Broad consensus for proposals for changes to dismissal law

The Bakker Committee, which was set up to resolve the impasse surrounding dismissal legislation in the Netherlands, issued its recommendations in June 2008. Based on labour market trends, the report recommended that every effort should be made to encourage more people into employment and to stay working for longer. While dismissal law is marginal in this respect, employee flexibility is a key factor. The social partners responded positively to the report, although they were critical of certain aspects.

Committee mandate

The Dutch government cabinet commissioned the Bakker Committee to resolve the deadlock which had arisen surrounding dismissal legislation (NL0701039I). Chaired by TNT Post Chief Executive Officer (CEO) Peter Bakker and comprising scientists and administrators, the committee published its recommendations in June 2008. The committee was assigned the task of investigating measures aiming to encourage more people to join the labour market by 2016, and to keep them working for longer. This issue was examined in the context of the number of hours in a working week, considering also the average lifespan and retirement age.

The most important conclusion drawn by the committee is that the Dutch labour market is facing fundamental changes. Future decades will see more jobs but fewer workers. At the same time, internationalisation is placing greater demands on the working population’s knowledge resources and ability to adapt. The Netherlands will therefore require the input of all of its citizens at any given time. This will be crucial because the country’s ageing population will bring increasing pressure to bear on government finances.

Labour market shortage

The committee assignment was granted against a background of cabinet controversy surrounding changes to dismissal legislation, in relation to which the governing Christian Democratic Alliance (Christen Democratisch Appel, CDA) and Labour Party (Partij van de Arbeid, PvdA) had diametrically opposing views. However, relaxing dismissal law is no longer a key factor in the committee recommendations. Because the working population is set to diminish after 2010, there will be more jobs than people by 2040 and dismissal is not expected to be an issue. Nonetheless, in a shorter timeframe – that is, the term of this cabinet – the Bakker Committee was asked to advise the cabinet on how to secure jobs for 200,000 people. To this end, the committee studied market trends, training and education, and refresher training.

Greater rewards for working longer

In the short term – by 2016 – the committee proposes a range of tax incentives to encourage people to work longer hours. For example, part-time workers who work longer hours should benefit in relation to taxation. Furthermore, childcare allowance should no longer be dependent on a second, part-time income in a family; its level should only be linked to the main salary rather than both incomes.

Training and placement provisions

In the long term, the committee recommends scrapping the preventative test preceding job dismissal, that is, a check before allowing dismissal. Dismissal compensation must be paid into a personal training fund. The committee recommends that, during their careers, employees should be assigned a budget for retraining or further training. Training should be a requirement rather than a right. Employers must ensure that their staff develop the necessary skills and knowledge for their job.

If an employee’s job is at risk, the employer must provide at least six months of assistance in finding alternative employment. The dismissed employee will not receive benefits during this six-month period; instead, the employer must continue to pay their salary. If an alternative position has not been found after six months, the efforts made by both parties will be checked. Unemployment benefit will only commence in cases where the employer and the employee have taken sufficient action to prevent dismissal. Moreover, unemployment benefits will commence at a later stage and gradually decrease during the final phase. No changes are suggested with regard to the maximum period of receipt of benefit.

Higher retirement age

In order to encourage more people to stay working for longer, the age at which older people are entitled to retirement benefits or benefits under the General Old-Age Pensions Act (Algemene Ouderdomswet, AOW) must be increased. The committee proposes gradually raising this age from 65 to 67 years. People who work for longer will receive a ‘work continuation bonus’, and employers will pay reduced social contributions if they retain the services of older employees.

Reaction of government

The government parties have responded favourably to the report. Even the Minister of Social Affairs and Employment, Piet Hein Donner, seemed unperturbed about the dismissal system not being addressed in the short term. Most of the other proposals do not pose a threat to the ruling coalition, except with regard to the committee’s suggestion to raise the pensionable age to 67 years. CDA objects to this recommendation, while PvdA would like to see wealthier older people contributing more towards the AOW. The committee has proposed that, from 2011 onwards, older people should contribute more to the pension fund and that the retirement age should be increased with effect from 2016. As such, this will not raise any immediate issues for the ruling coalition.

