EMCC European Monitoring Centre on Change

Pay guarantee regulation/Unemployment Insurance Act

Netherlands
Phase: Management
Type:
  • Income support for workers
Last modified: 20 August, 2020
Native name:

Loongarantieregeling/Werkloosheidswet – WW

English name:

Pay guarantee regulation/Unemployment Insurance Act

Coverage/Eligibility

This regulation is enshrined in the Unemployment Insurance Act. The provision on pay guarantee protects the payment of workers in the event that the employer cannot pay wages. Specifically, if an employee has a financial claim against an employer who is permanently unable to fulfil its payment obligations, they may benefit from the income guarantee in case of:

  • bankruptcy (declared by court);
  • suspension of payments (surseance van betaling);
  • debt sanitation (if private persons after the finalisation of bankruptcy proceedings are still confronted with debts they are unlikely to pay in future, the debtor has to do everything possible to collect the money needed to pay creditors for up to three years);
  • permanent cessation of payments.  

 Part-time and fixed-term workers covered by the guarantee, and there is no minimum duration of the employment relationship.

Main characteristics

In cases of bankruptcy, employees’ pay and unpaid premiums constitute debts which are paid directly out of the estate with preference over the claims of other creditors. Benefits awarded may comprise pay (over the last 13 weeks immediately preceding the date of notification of the dismissal and the period of notice for dismissal), holiday payments and holiday bonuses.

The UWV (Institute for Employee Benefits Schemes) operates as the guarantor. Benefits are paid through the general unemployment fund, which is funded by premiums paid by employees and employers. There is no direct link between payment of these premiums and the right to receive benefits.

Until recently, the UWV reimbursed the full pay (including expense allowances, pension premiums and so on). There was no limit to the level of the pay. However, as from 1 January 2016 the reimbursement is limited to 1½ times the amount of the maximum daily wage (which also serves as the basis for the unemployment benefit). Employees with a higher gross pay therefore no longer receive their full pay.

Legally, no recent changes have taken place to the law’s articles 61 to 68, the provisions on the pay guarantee.

Funding

  • National funds
  • Employees
  • Employer

Involved actors

National government
Legal framework.
Public employment services
The UWV (Institute for Employee Benefits Schemes) operates as the guarantee institution.

Effectiveness

No further information on effectiveness available after the information from 2016. There is no explicit research on the arrangement itself. Research focuses mostly on abuse of the bankruptcy legislation to the extent that this occurs, as well as fraudulent claims to avail of benefits that are made. As of 2020, no recent evaluations of the law or the provision on the pay guarantee scheme were publically available.

In spring 2016, employees of a number of very large companies in the retail sector and in the health care sector appealed to the pay guarantee regulation as a result of the bankruptcy of their employer. Due to this, in 2016 UWV provided many more benefits in the framework of this regulation than in 2015 (to almost 61,000 individuals compared with 42,000). To be able to process the large amount of applications quickly and correctly, UWV increased its capacity. With the help of this extra capacity and by making optimum use of the salary administration in good cooperation with the HR divisions of the bankrupt companies, UWV was able to provide employees with an advance on their benefits. In addition to providing the benefits, UWV also organised meetings with tens of thousands of employees to provide them with relevant information. During these meetings, UWV informed the employees about the consequences of the bankruptcy for their income and when and under what conditions they could expect to receive benefits from UWV.

In recent years, a so-called 'pre-pack' has attracted a lot of attention. In a pre-pack the ‘bewindvoerder’ (administrator) prepares for bankruptcy, with the aim to restart the business activities. At present, bankruptcy legislation does not cover pre-packs. However, Dutch companies and policymakers expect another option to become available to businesses when facing insolvency, as in June 2016, the Netherlands' House of Representatives adopted the Continuity of Enterprises Act I (Wet Continuiteit Ondernemingen I, WCO I). The act still has to be approved by the senate. The act outlines an insolvency rescue procedure known as pre-pack, or 'silent administration', which has already been utilised to varying degrees in the Netherlands. The act would, however, give the practice a statutory basis and ensure uniform implementation across the country. The act includes stipulations for protecting employees, as it requires that the works council or staff representation be involved in the pre-pack procedures.

Strengths

Strengths of this pay guarantee scheme are that workers are protected from unforeseen developments affecting their employer. Workers enjoy added legal protection of their wages in difficult situations where multiple creditors want payment from a given employer. 

Weaknesses

A relevant observation is that the arrangement is a non-issue in politics, legislation, case law and academic debates.

Examples

No information available.
Sources
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