Netherlands

Sources of Regulation[1]

Termination of employment in the Netherlands is governed by the Civil Code[2] (CC), the Extraordinary Labour Relations Decree[3] (ELRD), the Dismissal Decree[4] (DD) and the Collective Redundancy (Notification) Act[5] (CRNA).

In cases where the law remains silent, or where its regulations are not mandatory, collective labour agreements may also constitute a source of law. Some subsections of the CC stipulate that departure from the main principle is allowed, but only under a collective agreement or an arrangement made by or on behalf of a competent public body.

Scope of Legislation

The Dutch CC defines a contract of employment as an agreement under which one party, the employee, undertakes to perform work on behalf of the other party, the employer, in return for remuneration for a certain period of time (sec. 7:610 CC). Unless declared applicable by or on behalf of either party, before or on commencement of employment, or by law or ordinance, the provisions of the CC on contracts of employment do not apply to any person in the employment of the State, District Council, City Council, Water Board or any other public body (sec. 7:615 CC).

The ELRD and the DD covers contracts of employment and cases in which workers, assisted by no more than two other individuals, personally perform work without a contract of employment. This does not apply to work that is undertaken on a mere occasional basis (sec. 1 (b) ELRD, sec. 1:1 (b) DD). Neither does the ELRD apply to:

• employees of public bodies;
• the teaching staff of institutes of education led by a natural person or body corporate;
• people holding ecclesiastical offices;
• employees who only or predominately perform domestic work or personal services in private households for less than three days a week (sec. 2 (1) ELRD).

The CRNA applies to cases where collective redundancies of twenty or more employees working in the same field are proposed within a period of three months (sec. 3 (1) CRNA). It does not apply, however, to the termination of an employment relationship that does not require the approval of the Centre for Work and Income (CWI) (sec. 2 (1) CRNA) or that is the result of issues relating to the employee him/herself. Neither does it apply to the termination of seasonal employment at the end of season for which the relationship was established (sec. 2 (2) CRNA). In contravention of sec. 2 (1) CRNA, secs. 3 en 4 (1, 2) CRNA apply to the termination of employment contracts following the company’s bankruptcy or the personal bankruptcy of the employer. (sec. 2 (3) CRNA).

Contracts of Employment

Although the law does not establish a typology of employment contracts, it does make a distinction between contracts of employment concluded for a definite period of time (also called fixed-term employment) and those concluded for an indefinite period (a so-called permanent contract). Contracts for a definite term will terminate automatically at the end of the fixed-term period, whether concluded for a definite term, for a specific task, or a project (sec. 7:667(1) CC). Evidently, the ending of the project will depend on objective circumstances.

A fixed-term contract shall be converted into a permanent one, if:

• successive contracts have been concluded for a continuous period of 36 months without being interrupted for more than three months. After expiration of the 36 months’ period, the prevailing contract will become permanent;
• more than three successive fixed-term contracts have been concluded without an interruption of over three months. If such is the case, the latest contract will become permanent (sec. 7:668a (1) CC). See sec. 7:668a (2) CC for successive contracts with various employers. Sec. 7:668a (3) CC is an exception to sec. 7:668a (1).

No termination date requirements, however, are stipulated for contracts concluded for an indefinite period of time.

Termination of Employment

According to the Dutch CC three options to terminate an employment contract are possible:

• termination by mutual consent,
• termination by operation of law,
• termination by dismissal.

Mutual consent

Termination by mutual consent is implied in sec. 7:677 (1) CC. Legal consequences arising from the employment being terminated by mutual consent are that both parties will lose the right to cancel the dismissal and the right to claim for wrongful or manifestly unfair dismissal. Thus, parties will not be able to claim for compensation on these grounds (see §7.1).

A contract of employment cannot be terminated due to the employee’s marriage, pregnancy or maternity leave. Any regulations to that effect shall be, or may be declared, null and void (sec. 7:667 (7, 8) CC).

Operation of law

Expiry fixed term contract

According to the CC a contract of employment will first of all be terminated by operation of law when the fixed-term period stipulated by contract, regulation, law or determined by custom, has expired (sec. 7:667 (1) CC). However, prior notice will be required in the event of termination of the fixed-term contract, if such notice is stipulated by regulation, determined by custom (unless in breach of contract) or has been agreed in writing (sec. 7:667 (2) CC).

