exist if either: I. the circumstances are such that they would have amounted to an “urgent cause” for summary dismissal if the contract had been terminated instantly; or II. there is a change of circumstances of such a nature that the contract should in all reasonableness be terminated instantly or on short notice.

The party against whom the request for rescission is directed, generally the employee, may submit a defence. If the court deems that serious cause does indeed exist, it will rescind the contract. If rescission is granted on the basis of serious cause due to a change in circumstances, the court may award one of the parties, generally the employee, compensation in an amount which it deems reasonable under the circumstances.

Compensation is generally calculated according to the following formula: A x B x C.

For the purpose of this formula: A is equal to the employee’s years of service. Years of service before the age of 40 count for 1; years of service between the ages of 40 and 50 count for 1.5 and years of service after the employee has reached the age of 50 count for 2;

B is equal to the employee’s salary, including his holiday allowance, and, depending on the circumstances, other benefits such as a bonus;

C is the correction factor, which in most cases will be set at 1. Depending on the circumstances – who is at fault and to what degree C may be adjusted upwards or downwards.

If an employer who has requested rescission is not willing to pay the amount of compensation which he has been ordered to pay to the employee, the court will grant him a certain number of days within which to withdraw his request. Conversely, an employee may withdraw his request for rescission if he deems the compensation awarded by the court to be too low. If a request is withdrawn, the contract of employment will not be rescinded but will continue.

If it is not withdrawn, however, the contract will be definitively rescinded and there will be an obligation to pay compensation in the amount awarded by the court. Appeal from the court’s decision is not possible, except in the rare event that a fundamental legal principle has been violated in such a manner that the matter cannot have been handled fairly and impartially.

Obviously unreasonable dismissal

If a contract of employment is terminated unilaterally by the employer, even if an RDA permit has been obtained and the proper notice period observed, the employee may file a legal action alleging that the termination was “obviously unreasonable”. Termination will be deemed obviously unreasonable if either no reason, a mere pretext, or a false reason is given, or if the hardship endured by the employee is disproportionate to the employer’s interests.

In such an event, the employee may claim reinstatement or compensation in an amount to be determined by the court. Although by its very nature this compensation differs from that which is paid when a contract of employment is rescinded, it is often determined in accordance with the same formula.

Non-competition clauses

The principle of the right to freedom of movement is laid down in a number of international treaties such as the European Social Charter and the International Convention on Economic, Social and Cultural Rights as well as in the national Constitution. This principle, together with the principle of freedom of contract, conflicts with non competition clauses, which are defined in the NCC as stipulations between employers and employees by which the employee is restricted in accepting other employment after his contract of employment has come to an end.

Non-competition clauses aim to protect the employer from any infringement by the former employee of the employer’s economic interests, such as the application of know-how. If there is no written agreement or the employee had not yet reached majority of age when the contract was concluded, a non-competition clause will be deemed void and the employer will not be able to derive any rights from it.

The activities which an employee is prohibited from carrying out must be described as clearly as possible and the prohibition must be limited to a certain period of time. A period of one year is usually deemed acceptable. A non-competition clause must also define the territory within which the former employee is prohibited from carrying out those activities.

The courts have the power to limit the scope of a non-competition clause or to set it aside altogether regardless of whether it is legally valid. This power may be exercised if the employer has no interest in maintaining the non-competition clause or if the employer’s interest in maintaining it carries less weight than the employee’s in having it limited in scope or set aside. In addition, the court has the power to order the employer to pay the employee compensation for the duration of the period in which he wishes to enforce the non-competition clause.

As stated above, an employer cannot derive any rights from the non-competition clause if he has terminated the employee’s employment in an irregular manner, that is to say, without having given notice or without due observance of the provisions applicable to termination.

Resource : Lassche Advocaten, Enschede – Netherlands.