Flexicurity: new bills on flexibility and security at work

The Second Chamber of the Dutch Parliament is considering two bills that aspire to create a new balance between flexibility and stability on the labour market. The bills, submitted in March 1997, are based on a historic agreement involving a unanimous recommendation by the social partners on the future of labour relations and a significant reassessment of Dutch labour law. This seems to have ensured their public support.

Over the last 10 or so years, the Dutch labour market has been characterised by increasing flexibility and fragmentation. There is greater variety and flexibility with respect to working time, pay, job descriptions, the location of work and the term and type of employment contracts. Part-time work has, for example, become very popular in the Netherlands. More than one in every three Dutch employees (mainly women) has a part-time job, in contrast to an average of one in seven for the EU as a whole. There are also various types of contract flexibility, such as temporary work, freelance work, on-call employment, homeworking and teleworking. Whilst the percentage of flexible employment contracts stood at 7.9% of the working population in 1987, by 1995 it had increased to 10% (Arbeidsverkenning 1987/94. CBS (Central Statistics Bureau) (1995)). Nowhere else in Europe does temporary work (through private temporary employment agencies) flourish as it does in the Netherlands. Temporary workers constitute about 3% of the total available labour supply.

Flexibility versus security

The "rigidity" of Dutch labour law, especially with respect to dismissal, has been identified as one of the causes for the increase in flexible employment contracts. Indeed, there is quite a high level of protection for workers employed under a traditional employment contract. In flexible employment situations, agreements about the work to be carried out are often vague and cause workers to feel insecure. This lack of clarity can result in the employer failing to observe the law, for example by paying the employee an unreasonably low wage, or not paying any wage at all. This might happen in the case of a "zero hour" contract: a worker may wait to be called in for work but in fact never actually be called. Or a homeworker may simply never be paid for work completed. Workers in flexible employment are therefore faced with a high level of insecurity. Ample use is also being made of fixed-term employment contracts. Such a contract allows an employer to hire a person on probation for a fixed period, extending the legal maximum probationary period of two months. Moreover, since this type of contract automatically terminates on the expiry date, no official termination procedures need to be initiated. Prior notification of termination is not required for these contracts unless the contract is extended within a period of 31 days. In practice, several different contract schemes have been devised, such as "revolving door" schemes that use combinations of fixed-term contracts and temporary work through private agencies. TheSupreme Court has put a stop to these ploys which aim explicitly at circumventing law on dismissal.

Originally, the employers' organisations and the trade unions were sharply divided over the issue of flexibility. Whilst employers called for greater contract flexibility and flexibility of labour law, trade unions objected to the deterioration of worker protection and called for an improvement of the legal status of "flexi-workers". Therefore, most of the recommendations of the Joint Industrial Labour Council (Stichting van de Arbeid, STAR) and the Social and Economic Council (Sociaal-Economische Raad, SER) relating to the review of dismissal law, flexibility and the legal status of flexi-workers were also divided (see for example the SER's Recommendation on flexible labour relationships, No.91/19, 20 September 1991).

Government acts

For a long time there was no political majority to take decisions on these issues. A bill to amend the dismissal law (No. 21 479), that had already been approved by the Second Chamber, was first ignored by the First Chamber and finally withdrawn by the Government. Although wide discussion took place about abolishing the system whereby administrative permission to terminate employment is required in dismissal situations, the current regulations remained unchanged. At the same time, hardly any measures were taken to improve the legal status of flexi-workers. The last Government believed that the introduction of the measure requiring employers to inform employees about certain labour relations issues would be sufficient (implementation of EC Directive 91/533/EEC on an employer's obligation to inform employees of the conditions applicable to the contract or employment relationship).

The current Minister of Social Affairs and Employment, Ad Melkert, has succeeded in overcoming this impasse. Striving for a "win/win" situation, he linked both matters of policy: an increase in flexibility in labour relations while maintaining a sufficient level of worker protection. The policy document Flexibility and security (Second Chamber 1995-6, No. 24 543) was submitted to the social partners in December 1995. In April 1996, the bipartite STAR published a unanimous recommendation which largely coincided with the Government's analysis and point of departure (Document "Flexibility and security", Joint Industrial Labour Council, 3 April 1996, no. 2/96). In spite of this, STAR did come up with an alternative mix of proposals on some important points. The Government regards these recommendations as a historic agreement which makes a valuable contribution towards creating harmonious employment relationships. The Government adopted almost all of the proposals and has included them in two bills which were submitted to Parliament on 7 March 1997: the Flexibility and Security Bill (No. 25 263) and the Bill concerning the Allocation of Workers through Intermediaries (No. 25 264).