Early termination of employment will not be not possible unless both parties have agreed in writing (sec. 7:667 (3) CC). If no such agreement exists early termination will require authorisation as if it were a dismissal (see §5 and §6).

A contract of employment renewed by tacit agreement upon expiry shall be deemed to have been extended for the same period, not exceeding one year, on the same terms as before (sec. 7:668 (1) CC). This section shall also have effect in relation to a failure to give timely notice while proper notice is agreed and the consequences of renewal has not been explicitly specified (sec. 7:668 (2) CC).

Sec. 7:667 (4, 5) CC is an exception to sec. 7:667 (1) CC: termination of contract will require prior notice when a permanent contract is converted into a fixed-term contract, provided that the permanent contract has not been terminated by legal notice or judicial rescission. Furthermore, the interval between a permanent contract and a fixed-term contract shall not exceed three months.

Employee’s death

Moreover, a contract of employment will terminate by operation of law in the event of the employee’s death (sec. 7:674(1) CC). The employer shall thereupon pay the surviving relatives a death benefit equal to the remuneration the employee would have received from the day of death until the last day of the following month (sec. 7:674 (2) CC).

The contract does not terminate by operation of law, however, in the event of the employer’s death, in which case both the employer’s heirs and the employee will be entitled to give notice of termination of a fixed-term contract as if it were permanent (sec. 7:675 CC).

Dismissals

Under Dutch law employees are protected against dismissal by a system of a priori control of dismissals. This means that an employer, before dismissing an employee, usually needs to have:

• the rescission of the contract by the judge (§5.1); or
• either the permission of the CWI, also called ‘notice’ (§6).[6]

Rescission of the contract by judge

Upon application by the employer or the employee the subdistrict court may rescind the contract for substantial reasons (sec.7:685 (1) CC). Substantial reasons are those circumstances that would have caused an urgent cause if the employment relationship had been terminated forthwith, or those changes in circumstances that justify a termination of the employment relationship (sec. 7:685 (2) CC).

Termination by judicial rescission is predominantly used by employers, because it ensures a prompt settlement: the subdistrict court can terminate the contract at short notice and is not bound to observe a statutory notice period. Another advantage of this approach is that it allows termination in cases where notice cannot be given (see termination restrictions such as ill-health). There is no appeal to a higher court against a subdistrict court decision (7:685 (11) CC).

Until recently, employees preferred termination by rescission instead of mutual consent in order to protect the entitlement to unemployment benefit. If a contract had been terminated by mutual consent, the competent authorities found that the termination could be attributed to the employee. As a result the employee would lose his/her entitlement to unemployment benefit. Therefore, employees would probably not be willing to terminate their contracts of employment by mutual consent. If parties, however, reached an agreement on the termination of employment, a so-called "pro forma" rescission by the subdistrict court was obtained. Nevertheless, the procedure was a mere formality and new legislation[7] aims to put an end to this “pro forma practice”.

Notice and prior procedural safeguards

A key principle of the Dutch CC is that a contract of employment may be terminated by either the employee or the employer giving notice (sec. 7:677 (1) CC). However, this principle of the law is confined by statutory safeguards against dismissal, such as general and special restrictions on dismissal for employers and requirements of notice period.

General restriction for employers

A general restriction on dismissal for employers is found in the ELRD. The ELRD stipulates a consent requirement for the employer in many situations. Under sec. 6 (1) ELRD the employer will not be allowed to terminate a contract of employment by giving notice without prior consent of the CWI, unless the contract is terminated:

• on grounds of urgent cause of which the employee has been notified forthwith;
• during a probation period;
• as a result of the company's bankruptcy or the personal bankruptcy of the employer (sec. 6 (2) ELRD).

Procedural rules

In case of individual and collective dismissal a number of procedural rules must be observed in order to obtain the required prior approval from the CWI.

The reason for an individual dismissal must be specified in the application for the CWI’s written consent, substantiated by evidence provided by the employer. The CWI will reach a decision after the parties involved have been heard and the advice of a Redundancy Committee, composed of the representatives of the workers’ and employers’ organisations, has been obtained (secs. 2:2, 2:5 DD).

