Employers and government propose industrial relations reform

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In July 2004, the Dutch government and the VNO-NCW employers' confederation published separate documents calling for a variety of changes to current employment law and industrial relations practices, aimed at improved economic growth and competitiveness. The proposals cover areas such as pay trends, minimum wages, the extension of collective agreements, employee invovlement, working time and social security. While the government and employers have similar views on numerous points, their emphasis differs in some areas. Reactions from the trade union movement to the proposals have been very critical.

In July 2004, the largest Dutch employers’ association, the Confederation of Netherlands Industry and Employers (Vereniging van Nederlandse Ondernemingen-Nederlands Christelijk Werkgeversverbond, VNO-NCW), published a memorandum entitled 'The Netherlands must be more active. Work(ing) in the knowledge economy in 2010' (Nederland moet actiever. Werk(en) in de kenniseconomie 2010) . At almost the same time, the christian democrat/liberal coalition government published a 'growth memorandum' (groeinota) entitled 'Opting for growth' (Kiezen voor Groei). Both documents contain proposals that potentially have significant implications for industrial relations. Below we provide an analysis of these proposals.

Wage trends

Both the government and VNO-NCW emphasise the need for 'structural' wage cost moderation. The former states that while over the 1993-7 period wage costs in the Netherlands decreased by 6.1% in comparison with its most important trading partners, they have risen by 11.6% since 1998. Although re-establishing the competitive position of the Netherlands cannot be achieved solely on the basis of wage moderation, long-term moderation is essential, the government asserts. More than before, wage trends should also be increasingly linked to the divergent levels of profitability in specific segments of the Dutch economy.

VNO-NCW draws attention to the impact of the ageing workforce on wage costs. To this end, a greater individual savings element should be introduced in employee pension schemes. VNO-NCW also argues that moderate wage trends are crucial.

Minimum wage and lowest wage scales

For VNO-NCW, the current level of the statutory minimum wage should be adjusted to the fact that the Netherlands has become a 'double-income society' (ie most households include two wage earners). The proposed individualisation of the minimum wage would mean lowering it to between 70% and 80% of its current level. VNO-NCW also appears to support lowering the age at which the full adult rate of the wage becomes payable from 23 years to 21. An alternative would be to abolish the statutory minimum wage entirely. In any event, the statutory holiday allowance (now regulated on the basis of the Minimum Wage Act) should be scrapped, it is argued. The lowest wage scales set by collective agreements should no longer be above the level of the statutory minimum wage. More sliding introductory pay scales should included in collective agreements - including scales below the level of the statutory minimum wage for young people, in order to offer less qualified young people better job prospects (NL0402102F).

In June 2004, the Minister of Social Affairs and Employment, Aart Jan de Geus, agreed to consider lowering the minimum wage by replacing the current monthly rate by an hourly rate. The hourly rate would amount to one 40th of the current monthly wage. As a result, employees who work 36 or 38 hours a week, for example, would receive less than at present.

Collective bargaining

VNO-NCW stresses the importance of customising, decentralising and individualising terms and conditions of employment. According to the employers' organisation, collective agreements should in future be limited to key subjects and contribute towards a 'sensible' wages policy, increasing productivity and motivating employees. It should also remain possible to exclude employees at the top end of the labour market (eg senior managers) from collective agreements. Individual position-related contracts should apply to these employees.

With the exception of wage trends, the government makes no comment in its document on collective bargaining related to terms and conditions of employment. The International Labour Organisation (ILO) has in the past reprimanded previous governments on this score, arguing that such 'interference' infringes on the bargaining room available to the social partners.

Extension of collective agreements

According to VNO-NCW, the current mechanism for the binding extension of sectoral collective agreements (to non-signatory employers and employees) contributes to maintaining stable industrial relations (NL0403102F). However, it is necessary to review critically which provisions of collective agreements are deemed eligible for extension or not. Companies should also have sufficient opportunities for exclusion from such extensions, and periodic assessments must be carried out of the whole extension system.

Although the government's document says little about collective bargaining in general, the government is concerned about the issue of extension. In late June 2004, Minister De Geus expressed the government's view that the extension of collective agreements cannot be at the expense of the public interest. The government had announced earlier that it would desist from extending collective agreements if the current wage moderation ended or if new collective agreements included provisions about supplementing sickness benefits during an employee's second year of absence (NL0407102F).

Employee involvement

According to VNO-NCW, Dutch legislation on employee involvement should be simplified and deregulated. Additionally, the parties at company level (works councils and management) should be given the freedom to include topics related to terms and conditions of employment on their negotiating agenda (NL0309102T).

The government has the same opinion with respect to simplification and deregulation in this area. In June 2004, a legislative proposal concerning amendment of the Works Councils Act (Wet op de ondernemingsraden) was put before the Council of State (Raad van State) for a recommendation (NL0407103F).

