- Definition contract of employment
- Form contract of employment
- Employer’s obligations
- Employee’s obligations
- Termination of the employment contract
- Non-competition clauses
- Further information
Introduction to Dutch labour law
Dutch labour law is intricate and, in certain respects, differs greatly from other legal systems. In particular, the position of the employee, especially with respect to dismissal, is better protected than in many other countries.
Our law firm provides a broad range of services to employers and employees in all aspects of employment law. These services include drafting all relevant employment documentation, termination of employment contracts and advising on various employment law matters in The Netherlands.
1. Definition contract of employment
A contract of employment consists of three essential elements. Firstly, an undertaking by the employee to perform certain activities. The crucial factor in this respect is that the employee will be personally bound to the employer (i.e. he must perform the activities himself and may not appoint another in his place without his employer’s consent).
Secondly, an obligation on the part of the employer to pay the employee’s salary.
Thirdly, a relationship of subordination by virtue of which the employer is entitled to give the employee instructions which the latter must follow.
If all three elements are present, the relationship between the parties will be deemed a contract of employment.
2. Form contract of employment
Contracts of employment are not required to have any particular form. Consequently, they may be concluded orally or in writing. Contracts of employment may be entered into for a definite or indefinite period. A contract for a definite period in principle terminates by operation of law upon the expiry of that period. The duration of a contract of employment for a definite period is thus fixed in advance. The duration of a contract for an indefinite period, on the other hand, is not. Consequently, it does not terminate by operation of law but upon notice.
Trial period or probationary period
The parties to a contract of employment, whether definite or indefinite, may agree to a trial or probationary period (“Proeftijd”) during which either party may decide, without sanctions, that the contract should not continue.
A trial period must be agreed in writing. In case of an open-ended employment contract, an employment contract for an indefinite period or an employment contract fixed for a period of two or more years, the maximum trial period is two months. In employment contracts for a fixed-term of more than 6 months, but less than two years, the maximum trial period is one month. It is not possible to agree on a trial period in an employment contract that has a term of six months or less. At all times, the trial period should be of equal length for both employer and employee. A trial period which is longer for one party than the other, or which exceeds the maximum length, is void. A trial period is not valid if the employee is already employed at the employer, but at a different position and will be carrying out more or less the same work that he has done elsewhere within the company. A trial period conflicting with the law is null and void.
If the duration of a contract of employment is not defined with reference to time, but, for instance, with reference to the completion of a certain project, the trial period may not exceed one month. Only pursuant to a Collective Labour Agreement (“CAO”) may a one month trial period be extended to two months.
3. Employer’s obligations
The employers’ primary obligation, to remunerate the employee, derives from the definition of a contract of employment given above. In principle, the parties are free to decide on the amount of wages provided that a certain minimum, as set forth in the Minimum Wages and the Minimum Holiday Allowance Act, is paid. This Act also provides that an employer is, in principle, obliged to pay a holiday allowance equal to a certain percentage, currently 8%, of the employee’s salary.
In addition to a holiday allowance, an employee is entitled to holiday. Annual holiday entitlement is equal to at least four times the number of days worked per week under the contract of employment. An employee who works five days a week is therefore entitled to a minimum of 20 days’ holiday a year. It is the employer who determines, after consultation with the employee, the times at which the employee may take holiday.
In the event of illness, an employee is entitled to receive at least 70% of his salary for a period not exceeding 104 weeks.
In case of illness of the employee, both employer and employee should do everything to make sure that the employee will become fit for work again.
Reintegration is the main objective of the procedure during illness. In case of long-term disability, specific rules apply. The illness should be reported to the company doctor (“Arbo-arts”), who will qualify and monitor the incapacity of the employee. The employer should draft an action plan (“Plan van aanpak”) together with the employee on how to proceed, and there should be a periodic meeting with the company doctor to evaluate the status of the employee’s disability to work. In some cases it could be that the employee is fit for work for a certain percentage, this should be coordinated by the company doctor and the employer should do its utmost to provide the employee with suitable work. If no suitable work is available within the company of the employer, it can be expected that the employer funds and seeks for employment elsewhere and provides for outplacement.