Generally, if the CWI considers the dismissal to be fair, a permit will be granted (sec. 3:1 DD). A dismissal will be considered fair when it is based on redundancy (sec. 4:1 DD), incompetence (sec. 5:1 (1) DD), grounds of conscience (sec. 5:1 (3) DD), misconduct (sec. 5:1 (4) DD), a disturbed employment relationship (sec. 5:1 (5) DD) or the disability to work (sec. 5:2 DD).

The permit is time-limited, i.e. the contract should have been terminated before the expiry of the permit (sec. 2:7 (1) DD). It may also be granted subject to conditions, such as a temporary injunction to hire new workers to do the same work (secs. 4:5 jo 2:7 (2) DD). The CWI will verify whether the employee can be redeployed within the organisation adhering to the principle of "last in, first out" and the representation principle (sec. 4:5 (1) DD). If the employer has prepared his/her case well by providing convincing arguments, a permit will usually be granted within 6 to 8 weeks after the application has been received. If the permit is granted, the notice period may be reduced by one month, provided that it will not be less than one month (sec. 7:672 (4) CC).

A collective dismissal is one where the contracts of twenty or more employees, working in the same region, are terminated within three months (sec. 3 (1) CRNA). If such is the case, the employer is obliged to notify the CWI and any workers’ organization involved (for consultation purposes only) of the proposed termination dates, certain details about the employees who are likely to be made redundant and the date on which the Works Council has been consulted (secs. 3 and 4 CRNA). The CWI shall not assess the application for approval until one month after the notification has been received, provided that it will not endanger the redeployment of employees facing dismissal or the employment of the other employees in the enterprise involved (sec. 6 CRNA). This requirement of consulting the workers’ organisation or Works council is less stringent when the enterprise or employer has become insolvent. This also applies to the one-month postponement of the CWI’s assessment (sec. 2 (3) CRNA).

Terminations without the CWI’s consent shall be, or may be declared, null and void, and employers as well as employees could apply for cancellation within six months after the termination (sec. 9 (1) and (2) ELRD). There is no appeal against the CWI’s decision.

Special restrictions for employers

Special restrictions for employers on dismissal are found in the CC and a few other laws.[8]

According to the CC, an employer will not be able to give notice:

• when the employee is unable to perform his/her work due to ill-health, unless the incapacity has lasted for at least two years (sec. 7:670 (1));
• when an employee who is fit to perform the agreed work is pregnant, during her maternity leave or the six weeks following the end of that period (sec.7:670 (2));
• when an employee is doing military service or performing alternative service (sec. 670 (3));
• to a member of a works council or any of its committees (sec. 7:670 (4));
• because the employee has filed a claim, whether or not brought to court, for sex discrimination, for unequal treatment based on working-hours or employment contract (fixed-term or permanent) (secs. 7:647 jo 646, 648, 649 CC);
• to an employee who had been a member of a works council or any of its committees less than two years prior to the notice, or is eligible for election to the works council, unless with prior judicial approval. The latter will only be given when the employer can make a convincing case that the reason for termination is not related to the employee's duties for the works council.

The same restrictions apply to those employees performing corporate safety and health duties, i.e. supervisors, doctors and members of safety and health committees (sec. 7:670a (1) CC). These restrictions do not apply to terminations on grounds of urgent cause (summary dismissals) or during a probation period (sec. 7:670b (1) CC).

In case of a breach of these regulations, the employee could apply for the dismissal to be cancelled. Therefore, the employee should notify the employer within two months after being given notice or being dismissed, that the dismissal is null and void (secs. 7:677 (5), 7:647, 7:648, 7:649 CC). Consequently, the employee must remain available for work after lodging an objection to the employer. If the employer fails to respond, however, the employee could institute legal proceedings. He could seek reinstatement and claim wages, or accept the dismissal and claim damages. In the latter case the termination is likely to be ‘manifestly unfair’ or ‘unlawful’.

A non-exhaustive list of manifestly unfair termination is given in sec. 7:681 (2) CC.

Termination will be unlawful when the statutory notice period has not been observed. Sec. 7:672 (1) CC stipulates that in terms of permanent contracts, notice of termination must take effect at the end of a calendar month unless agreed otherwise in writing or determined by custom.

