What does Dutch employment law require of employers when it comes to making redundancies? It is an important question if you're a business with a presence in the Netherlands where, just like the rest of the world, mass redundancy exercises are commonplace as businesses restructure in an effort to survive the pandemic. We will come on to the procedure shortly, but first the background.
According to the data from Statistics Netherlands the country’s GDP decreased by 0.1 percent in the fourth quarter 2020 relative to the previous quarter. That decline follows the largest economic contraction ever measured by CBS. However, as we’ll hear shortly, one bright note is there have been very few bankruptcies. So, in the first 15 weeks of 2021, there were close to 600 bankruptcies among companies and institutions in the Netherlands. That’s around 500 fewer than in the same period in 2020, something that’s been put down to the success of the government’s various support measures. The other positive is consumer confidence which has improved significantly in recent months. The consumer confidence indicator stands at -14, against -18 in March. The data shows that for the first time since January 2019, consumers are positive about the future economy again.
That confidence doesn’t extend to the vaccine rollout, however. Reuters reports how, despite its wealth and reputation for efficiency, the Netherlands trails in the European Union vaccination rankings. They report how its roll-out has been hampered by poor planning and a conservative strategy that kept more than 40% of its vaccines in storage rather than in people's arms. The Netherlands only began vaccinating on 6 January, the last EU country to do so. That’s because the government had wrongly assumed that the first vaccine to be approved would not require a deep freeze supply-chain and was slow to respond when it did. The government has ordered 85 million doses from eight drug makers and now aims to offer all adults in the population of 17 million a vaccine by the end of September. Data from the European Centre for Disease Prevention and Control showed the Netherlands was the second slowest in the EU in administering vaccines. That picture hasn’t been helped when, as the BBC reported in March, the Netherlands became the latest country to suspend use of the Oxford-AstraZeneca vaccine over concerns about a possible link to blood clots.
The lockdown has, of course, affected businesses across the country and so, to help, the government introduced various state aid measures. So, let’s hear more about those measures from inside the Netherlands. Laurens de Graaf is a partner at our best friend firm BarentsKrans based in The Hague. He is co-head of the employment team at the firm.
“The Dutch government has implemented several support measures to help businesses. The most important one is the government relief scheme for compensation of wage costs, which intends to incentivize businesses not to layoff personnel. Many businesses have participated in this scheme, which has been in place since March 2020, and will continue to be enforced until July 2021. This scheme is said to be one of the main reasons for a low number of bankruptcies in the Netherlands in 2020, the number of bankruptcies was even lower than it has been over the past 20 years. However, the Netherlands is currently in a strict lockdown and government support measures do not cover all business costs in particular fixed costs. It is therefore expected that many businesses will face serious challenges in the upcoming months as they are running out of reserves in their financial liabilities will continue to exist. This especially holds true for the period following July 2021, when the government relief scheme for compensation or wage costs as well as other government support measures will likely have ended. So, in summary, government support measures have helped businesses in the Netherlands to a great extent, but the crisis is far from over. It will be interesting to see what the upcoming months will bring.”
So, notwithstanding the Dutch government’s support for businesses, as Laurens said, many have, unfortunately, been forced to shut down completely, or they're restructuring in an attempt to survive, resulting in mass redundancies. That is when Dutch collective redundancy laws kick in which we can now come on to. Earlier in the year we were due to hold a webinar on this subject, looking at a number of countries across Europe including the Netherlands, but because of the pandemic we had to cancel that unfortunately. Nonetheless everyone involved was keen to adapt and the result is a series of programmes we will be releasing as HR Guides, covering each of those countries, hearing from lawyers based in each one. The theme of the webinar was to set out the key points to understand when it comes to restructurings, the basics if you like. So, let’s hear from Laurens, starting with the fundamental points to keep in mind:
A. The fundamentals
“First of all, under Dutch law, there are two ways to reduce headcount for business reasons. The first option is that employees can be terminated after it is a dismissal permit is obtained from the labour agency called UW v. It is not possible to give notice without such permit. The second option is that employees can agree with separation agreements. My first advice is to use both routes simultaneously. That means filing for a dismissal permit at the labour agency and at the same time offering a separation agreement to the region's employees. If negotiations fail, then this will not lead to delay in the permit process.
That also leads to my second piece of advice. Sick employees are protected from termination for business reasons unless the request for a dismissal permit has been filed at the labour agency before the employee called in sick. That is why I recommend filing such permit requests before the individual employees are notified of their redundancy. So, I just mentioned that I recommend to simultaneously file for a permit and offer a separation agreement. Of course, this separation agreement should include an incentive for the employee to prefer that agreement over termination with the permit.
My third piece of advice is therefore to include in the separation agreement a monetary incentive on top of the statutory minimum severance to which the employee is always entitled, and which is one third of a month's pay per year of service.
My next piece of advice relates to the preparation of the downsizing process. Really try to make a thorough plan first by taking a bit more time and preparation upfront, you typically win back time at the end. This is also important because there is a mandatory selection principle. The company cannot handpick which employees should be made redundant. The so called mirroring principle applies, you can still get to a more or less preferred outcome while using this mirroring principle, but that does require extensive preparation and testing.”
B. 5 key steps:
So now I will briefly discuss five elements that can influence the restructuring process.
1. First of all, it is required for employers to investigate whether it is possible to reassign the employee in a different fitting position within the company or its group and that includes positions of people that work with the company but are not an employee of the company, such as contractors and agency workers. They will have to make way if a redundant employee could be placed in their position.
2. A second key aspect is the role of the works council. If the company has a works council the restructuring plan can only be executed after the consultation process with the works councils has finished. Not consulting the works council not only means no dismissal permit, it also means that the works council could get an injunction at the court to stop the entire restructuring process, and when there is no works council in place the entire group of employees of the company should be consulted beforehand, but only if the restructuring affects 25% at least of all staff.
3. Thirdly, the unions should be informed of the restructuring beforehand if 20 or more employees are to be made redundant. If the unions want to discuss about a social plan, this cannot be refused. There is no obligation to agree on a social plan but there is an obligation to discuss this with the unions. From experience I can say that a social plan typically leads to a rather smooth execution of the restructuring.
4. The fourth point is that you should never mix redundancy for business reasons with performance or behaviour of an employee. So, don't say we will make this employee redundant because he or she is a non-performer. The only valid argument is to say that the employees position is made redundant for business reasons.
5. Finally, if a redundant position re-occurs within the organisation within 26 weeks after the termination there is a duty for the employer to offer this new role to the employees who had been dismissed earlier. That is it. I wish you all good luck in these challenging times and, of course, you can always reach out to me if you have any questions. Goodbye.”
If you do have any questions for Laurens, his details are on the firm’s website – the firm is called BarentsKrans and is based in The Hague. Laurens is co-head of the employment team at the firm and he has a very impressive CV. In 2019 he was recognized as a “Next Generation Lawyer” in The Legal 500 and as “Up and Coming” in Chambers Europe and< as you might have guessed, he is very experienced. We have included a link to his details in the transcript of this programme.
- Link to website of Dutch law firm BarentsKrans