On 10 June 2014 the Dutch First Chamber [Eerste Kamer] adopted the Work and Security Act [Wet Werk en Zekerheid]. It is important that line managers are up to date on the upcoming changes when taking decisions and are aware of possible measures they need to take as a result of the new legislation. What should they be aware of?
New Dutch Labour Law under the Work and Security Act
The media, trade unions, trade journals and numerous others are talking about ’the new rules for flexible working and dismissal’. But what exactly are these ‘new rules’ and how are they relevant for line managers? What should they be aware of? Decide for yourself if the picture above describes the new legal situation correctly. In my opinion, the new Work and Security Act may prove to be too little flexible for employers. Also, in my opinion the Work and Security Act does not take adequately the social developments in The Netherlands into account. The effect can, amongst others, be that employers shall have more trouble to employ people on the basis of contracts for an undefinite period of time and shall try other means of hiring people than by means of a formal employment, such as making more use of (all kinds of) payrolling, freelancers [zzp-ers] and work pools between companies. For employers, it can be very useful to have a (bigger) so-called flexible layer of labour [flexibele schil]. Already some combined Dutch (lower) authorities make use of work pools of thousands of employees, so why not also more companies?
Anyway, companies and their managers should take into account the following changes under the Work and Security Act:
Applicable as per 1 January 2015
- A trial period / probation clause is not permitted in temporary employment contracts [tijdelijke arbeidscontracten/-overeenkomsten] entered into for 6 months or less.
- A temporary employment contract (certain period of time) entered into on or after 1 January 2015 may NOT include a non-competition clause, unless there is a very good reason to do so. This reason must be put in writing in the employment contract. This only makes the non-competition clause in the contract formally valid. After this, the non-competition clause still can be assessed by the sub-district court.
- For contracts entered into for 6 months or longer, employers are obliged to notify an employee at least 1 month before his/her employment contract expires whether, and if so the terms under which, the employer wishes to continue the employment relationship with the employee [aanzegging]. If the employer does not comply (in time), he has to pay the amount of (maximum) one month’s salary to the employee. This is in fact a penalty for the employer.
- It is possible to stipulate in the employment contract that during the first 6 months of said employment contract, the employer is not obliged to make wage payments should the employee not actually be working. This rule also existed before January 1st 2015, but there are some new changes now, such as regarding the possibilities of Collective Labour Agreements.
Applicable as per 1 July 2015
- Modified chain rule [aangepaste ketenregeling]: employers may enter into 3 temporary contracts in a row with an employee in a period of up to 24 months. There must be a ‘pause’ of more then 6 months between two temporary contracts before you can ‘reset the clock’ and enter into three temporary contracts in a row again pursuant to the chain rule. Please note that on this subject, there is some complicated transitory law as per the situation on and around July 1st 2015.
- Starting 1 July 2015 employment contracts (with exception of temporary contracts, which end automatically) can only be terminated if the employer has a just cause for dismissal [redelijke grond voor ontslag] (*) and the employee cannot be reassigned [herplaatst] within a reasonable period of time in another suitable position in the company (**).
- Furthermore, in some cases only UWV (Employee Insurance Agency and also the Dutch board on dismissals) can give permission to terminate an employment contract. In other cases, only the sub-district court can. This all depends on the specific ground for dismissal that the employer has. In some cases, a special Redundancy Committee [onafhankelijke commissie in de zin van artikel 7:671a BW] can, under the rules of their Collective Labour Agreement [CAO] decide on dismissal. Unlike under the law until 1 July 2015, it will be possible to file an appeal and an appeal in cassation (Dutch High Court) against a decision of the sub-district court ruling on a request for dissolution.
- If the employer wishes to terminate an employment relationship that has lasted for two years or longer, as per 1 July 2015 he will be obliged to pay a transition fee [transitievergoeding] to the employee.
- The employer may, under certain conditions, deduct certain costs from the transition fee that have been or will be incurred to improve the employee’s position on the labour market.
(*) Note that the causes/reasons that the employer can use are all summed up in the law. Also, there is a variety of exceptions on which basis dismissal is or is not allowed even if there is a just cause, such as prohibition notices [opzegverboden].
(**) Note that the employer is obliged to provide for schooling, training on the job or extra study within reasonable limits if this is needed to reassign the employee.