If the two-year period of illness has passed, the obligation to pay wages ends, unless the Employee Insurance Agency (“Uitvoeringsinstituut Werknemersverzekeringen” or “UWV”) is of the opinion that the employer did not do enough to reintegrate the employee. In this case the employer risks that the two-year period in which the employer is obliged to continue to pay an employee’s salary, will be extended.
In general under Dutch employment law, there is a prohibition against termination of employment during an employee’s sickness. This is a very strict rule and it is almost impossible to deviate from it.
An employer may not discriminate between men and women, for example, with respect to pay. Men and women shall be entitled to equal remuneration for the performance of the same work. In this respect, remuneration means basic salary plus all other benefits, whether in money or in kind, which an employer pays an employee by virtue of the contract of employment. Employers may not discriminate between men and women in any other respect either, whether this concerns the conclusion of a contract of employment, the provision of training facilities, other conditions of employment, the policy with respect to promotions, or the termination of the contract of employment.
The employer is under a further obligation to take measures in connection with the safety of the enterprise. This obligation refers to the lay-out and maintenance of the work place, the materials to be used in the course of the work, and also the instructions to be given to the employee in connection with this work, and is aimed at protecting the employee, insofar as possible, against injury and disease.
If an employer fails to prove that he has fulfilled this obligation or fails to prove gross negligence on the part of the employee, he will be liable for any damage suffered by an employee.
An employer is not under an obligation to provide an employee with actual work. It will nevertheless often be in the employee’s interest to perform work. This will be the case, for example, if his salary is performance-related or performance will increase the likelihood of his retaining the employment or will favour his position in the labour market. Case law has established that an employer may not prevent an employee from performing the agreed work without a well-founded reason, failing which, he will, generally, be obliged to put the employee to work. If a well-founded reason does exist, a weighing up of the employer’s interest in not allowing the employee to do the agreed work, on the one hand, and the employee’s interest in performing that work, on the other, will usually ensue.
4. Employee’s obligations
An employee is under an obligation to perform the agreed work to the best of his abilities and to follow the employer’s instructions. An employee will not be liable to an employer for damage he causes to third parties in the course of his employment unless the employer proves that this resulted from wilful or reckless misconduct on the part of the employee.
5. Termination of the employment contract
It is with respect to the termination of contracts of employment that Dutch employment law differs markedly from most foreign legal systems, in particular with respect to the high degree of protection against dismissal.
There are different ways in which contracts of employment may, in appropriate cases, be terminated under Dutch law:
I. At will during the trial period
II. By notice and by judicial rescission
III. By mutual consent
IV. By summary dismissal
Each of these methods will be discussed below.
I. Termination during trial period
During the trial period or probationary period either party may terminate the contract of employment at will, that is, with immediate effect.
II. Termination by notice and by judicial rescission
With respect to termination by notice, a distinction must be made between contracts for a definite period and contracts for an indefinite period.
The original term of a contract of employment for a definite period terminates by operation of law at the end of this period. In principle, therefore, prior notice is not required, although an obligation to give notice may be stipulated in the contract. The same rule applies to a second and third contract of employment for a definite period which succeed the original contract of employment for a definite period provided that the total duration of all such contracts of employment does not exceed two years.
An employer is obliged to notify the employee at least one month before the ending of a fixed-term contract of six months or longer whether the employment contract will be extended and, if so, subject to what terms and conditions.
The second and third contracts, like the original contract, terminate by operation of law at the end of the respective definite periods. If a fourth successive contract of employment for a definite period is entered into, or the two years limit is exceeded, the fourth or last contract of employment, as the case may be, is considered to have been entered into for an indefinite period and the above rule concerning termination by operation of law does not apply any more.