Requirements of notice period

Provisions on the statutory notice period for employer and employee are to be found in the following provisions:

Sec. 7:672 (2) CC

The parties may agree upon a notice period, provided that the contractual notice period will not be less than the statutory minimum. The statutory minimum notice period is solely determined by the number of years of service. The employer shall, therefore, observe a statutory minimum of:

• 1 month,          for employees with less than 5 years service;
• 2 months,         for employees with between 5 and 10 years service;
• 3 months,         for employees with between 10 and 15 years service;
• 4 months,         for employees with more than 15 years service.                       .

Sec. 7:672 (3) CC

Conversely, when the employee chooses to give notice, a statutory notice period of one month must be observed.

Sec. 7: 684 CC

A lifelong contract of employment or a contract concluded for more than five years entitles the employee to give a six months’ notice at the time the contract has been in existence for five years (sec. 684 (1) CC). The employer, however, will not be allowed to terminate the employment by giving notice (sec. 684 (2) CC).

The applicable notice period prescribed by law, in a collective agreement ("CAO") or in an employment contract may be reduced by one month, provided that the notice period will not be less than 1 month (sec. 7:672 (4) CC). For more varying provisions in relation to notice periods, see sec. 7:672 (5, 6, 7, 8) CC.

Ignoring the statutory period of notice or terminating the employment without prior notice will not result in a wrongful dismissal when a probation period has been agreed or in case of a dismissal on grounds of urgent cause.

During a probation period either party will be entitled to terminate the employment relationship without giving notice or having to pay compensation (sec. 7:676 CC).

In case of a dismissal on grounds of urgent cause both the employer and employee will be allowed to terminate the contract by notifying the other party of the nature of the urgent cause (sec. 7:677 (1) CC). Urgent cause is defined as “an act, a quality or behaviour of one party that makes it unreasonable to expect the other party to continue the employment relationship”. In Dutch law a non-exhaustive list of urgent causes is given for employer and employee (secs. 7:678 and 7:679 CC).

Severance Pay

Although no statutory provisions exist regarding the calculation of redundancy payments in case of collective dismissals, some industrial sectors do have collective agreements that provide guidelines in case of a merger, takeover, or reorganisation. Usually a “Social Plan” is drawn up containing a redundancy scheme. A social plan is an agreement between employer and trade union specifying redundancy regulations that should be followed in case of dismissals and procedures that will assist redundant employees in finding new jobs. Generally, the redundancy scheme will provide a supplement to the unemployment benefit over a certain period of time. The compensation due under this scheme is often paid as a cash lump sum.

Avenues for Redress

Rescission

If a contract is rescinded by subdistrict court due to a change in circumstances that makes it justifiable to grant a compensation, the court may decide to do so (sec. 7:685 (8) CC).

The calculation rules for compensation payment are not governed by statute. In order to reduce inequality before law and to promote legal protection, however, the Association of Dutch Subdistrict Courts has issued “Recommendations”[9]. These recommendations include requirements for motivation and a formula that may be used by the court in order to determine the amount of compensation. The basis of the formula is the gross monthly income increased by all perquisites and minus deductions such as pension contributions. The outcome is multiplied by the years of service and a correction factor. Years of service of employees are weighed: years of service over the age of 40 are multiplied by 1.5; those of employees over the age of 50 by two. On the other hand the correction factor reflects the special circumstances of the case (if any). For example, if the termination of employment is “neutral” (e.g. due to redundancy), compensation will be multiplied by a factor one. However, if the termination can be attributed to the employer, the factor will be higher. If the termination is attributable to the employee, the correction factor will be less than one, or even close to zero if he/she has given reason for urgent cause.

Notice

The key principle of the Dutch CC is that contracts of employment may be terminated by either the employee or the employer giving notice (secs. 7:677 (1) CC).

In addition parties are free to stipulate a compensation in a termination agreement. There are circumstances, however, where parties may be held liable for damages. Liable for damages are those parties that have terminated a contract of employment for an urgent cause without legal justification or those parties that have failed to notify forthwith the other party of the urgent cause (sec. 7:677 (1) CC).

Furthermore, the employer or employee shall be liable for compensation if he/she has failed to give notice or to follow the statutory procedure regarding the day on which notice should be given or the required notice period  (sec. 7: 677 (2) CC).

Parties are equally liable when they have, wilfully or negligently, given the other party grounds to terminate the contract due to an urgent cause, provided that the other party has exercised its jurisdiction to terminate the contract forthwith, or the contract has been terminated by judicial rescission (sec. 7:677 (3) CC).