Probation clause / trial period [proeftijd]
Temporary contracts entered into for 6 months or less on or after 1 January 2015 may no longer include a probation clause. However, should you find it important that a new employee is ‘tested’ for a short period to see whether he/she is suitable for a particular job, fits well into the team and/or the employee’s actual knowledge and experience match his/her description of him/herself during the application process, then there are some other possibilities, for example:
Sign a temporary contract for a period of 6 months and one day with the employee and include a probation clause. Or use a period of 7 months. This allows you to sign, after the first contract two more contracts, e.g. of each 8 months (total: 23 months). This is also, informally, called the 7+8+8 system. With this, an employer is allowed to use a probation clause in temporary contracts and does not need to pay the ‘transition fee’ after 2 years of service.
Sign a temporary contract with the employee for a period of 1 month. Then, if you are happy with the employee, agree on a five-month extension.
This is permitted because a temporary employment contract has no minimum duration and may therefore be entered into for the duration of 1 or 2 months, or even for just 1 or 2 weeks.
First take on the employee through a temporary employment agency [uitzendbureau]. The agency contract will contain an ‘agency clause’ [uitzendbeding] which stipulates that the agreement ends immediately at request of the person doing the hiring (i.e. you).
This option actually creates a trial period and will continue to work under the new legislation, Note that there are several rules to be aware of if you choose this option. Professional legal advice can therefore be needed.
Please note: pay close attention to the requirements of a valid probation clause. If they are not met, the clause will not be valid.
- The trial period should be the same length for both parties; and
- must be agreed upon in writing; and
- can be agreed upon for the first month of employment in a contract for over six months but less than two years. The maximum trial period in this case is 1 month except if the applicable collective labour agreement (CAO) stipulates a deviating period of (a maximum of) 2 months; and
- can be agreed on for the first two months of employment in a 2-year (or longer) contract. The maximum trial period in this case is 2 months.
In (first) contracts for an indefinite period of time, a probation period of 2 months is possible.
No probation clause in subsequent contract
If an employee has already worked for you – and so you should know whether the person in question meets your expectations – then a subsequent (temporary or indefinite period) contract may not contain a probation clause. However, if the employee changes to a job/position requiring clearly different skills and/or responsibilities, a new trial period can, under certain conditions, be permitted.
This rule also applies in the event of “successor employer status” [opvolgend werkgeverschap], meaning that an employee continues doing the same work but for another employer – for example an employee who first works at the company through employment with a third party but is then hired by the company itself. In such cases no trial period is permitted.
A temporary employment contract entered into on or after 1 January 2015 may no longer include a non-competition clause, unless there is a very good reason to do so. That ‘very good reason’ should be mentioned and explained in the clause itself. The clause should explain why, with respect to this particular employee in this particular case, the employer could be harmed if no competition clause were to be included in the contract. As every case is different, an example of such a provision is impossible to give.
If the following questions can be answered with a resounding ‘yes’ and in addition you are able to explain in a comprehensible, concrete way and make crystal clear to, for example, a judge why the answer should be a resounding ‘yes’, then a non-competition clause might be justifiable for this particular temporary employment relationship.
- Would the employee, with the knowledge and experience he/she has gained at the employer, really be able to cause the employer harm if this employee starts working for a competitor
- Would this potential damage be substantial for the employer?
- Is the non-competition clause sufficiently specific? Does it only prohibit those specific acts that could cause harm to the employer?
For example, a designer of trendy jeans may probably not be forbidden to work for any other cloth designer, but perhaps he/she could be temporarily be forbidden to work at another designer of trendy jeans.
- Is the non-competition clause reasonable?
For a temporary 6-month contract, a non-competition clause with a duration of 18 months will probably not be deemed reasonable. Nor will a non-competition clause that prohibits working in a particular industry anywhere in the world.
Non-competition clauses that are already in force will remain valid
Non-competition clauses that were already in force before 1 January 2015 will remain valid. However, upon extension of a contract containing such clause after 1 January 2015, the clause may not be extended or renewed.
Bearing in mind the new legislation concerning non-competition clauses, judges will most likely start becoming more critical when it comes to judging such clauses in temporary employment contracts.
