Netherlands: New Act on work and security

The Netherlands’ new Act on Work and Security will change employment and dismissal law. The aim is to create a new balance between ‘insiders’ – permanent employees who have high levels of protection – and ‘outsiders’, flexible workers who have little or no protection. The act was passed in July 2014 and comes into force in 2015.

Introduction

The Act on Work and Security (Wet Werk en Zekerheid) will introduce major changes in employment and dismissal law. The main aim of the bill is to create a new balance between ‘insiders’ – permanent employees who have high levels of protection – and ‘outsiders’, flexible workers who have little or no protection. The legislation has developed from a social pact between the cabinet and the social partners. The Act was passed in July 2014, and will enter into force in 2015, partly on 1 January but mainly on 1 July.

Improving the position of flexible workers

The position of flexible workers on the labour market is to be improved. The maximum duration of a series (or ‘chain’) of fixed-term contracts will be reduced from 36 to 24 months. After that, a new contract must create a permanent employment relationship. The maximum number of fixed-term contracts an employer can give to one worker in this 24-month period is three. As before, the fourth contract will be deemed permanent. Successive contracts will be considered as a chain if there is less than six months between them – the previous time limit was three months. It will remain possible to deviate from these new provisions in collective agreements, but the criteria for deviation will be stricter.

Non-competition clauses will be abolished for fixed-term contracts (with some exceptions). For fixed-term contracts of more than six months, the employer is now obliged to tell the worker one month before its expiry whether it will be renewed. Breach of this obligation will entitle the employee to financial compensation.

Probation periods will be abolished for contracts of less than six months’ duration. For longer contracts, the probation period remains unchanged (one month for up to two years, and two months for contracts of more than two years). Probation periods for subsequent contracts will no longer be allowed when a worker is given successive contracts with the same employer for the same type of work.

Dismissal law

A second aim of the bill is to simplify dismissal law. A unique feature of Dutch labour law will remain unchanged: employers wishing to terminate a worker’s employment must still have a dismissal permit from the public Employee Insurance Agency (UWV). However, the new bill now waives this requirement if the employee agrees to the dismissal.

Employers are no longer free to choose between dismissal through the UWV or dismissal by the courts. Where a dismissal is for economic reasons, such as company restructuring, or takes place after an employee has been on sickness leave for two years, the employer must have a UWV permit. For all other reasons – such as conflicts at work or non-performance – the employer must take the case for dismissal to court.

No entitlement to redundancy payments

In the present (fairly) complex system, redundancy payments are based on a formula that takes account length of service and monthly wage, sometimes adjusted to take account of the relative responsibility of employer and employee for the ending of the employment relationship. These adjusted payments only occur in court procedures (including cases of unfair dismissal). In the UWV procedure there is no entitlement to redundancy payment, but for collective dismissals severance packages are commonly agreed between unions and employer.

The new legislation introduces a so-called transition payment for employees in case of termination of the contract by the court. The formula used to calculate the payment is one-sixth of the monthly wage per half year of service for the first 10 years of service, plus one-quarter of the monthly wage for any further years of service, up to a maximum of €75,000, much lower than the present maximum. Only in very exceptional cases may the payment be more.

A transition period from the present to the new system applies to older employees until 2020 (but not in firms with fewer than 25 employees). Employers are allowed to deduct investments in the employability of employees from their transition payment. The aim of this arrangement is to encourage employers to continually invest in the employability of the employees.

The maximum duration of the entitlement to unemployment benefit will be reduced from the present 36 months to 24 months. Moreover, the thresholds for long-term benefits will be increased.

Other changes

One noteworthy change is the introduction of the right of appeal against dismissal by the court. This may result in an increase in the number of court cases in the future.

Where the employee has failed to meet their contractual obligations, the employer is obliged to continue paying them unless it can be shown that the non-performance is the responsibility of the employee. This shifts the burden of proof to the employer.

Commentary

Opinions on the new legislation are mixed. Critics doubt whether it will strengthen the position of flexible workers. They fear that many employers will simply not offer employees further work if the next contract must be a permanent one.

Another criticism is that dismissal law will remain at least as complex as it is now, if not more so. The two present systems (UWV and the courts) remain in existence alongside one another, and now the right of appeal has been added to court procedures. The social partners, however, remain firmly committed to the changes.

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