Minister Donner has sent a memorandum to the Dutch House of Representatives (Tweede Kamer der Staten-Generaal) proposing that the retirement age be left open. Accordingly, employees can choose if they wish to continue working for longer. After reaching the age of 65 years, the AOW increases by 5% for each year worked. Employers retaining the services of employees aged 65 years or older will be awarded financial compensation for continued payments during illness: the two-year illness payment for which employers are liable will be reduced to six weeks. Employers may also dismiss these employees first in the event of job cuts. The proposal sent to the House of Representatives assumes that employers and employee representatives will cooperate, since they will have to remove the obligation for retirement in collective agreements, thereby leaving the retirement age as a question of individual choice for employees.

Reaction of employers

The three employer organisations are positive about the main points covered in the Bakker Committee’s recommendations. These organisations include: the Confederation of Netherlands Industry and Employers (Vereniging van Nederlandse Ondernemingen-Nederlands Christelijk Werkgeversverbond, VNO-NCW), the Dutch Federation of Small and Medium-Sized Enterprises (Midden- en Kleinbedrijf Nederland, MKB-Nederland) and the Dutch Confederation for Agriculture and Horticulture (Land- en Tuinbouw Organisatie Nederland, LTO Nederland). Nevertheless, the employers want firm guarantees from cabinet that costs and administrative charges will not increase. The recommendation on continuing to work beyond the age of 65 years also appeals to the employer groups. However, the employer organisations were sceptical about the proposal which requires employers to continue paying dismissed employees for a six-month period while helping them to find alternative employment. While this may be workable for large companies, it could place a heavy burden on small and medium-sized enterprises (SMEs).

Trade union reaction

The Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV) is pleased with the recommendations and appreciates the cabinet’s position of wanting to proceed with measures in the short term. As far as the trade unions are concerned, Minister Donner must quickly find the financial resources to help more people to obtain employment in the near future. However, FNV opposes increasing the AOW entitlement age to 67 years, as too many people aged 50 to 65 years are already struggling to find a job. FNV also asserts that huge potential exists among older employees to continue working longer.

All of the proposals on ‘work-to-work paths’ can be carried out within the scope of current unemployment legislation; such paths refer to people moving from one job to another without experiencing a period of unemployment. FNV is nonetheless concerned that whereas highly qualified individuals will be able to save up for the work budget – that is, the budget for training and other activities to start working again – less well qualified employees will not, because they will need their smaller reserves for further training. The trade union federation also remains sceptical about the overoptimistic future scenario of zero unemployment, as proposed by the committee and endorsed by cabinet. A social security safety net will still be needed in the future to cover risks, including unemployment.

The Christian Trade Union Federation (Christelijk Nationaal Vakverbond, CNV) is largely critical of the Bakker Committee’s proposals. While it would certainly be a welcome development if no unemployment were to be found in the Netherlands, CNV considers the proposal to curtail unemployment benefits as perilous. In its opinion, a shorter unemployment benefit timeframe harkens back to a former era and has never contributed towards helping jobseekers find work. CNV also believes that reducing pensions is a precarious path, which should be discouraged. Nor does the trade union federation support the proposal to continue working for longer. In CNV’s view, this is by no means an issue at present. The first priority should be to urge Dutch people between the age of 60 and 65 years to continue working for longer.

Commentary

The Bakker Committee has drafted thought-provoking recommendations. First, the advisors have resolved the impasse surrounding dismissal legislation. By adopting a broader view of developments in the labour market, the core problems can be viewed from a different perspective and potential policy instruments are now more varied. The identification of looming labour market shortages has prompted the conclusion that as many people as possible should continue to work as much as they can for as long as possible. Facilitating this process will require a diverse range of policy measures, within which context the significance of amending dismissal law has paled. Nevertheless, the proposals put forward by the committee concerning dismissal and unemployment benefits are far-reaching for employees and employers alike. The final positions to be adopted by the social partners in this respect are also far from certain.

Marianne Grünell, Hugo Sinzheimer Institute (HSI)