Most Americans who have been active in the Dutch market will tell you that the Netherlands is a great place to do business. As a general rule, the Dutch have a rather positive attitude to Americans in general. Even among the younger generation, America is remembered as one of the liberators during the Second World War. On the other hand, it's still a foreign country and when it comes right down to dealing with the bureaucracy, social attitudes and people day to day, there are a few surprises waiting.
Dutch law owes much to the Code of Napoleon, as do the laws of most continental jurisdictions. The fact that the law is all codified as it is written means it all fits together better than in most common law jurisdictions. Resolving a legal question is primarily a matter of finding the right paragraph number to apply to the fact pattern. There are no juries and there is no stare decisis here. All cases are tried to a judge or panel of judges. The judge is finder of both fact and law. In case of doubt, a judge may seek guidance from previous jurisprudence, but s/he is not bound by it, not even that of a higher court. It might sound rather digital at first, but the law also requires that all questions be governed by the overriding principles of "reasonableness and fairness." This gives judges a fair degree of freedom to actually do justice in any given case, which, to their credit, they do. The result is, on the whole, a system which has a somewhat higher degree of predictability than Americans may be used to. Having the more creative lawyer plays a less important role, as the scope for reinterpreting the law or a given contract clause is more limited than under most US jurisdictions.
For the same reason, contracts in the Netherlands tend to be shorter and more to the point. Civil law imposes so many conditions on the right to freely contract that drafters can really focus on the key questions of Who? What? When? Where? and How Much? This substantially reduces the need for pages and pages of nonsense about such things as compliance with laws (everyone has to comply, so why write it down), penalty clauses (all set out in the law), rights on breach (again, it's specifically set out) and who has what rights if the world ends before either party has performed (nobody has any rights then, so why bother with it?).
For contracts between companies and consumers, there is a list of forbidden, so-called "black" clauses which are unenforceable and a list of selectively enforceable "gray" clauses. While these rules do not apply directly to contracts between companies, there is some talk of them "reflecting" on such contracts when equity and the principles of basic reasonableness and fairness mentioned above requires. Especially in the fields of employment contracts and agency agreements (see also below), Dutch law imposes a number of conditions which parties are not free to change. In both types of contracts these conditions regulate such essential elements as the term as well as the termination provisions which enforce Dutch ideas of fairness to the employee or agent (as the case may be).
The big surprise hiding in this more regulatory approach is that you may believe you have covered yourself with appropriate clauses only to discover later that those clauses are unenforceable. Even the standard tactic of declaring the law of some State in the US as the governing law will sometimes be ignored by the Dutch judge if it looks like overreaching to him.
One of the most misunderstood and, consequently, unnecessarily mistrusted aspects of doing business in the Netherlands is the seemingly over-protective labor laws. Dutch regulations with regard to terminating are more restrictive than those of most States in America. In fact, after a trial period of at most two years, most employees acquire certain rights to their job. The employer has to ask the labour bureau or court for permission to fire an employee. The process can take months and usually involves substantial severance pay. (See the Article: Termination of Employment Contracts in the Netherlands for other possibilities.)
It may surprise even many Dutch executives to learn that these rules were actually introduced in the late 40's to protect employers from job hoppers right after the war when labour was scarce. You see, formally speaking at least, the employees also need permission to quit, but that's not enforced much any more.
Another important area of concern is the relationship with distributors, sales representatives and other resellers. Laws granting protection to agents and distributors are very well developed in Europe. It is important to plan ahead for growth in order to avoid a local (in your eyes) temporary partner acquiring too great a grip on your sales outlets. Even when you are confronted with such problems after the fact, it is often possible to avoid more extreme claims with a combination of good negotiation skills and a sound knowledge of where European Union law may be used to override local rulings.
Trademark registration is another source of concern for US companies. In Europe, the general rule is that the first to register a mark is the owner of the mark, not the first to use the mark as in the US. There is a case in Holland where a private citizen registered the mark "EURO" in the category "bank notes." If this holds up, as is likely, the Dutch government will either have to buy this registration from the owner before they can print any EURO currency or pay a royalty for each new EURO note they print. If the Dutch government can get caught out like that, don't think it can't happen to you. There are even cases of distributors registering the marks of their principals in their own names to gain leverage. Good planning and early action is essential to protecting your rights in Europe.
Branch offices can appear to be an attractive alternative for getting started in Europe. The taxes are almost nothing and the formalities are few and unobtrusive. The unattractive downside is that the branch office manager really has his hands tied as far as doing business is concerned. He is in fact limited to little more than distributing brochures and answering questions about offers originating at the head office in America. All too often, these limitations are so unsatisfactory, both for customers as well as for the US company that the branch manager slips almost unconsciously into a more substantive role. As soon as the Dutch tax authorities get wind of this development, the consequences can be severe. In theory, the US company can be subjected to Dutch tax on their entire worldwide income. In such a case, it might have been better to establish a Dutch corporation to carry out the business in Europe.
We specializes in advising American companies doing business in Europe, especially in the Netherlands. With more that 15 years of experience of both head office and branch office assignments as well as serving as both in-house and outside counsel, we have experienced the entire range of approaches to solving the unique difficulties of US companies operating in the Netherlands.