Non-competition clauses remain possible in indefinite term contracts
(Standard) non-competition clauses may still be included in contracts for an indefinite duration [contract voor onbepaalde tijd]. So if it is important for you to have a non-competition clause in force for a certain employee, but it is difficult to explain why exactly, then you could consider entering into an indefinite term employment contract with a non-competition clause.
New rules may also apply to non-solicitation and other kind of non-competition clauses
A non-solicitation clause, a non-poaching clause (prohibiting an ex-employee from persuading other employees of his/her former employer to leave) or any other clause prohibiting an ex-employee from getting employed by another employer, can all be seen as a kind of non-competition clause. Consequently, in principle the same rules that apply to regular non-competition clauses can under circumstances apply to all of these clauses.
Employer’s notice / notify period [aanzeggen / aanzegtermijn]
It so happens that temporary employment contracts – unless otherwise agreed – automatically end when the duration of the contract ends. This will remain so, except that as of 1 January 2015 employers will have the obligation to inform employees with a temporary contract of 6 months or longer at least 1 month in advance whether the employer wishes to continue the employment after expiration of the contract and if so, under what conditions. This is called “employer’s notice” [aanzegging].
Should an employer fail to give this notice, the employee can claim a penalty. The penalty amounts to 1 month’s salary. If an employer gives notice but is too late in doing so, then the penalty shall amount the salary times the number of days the employer was late in giving notice.
Your employee’s temporary contract will expire on 1 May 2015. His/her monthly salary is€ 4.000,-. You forgot to give the notice [aanzegging].
Consequences: The employment contract expires according to its term on 1 May 2015, but the employee can claim € 4.000,- from his/her employer.
Your employee’s temporary contract will expire on 1 May 2015. His/her monthly salary is € 4.000,-. You give the notice [aanzegging] but not before mid-April.
Consequences: The employment contract expires according to its term on 1 May 2015, but the employee can claim € 2.000,- because you gave notice half a month too late.
‘On Call’ contracts [oproepcontracten]
For the first 6 months of the term of an employment contract, employer and employee may come to an agreement that the employer does not have to pay any wages insofar the employee has not worked. On call contracts are based on this rule; the wages need only be paid if the employee who is on call [oproepkracht] actually does any work for the employer. In many collective agreements [cao’s], this period is extended by 6 months.
However, if such an agreement is not entered into, or if the period for which the provision applies has expired, the employer always has to pay employee’s wages, even if the employee has not worked – for example because the employer simply does not have any work for the employee.
New rules on ‘on call’ contracts
For the first 6 months of the term of the employment contract, employee and employer may still come to this agreement but after 1 January 2015 the possibility to extend this term in the collective agreement will be limited to specific jobs of an occasional nature. Extensions of the 6-month term in collective agreements that were already in force on 1 January 2015 shall remain valid until the end of the term of that collective agreement, but only up to a maximum of 18 months.
Consecutive temporary contracts (the “chain rule”)
Under current legislation, the conclusion of (subsequent) temporary employment contracts is limited to 3 temporary contracts in a row up to a period of maximum 36 months. As soon as 3 months have elapsed between two contracts, you can ‘reset’ and enter into 3 temporary contracts again pursuant to the chain rule.
This rule will change as of 1 July 2015. The maximum amount of contracts you can conclude in a row will stay at three. The total “temporary employment period” (i.e. the total time during which an employee may be employed by the three temporary contracts) will be reduced to 24 months. In addition, the “reset time” (i.e. the ‘pause’ or time that has to elapse between two contracts before you can start counting again and enter into 3 temporary contracts again pursuant to the chain rule) will be increased to more than 6 months (e.g 6 months and 1 day or more).
An employee worked for you for 1 year under a 1-year contract before going on a trip to India for four months. On his/her return, you offer the employee another 1-year contract.
Current legislation: under the current legislation there is nothing to worry about. After the 4-months break we can ‘reset’ the clock and all of this has happened in a time period of less than 36 months.
As of 1 July 2015: according to the new rules, the lapse of 8 months since the coming into force of the second 1-year contract will trigger an indefinite term employment agreement. During the ‘pause’ between the two contracts, because the pause is not more than six months, the clock continues ticking. Moreover, pauses also count when calculating the maximum temporary employment period of 24 months.
You only work with flexible staff who are given three consecutive 1-year contracts after which the employment is terminated. After a three-month pause, during which they are not employed by you, they may come back and start the sequence again.
