New legislation on the termination of employment – a brief review of the measures

As you will be aware, the two sides of industry and the government reached agreement in April this year on new and ‘more flexible’ legislation on the termination of employment, which was to come into effect in 2016. The recent Autumn Agreement between the government and some opposition parties may bring this forward by six months. The salient proposals are summarized below.

Employment termination law
* The reasons for dismissal determine which of two possible procedural routes will apply in a given case:

– an application must be made to the work placement branch of the Employee Insurance Agency (UWV WERKbedrijf) for a dismissal permit for business reasons, and in the case of long-term work disability;
– for all other person-related reasons, and where the working relationship is damaged, the case must be brought before a court with the power to terminate the employment contract.

Compensation
* The transition payment for employment of two years or more is subject to a maximum, which is the higher of € 75,000 or one year’s salary.
* This transition payment is one-third of one month’s salary for each year of employment up to ten years, plus half of one month’s salary for every year of employment above ten years. This payment must be used for retraining or outplacement.
* Transitional rules will apply until 2020 for employees who are above the age of fifty. The transition payment for this group in the case of ten years of employment is set at on one month for each year of employment above the age of fifty, with an exception for small-and medium-sized companies with fewer than twenty-five employees.
* The transition payment can be reduced or set at zero if payment of the full amount would put a company’s continuity in jeopardy, or lead to even more dismissals.
* A subdistrict court has the power to set severance pay that is higher or lower than the transition payment in the event of serious culpability, and the law prescribes no limit on this payment. Serious culpability on the part of the employee leads to forfeit of the transition payment.

Flexible labour
* Trial periods are no longer allowed in six-month temporary contracts, including extension contracts.
* Temporary contracts may no longer include a noncompetition clause, except in exceptional circumstances, for which reasons must be demonstrated.
* Abolition of zero-hours contracts in the care sector.
* The 3 x 3 x 3 rule for successive fixed-term employment contracts has been changed to 3 x 2 x 6. What this means is no more three temporary contracts in any two-year period with gaps of six months or less. Some deviation from this remains possible only in a collective agreement, but not for the six-month gaps, and then only if the nature of the work makes temporary contracts necessary. There is also a maximum of six temporary contracts in any four-year period.

Unemployment benefits
* The unemployment benefits calculation is being changed to: one month for each year of employment for the first ten years, and ½ month for each additional year. Employment history accumulated until 2016 will continue to be honoured, with each such year giving entitlement to one month of unemployment benefit. The level of unemployment benefit will still be related to income.
* The maximum duration of the publicly financed unemployment benefits will be reduced progressively by one month each quarter until 2016. From 2019 the government will pay unemployment benefit for no more than two years.
* Employers and unions may introduce an additional fourteen months of unemployment benefit into individual collective agreements.
* The definition of appropriate work will be tightened, such that that employees will have to accept a job below their level after only half a year.
* The publicly financed component of unemployment benefit will be paid on a 50-50 basis by employers and employees, starting in 2016-2020. This transition will be arranged so that the effect on the burden is neutral.

The legislative proposal, which has yet to be made public, has now been submitted for approval to the Council of State. It will then be debated in parliament, which is certain to introduce amendments. After that the bill will have to go to the upper house, where it could yet be rejected. Politicians are therefore setting themselves an ambitious target by stating that the measures will be introduced before the end of 2015.

It is also questionable whether these measures will actually make employment termination law ‘more flexible’. Opinions on this are divided. The Council for the Judiciary has already expressed criticism in its ‘favourable’ opinion about the bill, commenting that the proposed statutory compensation system is so sophisticated that ‘all in all it will work out no simpler’. This also applies to the constituent ‘catalogue of dismissal criteria’ that courts will have to observe. The Council for the Judiciary has at any rate estimated that it will need 6.4 million euros on an annual basis to cover all additional cases in the first instance and appeals.
D.H. Oolbekkink
Employment Law
November 2013

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