Working conditions

While VNO-NCW believes that sound legislation on working conditions and health and safety is important, it finds the current regulations too detailed, not only in the Netherlands but internationally as well. In any event, rules that exceed the limits set by European Union Directives should be scrapped, it argues.

The government has indicated its intention drastically to simplify and deregulate legislation governing working conditions (NL0408102N). Even a recommendation put forward on this topic by the tripartite advisory Social and Economic Council (Sociaal Economische Raad, SER) in February 2004 contains elements of deregulation (NL0403101N).

Labour productivity

According to VNO-NCW, collective agreements should offer sufficient space to achieve productivity gains. Factors that would contribute towards this include: deregulation; training/education and employability; expanded operating hours; extending and increasing flexibility with respect to working hours; and performance-based payment. The traditional remuneration system, based on seniority, should be replaced by systems based on 'labour market value', input and demonstrable career investment.

The government's memorandum mentions labour productivity within the framework of 'social innovation' and refers to a publication recently issued by the General Association of Employers (Algemene Werkgevers Vereniging Nederland, AWVN) and the trade union federations entitled 'Working smarter on the job' (Aan de slag met slimmer werken), which touches on areas including working time management, performance-linked remuneration, telework, and absence and reintegration policy.

Working time

VNO-NCW would like to see employees working longer hours. The trend towards working time reduction in recent decades must be reversed. On average, Dutch full-time employees are thought to work at least 4% less overall than their average EU counterparts. The average working week should be brought back up to 40 hours and the number of days off should be limited. VNO-NCW identifies problems associated with the ageing workforce and also refers to a recent survey conducted by the Central Planning Bureau (Centraal Planbureau, CPB), indicating that having employees work 4% longer would boost GDP by as much as EUR 13 billion to EUR 20 billion.

The government also wants to stimulate employees to work longer, with a 40-hour working week assumed as the point of departure. The social partners should bring this about in the private sector, and in any event no provisions should be included in collective agreements that could potentially hinder working longer hours. The government has also submitted far-reaching proposals for simplification of the existing Working Hours Act (Arbeidstijdenwet) (NL0404103F).

Apart from meeting with resistance from the trade unions, the wishes of the government and employers seem to be in sharp contrast with the wishes of a large majority of individual employees. According to a study conducted by the University of Amsterdam, only 5% to 10% of employees would in fact like to work longer hours. Those that do are primarily people earning a low hourly wage and some part-time employees.

Working longer

Older people should continue being involved in work for longer, states VNO-NCW. In this respect, it criticises current government policy, which for example allows some civil servants to retire well before the age of 60 in some cases (NL0406103F).

The government would also like to stimulate older people to continue working longer. To this end, tax incentives related to early retirement schemes will be suspended (NL0406102F). The government also believes that tax and financial hindrances preventing older employees from working longer (such as income-linked subsidies) should be removed.

More flexible dismissal law

According to VNO-NCW, the Netherlands is characterised by a high level of employee protection against dismissal (NL0311103T). Under current regulations, it is claimed, the balance appears to have shifted too far in favour of employees (especially in terms of the level of dismissal compensation). The maximum dismissal compensation for an employee should equal no more than a year’s pay, and then only in cases of actual damage. In future, there should be less emphasis on age and years of service in dismissal situations. VNO-NCW believes that the seniority principle in selection for redundancy ('last in, first out') is outdated (NL0406101N). Finally, statutory prohibition of dismissals of certain categories of employee should be limited to cases arising by virtue of international agreements.

The government is interested in the Danish system of regulating dismissals (DK0311102T). While short-term unemployment is more common in Denmark than it is in the Netherlands, long-term unemployment is considerably less prevalent. The government also claims that in Denmark, employees only accrue rights to dismissal compensation after 12 years of service (and then only a month’s pay), while the formula that applies in the Netherlands in principle entitles employees to one month’s pay for each year of service. This compensation is higher for employees aged 40 and above. The government plans to take the following measures:

  • considering dismissal compensation received when calculating unemployment benefits; and
  • re-examining the 'last in, first out' principle, including a review of whether the social partners enjoy sufficient leeway to reach divergent arrangements in collective agreements.

On 6 June 2004, going against a recommendation supported by a majority of the tripartite SER, the government announced its intention to scrap 'short-term' unemployment benefits with effect from 1 January 2005. From that date, the requirement for entitlement to unemployment benefits will be that a worker must have worked for 39 of the last 52 weeks. The threshold is currently 26 weeks.

Social security

VNO-NCW believes that in the field of social security responsibility should be linked to financial burden. Where risks can be influenced by employers and employees, insurance cover should be financed by both parties. Examples include absence due to illness, partial occupational disability and parts of unemployment insurance. Financing for other insurance schemes that cannot be influenced by employers and employees should be derived from general reserves.

