Social partners oppose proposed changes to dismissals law

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In July 2003, the Dutch social partners, represented on the bipartite Labour Foundation, issued an opinion opposing a proposal for the reform of dismissals law put forward by a government-appointed committee. The committee proposed abolishing the system whereby dismissals must be approved in advance by a public authority. The Foundation argues that the objections raised by the committee do not outweigh the advantages of the present system, which keeps costs in check and offers the parties involved a high degree of certainty and security.

Dutch dismissals law is governed by a 'dual system', involving procedures based on both administrative and civil law. First, an employer in the private sector wishing unilaterally to terminate an open-ended employment contract requires prior permission from a public administrative body, currently the Centre for Work and Income (Centrum voor Werk en Inkomen, CWI). This procedure was introduced during the Second World War, on the basis of a special government decree, as an instrument of labour market policy and has since evolved into a preventative check to determine the reasonableness of any intended dismissal (NL9909160F). If the intended dismissal is not sufficiently founded on reasonable grounds, the employer is denied a permit to dismiss; if dismissal nonetheless follows, the employee then has legal grounds upon which to contest the validity of the dismissal.

Additionally, in the 1970s a second route to termination of contract emerged: an employer can request the relevant subdistrict court to dissolve an employment contract under the provisions of Article 7:685 of the Civil Code (referring to 'compelling grounds' or 'changed circumstances'). The court then checks the validity of the request and, if the contract is dissolved, the court usually imposes compensation to be paid by the employer. Use of this method increased greatly in the 1990s and, in 2002, as many as 68,331 requests for dissolution were submitted to the courts, while 70,925 requests for dismissal permits were submitted to the CWI.

Following failed attempts to reform dismissals law in the past, the then Minister of Social Affairs and Employment, Ad Melkert, promised the Upper House of parliament in 1998 that he would establish a committee to study alternative approaches to dismissals law in the future. The committee, chaired by a former labour law professor, Max Rood, was established in February 1999 and published its initial report in November 2000 (NL0012116F). The Rood committee called for abolition of the preventative check on dismissals by the CWI and expressed a preference for a system in which decisions related to dismissal would only be tested by a civil court in retrospect. In addition, the committee put forward an alternative secondary proposal (not discussed here) to update the dual system.

The government submitted the Rood report to the bipartite Labour Foundation (Stichting van de Arbeid, STAR) for further recommendation. The STAR issued its opinion in July 2003, and the fact that the trade union and employers' organisations represented on the Foundation took more than two and a half years to report illustrates just how controversial the issue of dismissals law still is.

Arguments for change unfounded

In the STAR opinion, the social partners leave little doubt as to their disapproval of the arguments for change put forward by the Rood committee, and the proposed alternatives to the current system are subject to numerous objections.

First, the Rood committee argued that the preventative check on dismissals by the CWI could be seen as a form of government intervention that can no longer be considered appropriate given the current state of labour relations. Jurists, too, believe it inappropriate for an administrative body (the CWI) to rule on the civil law relationship between an employer and an employee, and argue that such matters should be left to the normal courts. However, in its opinion, the STAR sets the question of principles aside and points instead to the practical advantages of the current 'low-threshold' and relatively inexpensive and swift procedures. According to the STAR, it need not necessarily be a government body that issues a recommendation on the reasonableness of a dismissal in advance, and this could just as well be a body installed by the social partners themselves, provided that the courts still have the final say. The STAR studied possibilities for such a body but admitted finally that no alternatives could be put forward with sufficient backing within the Foundation.

The Rood committee also argued that Dutch dismissals law deviates too radically from the laws in effect in other EU Member States, which could obstruct the integration of European labour market policy. The STAR finds the information presented by the committee too thin to draw such a conclusion, but does claim that the notion of Dutch dismissal protection hindering labour market mechanisms rests more on an image than on concrete facts. Neither, in the social partners' view, does adjustment to the 1982 International Labour Organisation (ILO) Convention No. 158 on termination of employment. – not yet ratified by the Netherlands – provide cause to change Dutch dismissal law, as the STAR believes that the current law already complies.

The STAR is critical of the Rood committee’s stance that current dismissals law is ineffective and that it contributes little towards protecting employees whose position in the labour market is weak. The Foundation believes that this conclusion cannot be drawn based on the information available, while there are indications that the necessity for employers to justify the need for a proposed dismissal in advance to an independent third party (the CWI or a court) contributes towards treating more carefully employees who do not enjoy a position of strength in the labour market.

Transparency may lead to uncertainty and high costs

With regard to the complexity and lack of transparency of the present dual system, the STAR concurs with the Rood committee that the latter's proposals would contribute towards the transparency of dismissals law, but objects to the same proposals as they would result in 'trading complexity for legal uncertainty'.

In the Rood committee’s main proposal, the current preventative check would be replaced by an internal hearing procedure that would be organised by the employer within the company. This legally prescribed hearing procedure should provide sufficient room for consultation and negotiation between the employer and the employee on the conditions under which the employment contract is dissolved. If the employer failed to meet the demands prescribed by law with respect to the hearing procedure or if the grounds for dismissal were not reasonable, the employee could request the court to nullify the notice of dismissal.

The STAR states that a number of advantages offered by the current system would vanish if this proposal were to be implemented. The check for reasonable grounds would no longer precede the actual dismissal. As a result the employee will have already been dismissed at the time of the court ruling and the employer may be confronted with significant costs after the fact. In the STAR's view, the proposed procedure lacks the 'low-threshold' element inherent at present and would lead to additional legal proceedings and, consequently, an additional burden for employers (especially smaller businesses), a greater need to seek and engage legal counsel and more protracted procedures. Finally, unlike in the present situation, the employer and employee could find themselves in uncertainty about the validity of the notice of dismissal for a protracted period of time.

In short, according to the STAR, none of the proposals put forward by the Rood committee offer an attractive alternative to the present system.

Commentary

As far as the social partners are concerned, the most recent proposal for reform of dismissals law should join all its predecessors in the Minister’s drawer. The system of a prior check conducted by a government body to assess whether reasonable grounds exist in matters of dismissal, which has been in place for nearly 60 years, appeared to be on the way out, but may remain in place for the time being according to the social partners. While none sing its praises, the current system has proved its practical worth, and its low threshold, low costs and high measure of predictability, coupled with the degree of protection it affords employees, provide sufficient reason for its retention.

However, it is unfortunate that the concept of an internal hearing procedure over proposed dismissals will be filed away for the moment. Given the way in which this proposal was presented by the Rood committee, the lack of enthusiasm expressed by the social partners is understandable. Nonetheless, this does not detract from the fact internal communication about intended dismissals within companies in the Netherlands would benefit from some form of regulation. (Robert Knegt, HSI)

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