However, by way of exception, a contract for a definite period of two years or longer may be succeeded by a contract for a definite period not exceeding three months without the second contract being regarded as one for an indefinite period, unless otherwise agreed pursuant to a Collective Labour Agreement (“CAO”). If the time span between contracts of employment for a definite period is six months or longer, they are not regarded as successive but rather as separate contracts of employment for a definite period which therefore terminate by operation of law at the end of the period.
Neither the original nor extended term of a contract for a definite period may be terminated by notice before the expiry of the period, unless agreed otherwise. This follows from the very nature of such a contract. A contract for a definite period may, however, be terminated by mutual consent, summary dismissal or judicial rescission before the end of the period.
A contract for an indefinite period, as the name suggests, does not expire on a particular date but continues indefinitely until terminated by notice, or by one of the other methods discussed in this section.
Termination by giving notice
In case of dismissal on economic grounds (a-ground) or because of long-term incapacity of work (b-ground), an employer can terminate an employment contract by giving notice after the Employee Insurance Agency (“UWV”) has given permission to do so by a dismissal permit. The Employee Insurance Agency will grant permission only if there is a reasonable ground for dismissal and redeployment within a reasonable period of time is not possible (even after training) or reasonable. The Employee Insurance Agency procedure takes approximately four weeks as soon as it has received all the necessary information.
After permission has been granted, notice is to be given with due observance of the notice period. Due to the time involved in obtaining permission from the Employee Insurance Agency, the employer can deduct the duration of the procedure from the notice period, provided that at least one month of notice remains. Notice must be given with effect from the end of the calendar month, unless another day has been designated by written agreement, internal regulations, a Collective Labour Agreement or by custom.
Permission will not be granted in case – among others – termination is impossible because of a statutory prohibition against terminating an employment contract by giving notice, for instance, during illness shorter than 104 weeks, unless the illness starts after the request for permission to give notice was received by the Employee Insurance Agency, pregnancy, if the employee is a member of the works council or the secretary of the works council.
Termination by judicial rescission
A judge can terminate an employment contract in case a reasonable ground for dismissal exists and redeployment within a reasonable period of time is not possible (even after training) or reasonable. An employment contract can be terminated by court decision by filing a petition for dissolution in case of frequent and disruptive absence due to illness (c-ground), unsuitability for the position/underperformance (other than because of illness) (d-ground), culpable acts or omissions of the employee (e-ground), refusal to work due to a serious conscientious objection (f-ground), impaired working relationship as a result of which the employer cannot reasonably be required to continue the working relationship (g-ground) or other reasons and/or circumstances (by way of an exception) (h-ground).
After filing the petition with the competent court, the employee is offered the possibility to file a statement of defence. The court will then set a date for a hearing, during which the parties can explain their opinions. The court could grant the request for termination and dissolve the employment contract or it could deny the request. The court must take into account the notice period in the case the contract is dissolved.
Dutch law provides for the following statutory notice periods for an employer:
• fewer than five years of service: one month;
• more than five years of service but fewer than ten years of service: two months;
• ten or more years of service but fewer than 15 years of service: three months;
• 15 or more years of service: four months.
The employee must take into account a notice period of one month. Unless agreed otherwise, the notice period starts running at the beginning of the month following the month in which notice is given. A longer notice period may be agreed upon if it is laid down in writing. In that case, the notice period the employer has to observe must be twice the notice period the employee has to observe. The maximum period which the employee can be required to observe is six months. The notice period may be reduced under a Collective Labour Agreement. Please note that any variance should be within statutory limitations, in default of which the statutory notice period is applicable.
Failure by the employer to give the correct notice period may result in having to pay compensation to the employee or the other way round. In case the employer fails to give the correct notice period the compensation will amount to what the employee would have earned had the regular notice period been applied.
Statutory transition payment
Every employee is entitled to this payment when an employment contract has lasted at least 2 years and is terminated on initiative of the employer or by operation of law, subject to a few exceptions (including dismissal for urgent cause). When calculating the amount of the statutory transitional payment, only the length of employment will be taken into consideration. For calculating the duration of an employment contract one or more employment contracts between the same parties (or successors) that have followed each other with intervals lasting no longer than six months will be counted together.