Current legislation: under the current legislation, this is permitted. After the sequence of three 1-year contracts, and assuming the sequence has lasted no longer than 36 months, the employment relationship terminates by operation of law.
As of 1 July 2015: under the new rules this no longer works, that is to say the possibilities are much more limited. The total temporary employment period may not surpass 24 months, and in addition there should be a ‘pause’ of more than 6 months between two contracts to reset the clock and be able to enter into three temporary contracts in a row again.
Note that there is complex transitory legislation for cases where a temporary contract ends before 1 July 2015 and a new temporary contract is entered into on or after 1 July 2015 and with a ‘pause’ that is no longer than 6 months.
Building a case file, training and reassignment
As of 1 July 2015 a sub-district court may grant an application for termination of employment due to unsatisfactory performance [disfunctioneren], amongst others if:
- the employee has been given adequate opportunity to improve his/her performance
- the unsatisfactory performance is not due to lack of schooling, lack of (extra) training, study or (whatever needed adequate) help form the employer and is also not due to health problems, sickness or bad working conditions and
- the employee cannot be reassigned to another suitable job in the employers company.
The documentation process of building an employee’s personal file, as well as employee training and reassignment, are thus becoming increasingly important. Be sure to give regular, good and honest feedback and appraisals. It may not be the most pleasant job to point out to your employee what his/her weak spots are, but if the employee’s performance does not improve and you decide you want to terminate the employment relationship, the employee’s personal file will need to evidence this critical feedback. If the file is not up to scratch, the sub-district court will not be able to terminate the employment contract and the employee will stay in his/her current position.
Starting 1 July 2015, if an employer wishes to end an employment relationship that has lasted for two years or longer, a “transition fee” will be due to the employee. This fee is not only due upon termination of contracts for an indefinite duration, but also upon termination of temporary contracts with a duration of (in total) two years or more.
Employees will then, in general, be entitled to a transition fee if their employment contract ends either on the initiative of the employer, unless the termination is the result of serious culpable acts or omissions by the employee, or on the initiative of the employee himself, as a result of serious culpable acts or omissions by the employer. Here also there are certain exceptions, such as for employees who are dismissed on reaching or after reaching the state pension age [AOW-gerechtigde leeftijd].
During the first 10 years of service the fee amounts to 1/6 of a monthly salary payment for every half a year in employer’s service and subsequently 1/4 of a monthly salary payment for every half year in employer’s service. Young workers (under 18), older workers (over 50 with 10 service years as well as those eligible for a pension under the Dutch state pension scheme [AOW] are subject to different rules. Also, the rules are different for employers with less than 25 employees in service.
Having to pay a transition fee will be a factor to consider when deciding whether or not to extend a temporary contract or whether or not to terminate an employment contract. Although the fee is not outrageously high – compared with the current “sub-district court formula” [kantonrechtersformule] – the transition fee will be due in much more cases and more frequently than in cases before 1 July 2015.
Your employee has a temporary contract from 1 January 2013 to 1 January 2014, and subsequently enters into a 10-month contract with you that will end on 1 November 2014 at which point the new “chain rule” will not be in force yet and so a third contract with a maximum duration of 14 months may legally be agreed on. However you will have to take into account that a transition fee will be payable to that employee if, upon its expiration date, the third contract is not extended, in which case the transition fee would amount to 5/6 of employee’s monthly salary (5 half years, so 5 times 1/6 of a monthly salary payment).
Costs of training
Employers are allowed to deduct from the abovementioned transition fee certain costs that they (have) incurred or are incurring for the benefit of an employee’s position on the labour market. This also applies, under circumstances, to certain training expenses made during the term of an employee’s employment.
The employee’s consent is required to be allowed to make the deduction. Consequently, it is wise – whenever an employee follows any training or courses – to sign an agreement with him/her in which is clearly stated that the respective training or course will improve the employee’s position on the labour market and that the (tuition) fees and expenses incurred to that end by the employer may be deducted from his/her transition fee, should the employee ever be due to receive such fee.
Need more information?
Please call us on (0031) 70 3611 717 or (0031) 6 22485915 if you have questions or if you want to have your Dutch contracts checked. You can also send us an e-mail (email@example.com). Of course, information in Dutch is also available on our website.