Renewed debate about reform of the law governing dismissal

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Over 1999, a committee of experts set up in February by the Dutch Minister of Social Affairs and Employment has been examining possible reform of the law governing dismissal. Although reform of dismissals law has been attempted frequently in the past, the prevailing law has remained largely unchanged over the last half century. Nonetheless, the law's application in practice has changed.

In keeping with a promise made earlier to the Lower House of the Dutch Parliament, the Minister of Social Affairs and Employment installed a committee of experts on 25 February 1999, to advise on reform of the Dutch law governing dismissal. In November 1997, this promise had become politically necessary to prevent debate about dismissals law from blocking adoption of the Flexibility and Security Act (NL9901117F).

The Dutch law governing dismissal is based on a "dual" system: an employer wishing to dissolve an employment contract may choose between two main procedures. In principle, in order to dissolve unilaterally an indefinite employment contract, a private employer has to obtain prior permission to do so from an administrative body, the director of a District Employment Services Authority (according to Article 6 of the 1945 Labour Relations Decree - BBA 1945). To obtain such a permit, a well-argued application must be submitted. The grounds may relate to the economic situation of the employer's enterprise or to the personal shortcomings of the employee. Before deciding, the director takes advice from a committee representing both employers and employees. If the application is rejected, the employer cannot legally dissolve the employment contract.

The other procedure was created as an "emergency exit" but has developed into a parallel "main road" to dismissal: the employer may file a request at the subdistrict court to dissolve the employment contract based on "compelling grounds" or "changed circumstances" (Article 7:685 of the Dutch Civil Code). The court may hear the case or, if the employee apparently does not object to ending the employment relationship, the court may settle the case in writing. The dissolution procedure differs markedly from the administrative procedure in that the court can award compensation to be paid by the employer to the employee.

Flaws in the administrative procedure criticised

The legitimacy of the first of the two routes listed above - the administrative procedure - is open to debate. Is intervention on the part of an administrative body in the private relationship between an individual employer and an individual employee legally acceptable? Is it in conformity with the the Council of Europe's Convention for the Protection of Human Rights and Fundamental Freedoms? From the government's perspective, the advantage of the procedure is that a preventive test of an intended dismissal offers protection to groups occupying a weak position in the labour market. It also offers employers more certainty as to the reasonableness of the intended dismissal, and is thus more effective in preventing unfair treatment.

The bureaucratic manner in which the rules are implemented has also been criticised. Employers complain about the protracted procedure and perceive the outcome as being highly unpredictable. Most employers' organisations - including the largest employers' association, VNO-NCW- therefore support its abolition. However, the procedure has the advantage of being relatively straightforward and inexpensive. For these reasons, employers in the small to medium-sized business sector are particularly keen to maintain this procedure. To date, a coalition of trade unions and small employers' organisations has succeeded in keeping the procedure intact and staving off pressure to abolish it.

Dissolution procedure

The second procedure, involving the courts, clearly entails costs: legal assistance is usually required and employee compensation usually awarded. In 1996, the subdistrict courts agreed to use a single formula in determining the level of compensation. This "subdistrict court formula" of calculating compensation is based on the duration of employment, the age of the employee and the level of his or her last-earned salary. Recent research reveals that the level of compensation varies significantly, amounting to anything between NLG 1,000 (EUR 470) and NLG 800,000 (EUR 378,000), averaging out at around NLG 28,000 (EUR 13,200).

The number of cases handled annually fluctuates. At the height of the recession in the early 1980s, some 200,000 applications for dissolution were filed each year. Since then the number has declined due to economic growth. In 1998, the number of applications remained limited at 39,614. Between 1976 and 1998, the number of annual applications for dissolution grew explosively from some 500 to 40,106. For the first time, in 1998, the number of requests for dissolution filed at the subdistrict court exceeded the number of requests for dismissal submitted to the director of the Employment Agency (NL9907152N). Government policy is aimed at reversing this trend and making use of the application procedure more attractive again. To date, however, this approach has failed.

The reason why so many cases of dismissal have to be handled by one of these two external bodies, and are not for instance a matter of mutual consent, is linked to the requirements imposed on employees by the social security system: employees are required to do everything that is reasonably in their power to remain employed. If not, this may be considered harmful to the position of the social security authority and may lead to the complete or partial denial of unemployment benefits. For most employees, these requirements provide grounds for objection against the intended termination, at least formally, even if continuation of the employment relationship is no longer considered a realistic option. Consequently, many of the cases brought before the subdistrict court are in fact not based on a difference of opinion between the parties regarding the terms under which the employment contract is dissolved.

Objections to the dual system

One of the objections raised to the present dual system of dismissal is that the employer can choose which procedure to follow, while the respective outcomes of the two procedures can have markedly different consequences for the employee, particularly in terms of possible compensation. A proposal put forward by the trade unions to correct this by allowing the director of the Employment Services Authority to award compensation has been countered on the grounds of serious legal objections. Another objection often raised in the political debate concerns the lack of recourse to an appeal procedure against decisions concerning dissolution of the employment contract. This mainly relates to subdistrict court rulings to dissolve employment contracts and award compensation. Although both parties stand to benefit from quickly and definitively establishing their position in relation to the law, the lack of recourse to an appeal procedure regarding decisions with potentially grave consequences is unsatisfactory. Nonetheless, proposals to institute a Supreme Court appeal procedure have been rejected by most lawyers involved in cases of this nature.

The expert committee established in early 1999 has been assigned the task of reviewing the cohesion between the two dismissal procedures and addressing the issue of whether the dual structure should be upheld. Additionally, the committee's task is to assess possible ways to make the different regulations more transparent and suitable for application in today's labour market. The point of departure should be to uphold the guarantees offered by the prevailing system of preventive testing in cases of pending dismissal.

Commentary

Although preventive testing in cases of intended dismissal is probably the most effective way of offering employees protection against unfair dismissal, it is questionable whether this procedure can be upheld in the future. Although government may well like to maintain the procedure as a labour market instrument, increasing flexibility in the labour market and greater emphasis on money matters concerning labour relations would seem to point in a different direction. In any event, fundamental reform of the Dutch law governing dismissal would appear inevitable. (Robert Knegt, HSI)

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