The transition payment is 1/3rd of a monthly salary for every year for the first 10 years of service and 1/2th of a monthly salary for all years of service above 10 years. The transition payment is capped at EUR 77,000 (in 2017) or – if the employee is entitled to a higher annual salary – one annual salary. The transitional payment is not due in case the employee terminates the employment contract, unless this termination is a result of seriously culpable actions on behalf of the employer.
Until 1 January 2020, employees over the age of 50 with an employment contract lasting at least ten years must be paid a transition payment of 1/2th of their monthly salary for every six months that the employment contract with the employer has continued after reaching the age of 50. This does not apply if the employer had less than 25 employees in the second half of the calendar year proceeding the calendar year in which the employment is terminated.
Transition costs and employability costs
There are conditions for deducting costs from transitional payments. For example the conditions under which it is allowed for an employer to deduct costs that were made for the benefit of the employee during the employment from the transitional payment. A distinction is made between transition costs (such as costs for retraining and outplacement) and employability costs (costs that increase an employee’s employability outside the employer’s company). It is recommended that they be made in writing.
Fair dismissal payment
In addition to the statutory transitional payment, the court may also award a fair dismissal payment, in case of seriously culpable acts and omissions on the part of the employer. This only applies to exceptional situations.
III. Mutual consent
Because of the complexity regarding termination of employment contracts it is advisable that employer and employee reach an agreement and lay that down in writing, a so called settlement or termination agreement. That way, the risk of discussions arising as to the exact terms is reduced. In many cases employer and employee agree to terminate the employment contract by mutual consent and agree to an amicable settlement.
Contracts of employment for definite and indefinite periods may be terminated by mutual consent, in which case no prior permission is required from the authorities (court or the Employee Insurance Agency (“UWV”)) and therefor no notice is required. However, there are certain strict requirements with respect to the validity of the termination of a contract of employment by mutual consent since this could have detrimental consequences for the employee (for example, loss of entitlement to unemployment benefits). Employer and employee must agree a written settlement agreement regarding termination and compensation to satisfy the Employee Insurance Agency (“UWV”) that dismissal is the initiative of the employer and not due to the fault of the employee, thus curtailing his right to unemployment benefit.
Conditions in the termination agreement include (but are not limited to) specific terms as the date on which the employment contract ends, possible compensation to be paid by the employer but also payment of outstanding salary, holiday pay and vacation days, a confidentiality clause, whether or not a non-competition and/or non-solicitation clause should be waived and the return of company property.
However an employee has a reflection period of 14 days after signing the agreement to withdraw his consent, without stating a reason, to a settlement agreement. Upon concluding a termination agreement the employer is obliged to notify the employee of this statutory right to a reconsideration period.
Needless to say that the easiest and cheapest way to terminate an employment contract will normally be by mutual consent.
It is advisable to seek professional legal assistance to conclude a valid termination agreement. After all if the employee concludes the agreement unassisted and without legal advice, he may at a later stage claim that he did not fully realise the legal consequences of the agreement and tries to have the agreement annulled.
IV. Summary dismissal
If an urgent cause exists, an employer may summarily dismiss an employee. In such a case, the contract of employment is not terminated by notice and consequently the provisions which apply to termination by notice do not have to be observed. An urgent cause is a circumstance or set of circumstances which are such that the employer cannot in all reasonableness be expected to allow the contract to continue. An urgent cause may exist, inter alia, if an employee is guilty of theft or embezzlement or divulges confidential information.
In reality, however, whether an urgent cause actually exists will depend on the specific circumstances of the case. It goes without saying that an urgent cause for summary dismissal will only exist very rarely. If an employer is hesitant in effecting a summary dismissal, it will be void regardless of whether an urgent cause did actually exist.
Contesting summary dismissal
The employee can contest his summary dismissal by lodging an appeal with the court within two months.
