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Labor and employment law challenges in business transformations

Netherlands

Workforce restructuring

The key practical issues in workforce restructuring include:

  • Legal justification
  • Works council and employee representatives’ process
  • Labor administration process
  • Costs and timing
  • Litigation risk

Applicable legislation

Collective redundancies are governed by the Dutch Civil Code, additional arrangements and the Collective Redundancy Notification Act (Wet Melding Collectief Ontslag), which transposes the European Directive on collective redundancy.

The Collective Redundancy Notification Act applies if the employer intends to terminate at least 20 employees working in the same geographical work area within 3 months.

Required legal justification

Collective redundancy must be based on economic reasons/grounds. Economic grounds are, for example:

  • Economic difficulties
  • Work reduction
  • Organizational or technological changes that would render certain job positions obsolete, such as automation
  • Partial/closure of business
  • A relocation of the company

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

Works council: The employer is obligated to inform and consult the works council prior to making any decision on collective redundancy as the works council has the advisory right on the contemplated collective redundancy. This advice must be able to influence the decision, and the works council needs to be informed in a timely manner (ideally before the formal application to the labor authorities). The employer must provide the works council with the following information:

  • An overview of the reasons for the intended decision
  • Expected consequences
  • Intended arrangements to limit the negative impact

Unions: Unions must also be consulted before the employer can actually terminate the employment contracts of employees. Not doing so can lead to the annulment of the dismissals.

In order to make a proper decision, the employer has to provide all the available information about the collective redundancy to both unions and the works council.

Within the consultation phase of the collective redundancy, the employer can impose a confidentiality agreement with unions and the works council. As there is a risk of the confidentiality being breached, in general, it is important to make the confidentiality period as short as possible.

Consultation requirements with other employee representatives

No specific consultation requirements with other employee representatives.

Consultation requirements with employees

The employer must provide the impacted employees the same information it provided to the works council and unions. For more information, see “Consultation requirements with works council/unions.”

In addition, the impacted employees must be informed of the selection process that resulted in their redundancies or reinstatement. However, the employer is not allowed to give a notice of termination to the impacted employees without prior permission of the labor authorities.

Approval/notification of the labor authorities or other government authorities

The employer must notify the contemplated collective redundancies to the labor authorities (UWV). The notification must contain:

  • A detailed report on the reasons for the intended decision
  • Information on the impacted employees
  • Information on the selection process
  • The expected consequences
  • The intended arrangements (e.g., social plan, search for alternative employment)
  • Information on the consultation process, if any, with the works council and unions
  • Intended date of implementation

The employer must report the intended collective redundancy to the labor authorities in a timely manner (no time frame set by law). If the application is incomplete, or unions or works council have not yet been informed/consulted, the application will be put on hold until all necessary steps are completed.

Further, the employer is not allowed to give notice of termination to the impacted employees without prior permission of the labor authorities.

Employee selection criteria

Employers are not free to choose which employees would be made redundant. The employer must comply with the selection process prescribed by the Dutch civil code, which is the reflection principle and is based on the following factors:

  • Job category
  • Last in, first out system
  • Age
  • Years of service
  • Proportionality

Certain employees are afforded special protection during the redundancy process, particularly:

  • Employee representatives (member of works council/other employee representative body — the restriction is applicable for a period of two years from the date of expiration of such membership)
  • Employee who is a candidate to be elected a member of employee representative body
  • Employee performing activities on behalf of union
  • Pregnant employees or employees on maternity/paternity leave
  • Employees in military service
  • Sick employees (employer is not allowed to give notice of termination during the first two years of illness)

Actions required to limit the negative impact and social plan

The employer must consult the labor unions in order to plan actions to limit the negative impact of the collective redundancy.

Internal alternative employment/redeployment
Employers in the Netherlands are obligated to search for alternative employment/redeployment (even including education or training) before the employee can be made redundant.

Other measures
Employers in the Netherlands are not obligated by law to implement any other external measures as they are at liberty to accept or reject such outcome of the consultation process.

Estimated timeline

It may take about four to eight weeks for the preparation of the specific documentation required for the information and consultation process with the works council, drafting a social plan and drafting a report to the labor authorities. However, the time period may vary depending on circumstances such as the number of the redundancies contemplated, time taken to negotiate a collective labor agreement, negotiations with the works council, etc. Any negative outcome of the consultation process with the works council could further delay the reorganization process.

No legal timeline is prescribed for implementation of the collective redundancy process.

Estimated costs

Mandatory costs

The key components of mandatory HR legal costs are as follows:

  • Severance payment — in the event of termination.
  • Transitional compensation — for employees with minimum 2 years of employment contract (capped at 1/3 month’s salary per year of service for the first 10 years and 1/2 month’s salary per year of service after that).

    The terminated employee is entitled to either a maximum gross transitional compensation of EUR76,000 (in 2016) or one year’s gross salary if the employee’s annual salary is higher than EUR76,000.

    The provision for transitional compensation, for an impacted employee who is aged 50 or over, would be in force until 1 January 2020. The employer must apply a higher standard (1 month’s salary per year of service) in calculating the transitional compensation if the employer is aged 50 or over provided the impacted employee is employed for at least 10 years with the same employer.

    This higher standard rule does not apply to small employers (i.e., employers with less than 25 employees during the last 6 months of the calendar year preceding the calendar year in which the employment contract ends).

    Further, collective labor agreements may deviate from the statutory rules for transitional compensation, if it includes at least an equal arrangement.

Customary additional costs

No other customary additional costs to the employer exist.

Hiring restrictions post-redundancy

The employer is prohibited from hiring any person for the same work or position as the employee who was recently made redundant within 26 weeks from the date of dismissal permit granted by the labor authorities (UWV permit). The employer is obligated to first offer such a position to the employee who was made redundant before the employer could hire a new person.

Litigation risk

Interested parties

The following interested parties can bring lawsuits related to the redundancy process within two months after the redundancy:

  • Works council: The works council can start a procedure against the collective redundancy process. This is possible if the works council gives negative advice and that advice is set aside without a proper reason.
  • Impacted employees: The impacted employees can claim reinstatement or a higher severance payment based on reasonableness and fairness in the event of gross negligence by the employer.

    For example: employer hires a new employee for the job of the employee who has been made redundant within 26 weeks after from the date of dismissal permit granted by the labor authorities (UWV permit); employer gives notice for termination without prior permission of the labor authorities; employer did not comply with the Collective Redundancy Notification Act.

Litigation could stop or slow down the collective redundancy process.

Damages and other remedies

Challenges could lead to the following remedies:

Damages for unfair dismissal

The impacted employee can claim for a higher severance payment based on reasonableness and fairness in the event of gross negligence by the employer. There is no quantum of damages prescribed by the law.

Reinstatement

Employees are entitled to reinstatement within the company based on reasonableness and fairness in the event of gross negligence by the employer.

Only employees can claim reinstatement; it is not possible for employers to offer reinstatement instead of a severance payment.

Criminal sanctions

There are no criminal sanctions to the employer if there is a violation of legal requirements.

Country-specific issues

There are no other issues specific to the Netherlands.

Contact

Primary Contact for Netherlands Labor and Employment Law

Suzanne Bos
Holland Van Gijzen Advocaten en Notarissen LLP
+31 88 40 72472

Global Labor and Employment Law Guide
Workforce restructuring
2016-07-01
Netherlands
NL

Contacts