Consequently, the other party will be entitled to opt for fixed compensation, or to recover full damages (sec.7: 677 (4) CC). Fixed compensation equals the amount of pecuniary remuneration which would have been payable if the employment relationship had not been terminated, unless a higher amount has been agreed in writing or determined by regulation. However, despite any agreement to the contrary the specified sum may be reduced by court where it is manifestly excessive (sec. 7:680 (1, 4) CC). Unlike the party opting for fixed compensation, the party that claims full damages has to substantiate the claim.

In addition, if the employer or the employee has terminated a contract on manifestly unfair grounds, whether or not in breach of regulations, the court could award damages to the other party. A non-exhaustive list of manifestly unfair grounds in respect of employer or employee is given in sec. 7:681 of the Civil Code.

A party that is held liable for compensation or has terminated a contract on manifestly unfair grounds may be required by court order to reinstate the employee (sec. 7:682 (1,2) CC). The court may also impose a compensation payment in lieu of reinstatement whether on its own initiative or at the request of either party. It will determine the amount of compensation by taking account of the circumstances of the case (sec. 7:682 (3, 4) CC).

Any legal action under secs. 7:677 (4, 5), 7:681 (1) or 7:682 (1) CC shall become statute barred after 6 months (sec. 7:683 CC).

Further information

• Ministry of Social Affairs and Employment of the Netherlands
• Government organisations of the Netherlands
• I.P.Asscher-Vonk & W.J.P.M.Fase met medewerking van F.M. Noordam, H.L. Bakels. Schets van het Nederlandse Arbeidsrecht, Deventer: Kluwer 2005.
• W.C.L. van der Grinten, Arbeidsovereenkomstenrecht. Bewerkt door J.W.M. van der Grinten & W.H.A.C.M.Bouwens, Deventer: Kluwer 2005.
• R.L. van Heusden, Beeindigingsovereenkomsten en recht op WW-uitkering, Deventer: Kluwer 2006.
• A.T.J.M.Jacobs, Labour Law in the Netherlands, Den Haag: Kluwer Law International 2004.
• W.A.Zondag e.a. (red.), Arbeid Integraal (A.I. 2006/3, themanummer), Den Haag: Sdu uitgevers 2006.

[1] Used lexicon in this Dutch contribution: A.van den End, Juridisch Lexicon. The legal lexicon. Nederlands-Engels, Zutphen: Koninklijke Wohrmann B.V. 2005.

[2] Burgerlijk Wetboek, boek 7, titel 10 (Wet van 14 juni 1822, Stb. 10.), in werking getreden op 1 oktober 1838, (Stb. 12.). Laatstelijk gewijzigd 14 september 2006, Stb. 425.

[3] Buitengewoon Besluit Arbeidsverhoudingen 1945, Besluit van 5 oktober 1945, Stb. F 214. Laatstelijk gewijzigd 29 november 2001, Stb. 625.

[4] Ontslagbesluit, Regeling van 7 december 1998, Stcrt. 238. Laatstelijk gewijzigd 16 december 2005, Stcrt. 249.

[5] Wet melding collectief ontslag, Wet van 24 maart 1976, Stb. 223. Laatstelijk gewijzigd 4 maart 2004, Stb. 104.

[6] A.T.J.M. Jacobs, Labour Law in The Netherlands, The Hague (The Netherlands): Kluwer Law International 2004, p. 100.

[7] Wet wijziging WW-stelsel. Wet van 28 juni 2006, Stb. 303, 304, inwerking getreden op 1 oktober 2006.

[8] Algemene wet gelijke behandeling. Wet van 2 maart 1994, Stb. 230. Laatstelijk gewijzigd 15 september 2005, Stb. 516; Wet gelijke behandeling op grond van handicap of chronische ziekte. Wet van 3 april 2003, Stb. 206. Laatstelijk gewijzigd 15 september 2005, Stb. 516; Wet gelijke behandeling op grond van leeftijd bij de arbeid. Wet van 17 december 2003, Stb. 2004, 30.; Wet aanpassing arbeidsduur. Wet van 19 februari 2000, Stb. 114. laatstelijk gewijzigd 28 april 2005, Stb. 274.

[9] Aanbevelingen kring van kantonrechters. Kantonrechtersformule NJB 1996, p. 838, laatstelijk gewijzigd en aangevuld in NJB 1999, p. 1789.