Procedures For Terminating the Agreement
The Dutch Civil Code states that an employer may terminate the employment agreement if there are reasonable grounds to do so and reassignment of the employee to a different suitable job, possibly with training, is impossible or inappropriate. The law specifies ‘reasonable grounds’ as follows:
- ) economic grounds
- ) illness or disability for more than 104 weeks
- ) frequent sickness absence
- ) unsatisfactory performance after timely warning and improvement programme
- ) culpable conduct
- ) conscientious objection
- ) damaged working relationship
- ) other grounds, not included in c through g
- ) a combination of grounds mentioned under c through e, g and/or h
For grounds a and b the employer must apply to the UWV for permission to terminate the employment agreement. If the dismissal is based on one of the other grounds (c through i) the employer must file a request for dissolution with the district court if the employee does not agree in writing with the proposed dismissal.
As of 1 January 2020, the i-ground has been added to the Dutch Civil Code. The ground allows for a combination of dismissal grounds that cannot be substantiated enough to warrant dismissal by itself, but are considered reasonable cause for dissolution when combined. This ground for dissolution comes with the option for the district court to increase the statutory dismissal fee by a maximum of 50%.
The employer can terminate the employment agreement by instant dismissal in the event of an “urgent cause”. This is the most severe way to terminate the employment agreement and can only be used if the employee is guilty of gross misconduct. The misconduct must be an urgent cause both in an objective and subjective way. When there is an urgent cause, an employer must handle it without delay. As soon as it has become clear that there is an urgent cause, the employer has to dismiss the employee and tell him/her promptly what the reason is of the dismissal. All circumstances, also the personal circumstances of the employee, have to be considered when an instant dismissal is given
The employment agreement can generally always be terminated by the employee’s resignation. The statutory period of notice is one month, but the employment agreement or applicable collective bargaining agreement can stipulate a different period of notice.
Termination On Notice
Termination on notice is always possible if the employee concerned agrees in writing with the dismissal. The employee can withdraw his/her approval within 14 days without reason. Agreement of the termination on notice is also not necessary when the UWV has granted permission to terminate the employment agreement by giving notice (see ‘procedures for terminating the agreement’). The statutory notice period is dependent on the period of continuous employment. However, the notice period can be shortened by the time the procedure with the UWV took, as long as at least one month of notice remains.
Termination By Reason Of The Employee's Age
The employment agreement can be terminated due to the employee’s age but only once the employee reaches the applicable state pension age. As of January 2020 the state pension age is 66 years and 4 months. The employer is free to choose the moment on which it would like to terminate the employment agreement by reason of the employee’s age (so also after the employee has reached the applicable state pension age), as long as the employment agreement was agreed upon before this moment. The employee’s age can be reason to terminate the employment agreement only once.
Automatic Termination In Cases Of Force Majeure
In general, there is no automatic termination of the employment agreement in cases of force majeure.
Specific rules apply for collective dismissal, both regarding mandatory notification of labour unions and the UWV and which employees should be dismissed first. The latter is based on time of continues employment and age average within the company, as well as the dismissal of all temporary (agency) employees.
Termination By Parties’ Agreement
The parties are entirely free to agree upon termination on any grounds they desire. The termination of the employment agreement may however have major consequences for the employee. Not only does he/she lose his/her job and therefore income, but there are also possible risks to the possibility to successfully apply for an unemployment benefit. Therefore, there are several rules that protect the employee which apply when parties want to terminate the employment agreement by mutual consent. There must be a clear and unambiguous statement of the employee, the employer needs to investigate whether the employee understands that his/her consent to the termination is asked and the employer has to inform the employee correctly about the consequences of the termination agreement. When one of these criteria is not met, the employee cannot be held to the termination agreement.
There is a statutory requirement to agree upon a termination agreement in writing when there is a termination by parties’ agreement. The employee can cancel the termination agreement within 14 days without reason. The employer has to mention this right to cancel the termination agreement into the termination agreement. If the employer does not do so, the employee has 21 days to cancel the termination agreement.
Directors Or Other Senior Officers
When a managing director is appointed in accordance with the articles of association of the company there is no need to apply to the UWV/district court in order to terminate the employment agreement. There are some corporate rules that have to be taken into account in case the directorship is terminated. The possibility to withdraw an agreement with the dismissal without reason and to cancel the termination agreement without reason does not apply to managing directors. Please note that the Works Council has an advisory right regarding the termination of a director and should be timely consulted.