VNO-NCW is calling for a fundamental review of the Occupational Disability Insurance Act (Wet op de Arbeidsongeschiktheidsverzekering, WAO), based on SER recommendations issued in March 2002 and February 2004 (NL0404101N). If this fails to materialise, VNO-NCW would like to see a distinction between 'professional' and 'social' risk reintroduced. Absence from work due to sickness - which is at higher levels in the Netherlands than in neighbouring countries - must be further reduced by adopting incentive measures such as waiting days for receipt of sickness benefit or reducing the amount of leave for workers who are absent sick.

The duration of unemployment benefit payments should be kept as short as possible, and the current requirements for entitlement are too lenient, VNO-NCW asserts. Within the state sector, existing non-statutory benefits (bringing benefits up to 80% of pay in the first year of unemployment and 75% for several months thereafter) must be scrapped. On a more fundamental level, a further review must be conducted to determine how a 'future-resistant' social security system might be shaped over time.

The government emphasises the necessity of introducing an 'activating' social security system. Concerning the Unemployment Insurance Act (Werkloosheidwet, WW), a number of measures directed at achieving this have been adopted. These seek to

  • prevent the WW scheme from being used as an exit route for older employees; and
  • reinforce individual elements in social security schemes.

International labour mobility

VNO-NCW is against closing off the Dutch labour market to immigrants. The social partners must ensure that current Dutch rules on terms and conditions of employment and working conditions apply to immigrant workers, while the government must undertake measures to regulate better the recognition of foreign qualifications. Rules on migration from outside the EU must be relaxed, especially with respect to very highly educated workers.

The government has announced its intention to draft a new policy for the admission of self-employed people from abroad, and the procedures relating to highly educated workers may be simplified and shortened.

Trade union reactions

The trade union movement has reacted negatively to the documents issued by the employers and the government. According to the collective bargaining coordinator at the Dutch Trade Union Federation (Federatie Nederlandse Vakbeweging, FNV), none of its affiliated unions will reach agreements on lengthening the working week, and certainly not at present given the mounting level of tension with respect to early retirement (NL0407101N). ABVAKABO, the FNV union for civil servants, immediately announced that there would be no discussions within government about a 40-hour working week.

The unions add that many collective agreements already include numerous options allowing for working longer hours, but that a large majority of employees in fact prefer to have more free time. The trade union movement is also fiercely opposed to any reduction in the minimum wage. The FNV chair, Lodewijk de Waal, has stated that it is not for nothing that the lowest wage scale in collective agreements is higher than the statutory minimum.

Before the two memorandums appeared and after negotiations on early retirement and 'life-cycle leave' arrangements became deadlocked, the unions had announced their intention fully to oppose proposals in these areas tabled by the employers and government (NL0407101N).

Government and employers not yet in agreement

The government and VNO-NCW are addressing the same topics and, in broad terms, share the same vision of how the Netherlands needs to change. However, their opinions differ somewhat on the road that should be taken to reach that point. This is especially true where the government is threatening to intervene in what employers (and trade unions) consider the domain of the social partners. For example, the government will not extend collective agreements that deviate from the current desired wage freeze. Employers see this as going too far and are calling for a more nuanced approach. Opinions also differ with respect to extending the working week. The governments seems set on a standard increase to a 40-hour week without any wage rises, while employers do not rule out a wage increase in all cases and would like to link this - at least in part - to developments in productivity and the competitive position. Opinions likewise differ with respect to the WAO occupational disability legislation. Employers would like to see the government take up the SER's recommendations in this area, but the cabinet wants to do so only partially (NL0404101N).

Approaches also differ amongst the employers themselves. The AWVN association rules out a longer working week but fully backs increasing labour productivity. This is clear from the abovementioned new publication entitled 'Working smarter on the job'. This states that productivity should be raised on the basis of working time management, absence and reintegration policy, and education and training.


The present government would like to leave the characteristically Dutch 'polder' model of consensus and consultation behind, or at least some of its essential elements. The most avid opponent of the consultation-based model is probably the Minister of Economic Affairs, Laurens Jan Brinkhorst. Commenting on the model’s track record over recent years, he has stated: 'Polder thinking is based on consensus about standards and common interests. It can only function properly within a closed society. That’s why polder thinking is not an option within a broader Europe, since it lacks a joint administrative political culture.' The government also appears less inclined than its predecessors to adopt the recommendations of the tripartite SER, which could in a sense be seen as an embodiment of the Dutch system of consultation.

More importantly in a substantive sense, the government’s intention not to extend collective agreements in all cases will probably be upheld. The opinions of the government and the employers are certainly somewhat divided on this score but, for the rest, their agendas appear largely similar.

The trade union movement has taken up a somewhat defensive stance in response to government’s recent adoption or announcement of numerous measures and has promised that there will be a 'hot autumn' (NL0407101N). It now remains to be seen, after years of relative calm in the arena of Dutch industrial relations, if the trade union movement still has the power to mobilise the workforce. The unions will be able to rely to some extent on favourable public opinion, which is becoming increasingly negative towards government policy with respect to certain measures. including early retirement and continuing to work longer. (Robbert van het Kaar, HSI)

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