The employee has two options:
• The employee will ask the court to declare the dismissal null and void. In such a case, the employee may be entitled to receive his salary from the date of improper termination until the employment agreement is terminated in a proper way. For example by obtaining approval from the Employee Insurance Agency (“UWV”) to give notice or a court decision.
• The employee does not agree to his dismissal. However, the employee accepts the termination of the employment. In such cases the court has to decide whether the dismissal was justified. In case the court rules that the dismissal was not justified, the employee is entitled to the wages if the employment had been terminated observing the period of notice and/or statutory transition payment and/or a fair dismissal payment. So the proceedings therefore only address the issue of the amount of compensation claimed by the employee.
Protections on dismissal
Even after an Employee Insurance Agency (“UWV”) permit has been obtained, the giving of notice is prohibited by law in certain situations, such as while the employee is unable to perform his work due to illness, unless the employee has been ill for at least two years or the employee has reported being ill after the “UWV” received the request for a permit. Nor may a contract of employment be terminated by notice while an employee is pregnant or doing military service.
Notice of termination may not be given to an employee who is a member of a works council or to an employee on account of his membership in a trade union or his activities in connection with a trade union, unless carried out during working hours without the employer’s permission.
Furthermore, an employer must first obtain the permission of the court if he wishes to terminate by notice the employment of a candidate for election to a works council or an employee who was a member of a works council less than two years prior to the notice. The prohibitions or restrictions on giving notice discussed in this paragraph do not apply if the termination is on account of the business activities of the employer being discontinued.
Certificate of employment
The employment certificate should be delivered to each employee upon termination of their employment contract at the employee’s request. This document must in any case be produced in writing and printed on a sheet of paper that clearly mentions the company’s name and location. Moreover, it should contain the following information: The dates of the employee’s arrival and departure from the company and the detailed description of the employee’s curriculum within the company and the different positions he has held.
At the employee’s request an assessment of the departing employee’s performance and behaviour, and the causes of the termination must be given.
6. Non-competition clauses
The principle of the right to freedom of movement is laid down in a number of international treaties such as the European Social Charter and the International Convention on Economic, Social and Cultural Rights as well as in the national Constitution. This principle, together with the principle of freedom of contract, conflicts with non-competition clauses or non-compete clauses, which are defined in Dutch Civil law as stipulations between employers and employees by which the employee is restricted in accepting other employment after his contract of employment has come to an end. Non-competition clauses aim to protect the employer from any infringement by the former employee of the employer’s economic interests, such as the application of know-how.
If there is no written agreement or the employee had not yet reached majority of age when the contract was concluded, a non-competition clause will be deemed void and the employer will not be able to derive any rights from it.
The inclusion of a non-competition clause in a Dutch fixed-term employment agreement concluded for a maximum duration of six months is not permitted. This is indeed possible in fixed-term employment contracts lasting longer than six months, but only if the employer can demonstrate that a compelling business or service interest exists for the inclusion of such a clause. Justification of this interest is required in the employment agreement. Without justification, the clause is not valid.
The activities which an employee is prohibited from carrying out must be described in case of permanent employment contracts as clearly as possible and the prohibition must be limited to a certain period of time. A period of one year is usually deemed acceptable. A non-competition clause must also define the territory within which the former employee is prohibited from carrying out those activities.
The courts have the power to limit the scope of a non-competition clause or to set it aside altogether regardless of whether it is legally valid. This power may be exercised if the employer has no interest in maintaining the non-competition clause or if the employer’s interest in maintaining it carries less weight than the employee’s in having it limited in scope or set aside. In addition, the court has the power to order the employer to pay the employee compensation for the duration of the period in which he wishes to enforce the non-competition clause.
An employer cannot derive any rights from the non-competition clause if he has terminated the employee’s employment in an irregular manner, that is to say, without having given notice or without due observance of the provisions applicable to termination.
7. Further information
It is not possible to address in detail Dutch labour law. Due to the complexity of the system it is wise to seek professional assistance prior to any measure envisaged.
For further information regarding Dutch employment law, please contact our labour law lawyer Mr Erik Jacobson.