In the Government's view, labour law reform must contribute towards creating a new equilibrium between the parties involved in the labour market. Flexibility and security must go hand in hand, and the process of making labour more flexible must progress in a responsible and balanced way for all parties. Well-balanced, steady and flexible employment relationships are, for the Government, the key to an economically competitive and socially sound labour system. The basic provisions of the two bills are set out below.

Main provisions

In order to strengthen the legal status of flexi-workers, two legal presumptions were included in the bills. If an employee has worked on a regular basis for his or her employer for a period of three months (weekly, or at least 20 hours a month), then the law automatically presumes a contract of employment. If there is no specific agreement on the hours to be worked, the number of hours worked per month over the three previous months are taken to be the number of hours stipulated in the contract of employment. If the employer disagrees, it is at liberty to produce evidence to the contrary.

On-call workers (that is, those who have no secure weekly working hours or those who work when their employer calls them) may claim a minimum of three hours' pay each time they are called in to work. In other words, employers must pay out three hours every time they call in an on-call worker, regardless of whether three hours are actually worked or not.

The proposed regulations also govern written agreements between employers and employees that state that no wages will be paid if no work is available. In practice, this can lead to businesses shifting their business risks on to the workers and thus on to the social security system in the form of unemployment benefits. The Government feels that the scale on which this is done should be limited. The period that employers can still claim "no work, no pay" will be reduced to six months. This can only be extended through a collective agreement.

The legal maximum probationary period (that is, the two-month period during which the employer and the employee are both free to terminate the contract) will not be extended, but will instead be restricted for short-term contracts which specify a term of employment. More latitude is therefore created for extending fixed-term contracts (flexibility). On the other hand, the repeated use of such contracts has been restricted (security). In the event of a series of three extended fixed-term contracts (interrupted by a period of less than three months), prior notification of termination of the contract is required. If the total duration of the fixed-term contracts exceeds three years, then the contract is converted into a contract for an indefinite period.

Specific provisions have also been included in the law regarding temporary work contracted through private employment agencies. These are linked to repealing the permit system for temporary employment agencies, and lifting the maximum term for this type of temporary employment (currently six months). The basic premise is that temporary employment relations should be regarded as contracts of employment. In view of the special character of these temporary employment relationships, exceptions to the normal regulations governing a contract of employment will be made for the first 26 weeks of the agreement. This refers to flexible termination of the employment relationship and the continued payment of wages.

The dismissal procedure will be shortened. Nevertheless, the Employment Offices (PES) will continue to carry out preventive checks with regard to applications for dismissal. Once a dismissal permit has been applied for, the termination of the contract can no longer be obstructed by employee illness. Once a dismissal permit has been granted, the employer can give a notice of termination. At least one month's notice must be given, and the maximum term of notice will be four months (currently six months). Employees will no longer have to register a pro forma notice of objection in the event of redundancy since such a notice will no longer be required to safeguard unemployment benefits.

Commentary

The time of sheer euphoria over the new proposed regulations seems to have passed. From a technical point of view, they do not contribute to a simplification of Dutch labour law. It has also been warned that the overall effects of the regulations still remain to be seen. Will the use of flexible labour relationships decline from now on? Will the flexi-worker of today be better off with a more flexible employment contract tomorrow? How tailor-made will new labour legislation become in the future when new types of labour relationships inevitably emerge? The effects on the social security system are also uncertain. Will the new flexibility, as provided by the new labour legislation, enable companies to shift their business risks on to the social security system in the form of unemployment benefits?

Whatever happens, the social partners will certainly have an important role in the future since a number of legal provisions leave room for exemptions through collective agreements. A case in point is the regulation of temporary work. The employers and trade unions in the temporary work sector have already agreed on far-reaching exemptions from the legal provisions in their collective agreements for the next 10 years. This agreement provides the skeleton structure for a new five-year collective agreement to be used once the new regulations have been adopted, and diverges considerably from the legal provisions. (HH de Vries, HSI)

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