Furthermore, there are no special rules which relate to the termination of a director’s or other senior officer’s employment. Main rule is that the end of the directorship automatically brings an end to the employment agreement. However, the company must still have reasonable grounds to terminate the employment agreement. If there are no reasonable grounds, the (former) director could claim payment for the unreasonable dismissal, in the form of ‘reasonable’ compensation. This is further explained under “Severance Payments”. Examples of reasonable grounds of termination for a director include (not limited) incapacity to perform their duties and opposite views for the future of the company with the board.
Special Rules For Categories Of Employee
For certain categories of employees, it is not possible to terminate the employment agreement by giving notice. These categories are e.g. works council members, pregnant women, sick and disabled employees during the first two years and employees during compulsory military service. Under certain conditions it is however possible to terminate the employment agreement with these categories of employees by court decision.
Whistleblowers are protected from repercussions from their employer if their report was justified. Dutch law provides regulations when this is the case, as well as obligations for (larger) companies to allow for a safe way to report malpractice within the company as whistleblower.
Specific Rules For Companies in Financial Difficulties
When a company goes bankrupt the employees and the trustee can be given notice of termination with respect to the statutory period of notice unless the employment agreement or applicable collective bargaining agreement stipulates a different period of notice. The period of notice in the case of a bankruptcy is a maximum of six weeks. In case of bankruptcy the trustee can give notice of termination without prior permission from the UWV. From the moment of bankruptcy any claims by the employees against the company are estate debt. Bankruptcy may not be used to easily to terminate employment agreements and/ or to avoid severance payments. In case of bankruptcy and when the company forms part of the bankrupt estate the rules with regard to a transfer of undertaking as described above do not apply. Furthermore, the transitional payment is not payable in case of bankruptcy.
Special Rules For Garden Leave
No special rules apply for Garden Leave.
Restricting Future Activities
It often happens that parties agree upon a non-competition clause. Such a clause is only valid if it is agreed upon in writing with an adult who has reached the age of majority. The court may set aside all or part of such a clause on the ground that the employee is unfairly prejudiced by such clause having regard to the interest of the employer intended to be protected. If a non-competition clause restrains an employee to a significant extent from working other than in the service of the employer, the court may always direct that the employer must pay damages to the employee for the duration of the restraint. Fixed-term employment agreements may not include a non-competition clause without stating overriding business interests for its inclusion. A court may declare a non-competition clause invalid when the non-competition clause does not have this motivation or when this motivation is not sufficient. The criterion of overriding business interests will be examined at the start and end of the fixed-term employment agreement. The new rules will limit the opportunities to include non-competition clauses in fixed-term employment agreements.
Period from 1 January 2020:
Regardless of the chosen termination route (UWV or district court) the employer will be required to make a severance payment, the “transitional payment” to the employee, which has replaced the “cantonal judge formula” and the manifestly unreasonable dismissal payment. Employers will have to pay the transitional payment whenever an employee is dismissed or a temporary employment contract is not renewed. The main rules governing this transitional payment will set the amount at 1/3 of monthly salary for every twelve months of employment, and a pro-rate payment for any year not completed. The remuneration will be capped at EUR 83,000, or one annual salary, whichever is higher. This cap can be adjusted every year by the Minister of Social Affairs and Employment. In the event of severe culpability on the part of the employer, the court may grant the employee additional ‘reasonable’ compensation. No criteria have been defined to set compensation of this kind. Common case law provides guidelines for criteria that can be applicable.
Special Tax Provisions And Severance Payments
As of January 2014 the Dutch government abolished the periodic payment entitlement exemption (‘stamrechtvrijstelling’). An employee does not have the possibility anymore to structure payments in instalments in order to postpone tax payments.
Allowances Payable To Employees After Termination
In general employers are not required to contribute to any allowances to employees after termination. In certain cases, e.g. when that is agreed upon or pursuant to a collective bargaining agreement, an employer has to pay contributions in addition to the unemployment allowance of the employee.
Time Limits For Claims Following Termination
The time limits for claims following termination depend on the nature of the termination and the type of the claim, the limits can be two months, six months, five years or twenty years.