Dutch law is renowned for its complex rules regarding dismissal of employees as well as its aim to provide rather extensive job protection. This current legal situation goes back to the institution in 1945 of the requirement to ask prior permission for termination of employment from the Regional Labor Market Agency (Regionaal Bestuur voor de Arbeidsvoorziening or "RBA"). Ironically enough, the original intent was to protect employers from job hopping employees during the immediate post-war labor shortage. However, by maintaining this requirement, the Netherlands is the only European country where this so called prior assessment of dismissal is operative.
The RBA is a governmental agency whose task is to prevent unreasonable or socially unjustifiable dismissals. Notice of termination requires a permit from the RBA. Until this permit is obtained, any notice is null and void and does not terminate employment. An application for a permit must state the reasons for the proposed termination. Having heard the other party the RBA takes a decision which is irrevocable and not subject to appeal. The procedure is time-consuming: a decision may take something between two and four months.
A permit will usually be issued when (a) the employer is forced to reduce his labor force because of a reduced volume of business, or (b) the employee is apparently not competent for the job and no other job is available in the enterprise, or (c) the relationship is damaged in such a way that continuation of the employment is impossible. However, a permit may be denied if the financial effects of termination on the employee are unreasonably harsh and are not compensated by an adequate redundancy payment.
Having obtained a permit from the RBA, the employer can give the employee notice of termination which notice will terminate the employment relationship after the agreed period of notice. This means that the whole procedure from applying for an RBA permit until termination of the employment contract may easily take five to six months provided that the dismissal is not contested by the employee. During this time the employer is required to continue paying the agreed salary to the employee.
Although the Dutch government recently proposed to shorten the RBA procedure by allowing the notice of termination to be issued together with or even prior to the application of the dismissal permit, many employers still consider this dismissal procedure to be too burdensome. For this reason alternative methods of terminating employment contracts have gained popularity among employers.
The two other ways to terminate an employment contract are by court decision or by mutual consent of the parties.
The procedure to have the employment contract terminated by the Dutch court (magistrate court or "kantongerecht") usually takes one to two months and includes a hearing session. Just as in the RBA procedure a request for termination is usually granted if the unreasonably harsh financial effects of termination (if any) on the employee are compensated by an adequate redundancy payment.
Secondly, the employment contract may be terminated by mutual consent of the parties. This is by far the most elegant way to terminate an employment contract, since no time and money is wasted by the parties in having to follow RBA or court procedures.
However, in most cases a combination of the two above mentioned termination alternatives is required to secure the employee's rights to unemployment benefits, since in the Netherlands an employee who consents to his/her dismissal is rarely entitled to receive these benefits.
A frequently used method to secure the employee's rights is a 'formal court-authorized termination of an employment contract' ("formele ontbinding"). This court procedure is used when the parties agree on the termination of the employment contract, but require a court decision in order to secure the employee's social security payments. Since the dismissal is only formally, but not materially contested by the employee and provided that the parties have agreed on an adequate redundancy payment, the termination of the employment relationship can be effectuated in four to six weeks.
In its recent plans to modify the dismissal procedures the Dutch government has proposed dropping the requirement of a "formal court-authorized termination" in the event of a dismissal arising from the deteriorated financial condition of the employer. If this proposal is adopted, it will reduce the unnecessary time and money which now has to be invested by both parties.
There are no exact rules for determining in general what redundancy payment is fair and adequate, since this is dependent on the employee's specific circumstances such as his/her age, duration of employment, position and potential for finding another suitable job.
However, the so-called "court formula" ("kantonrechtersformule") has proven to be the outcome in the vast majority of court procedures:
Using this "court formula" a rough estimate of a fair and adequate redundancy payment can be calculated. However, there may be special circumstances such as reproachful actions by the employer or the employee which may result in a higher or lower redundancy payment.
Under Dutch law an employment contract may be terminated on the basis of an RBA permit, by court decision, by mutual consent of the parties, or by a combination of the last two.
Since the RBA procedure is very time consuming and consequently expensive, the alternative termination methods have become more popular. The major justifying factor of a termination of employment is a fair and adequate redundancy payment to the employee in order to mitigate any unreasonably harsh financial consequences of dismissal. Using the "court formula" a rough estimate of a fair and adequate redundancy payment can be calculated.
The information contained in this article cannot be more than a global overview of certain aspects of terminating employment contracts. Therefore we strongly recommend to seek legal advice in case you need to go through the process of dismissing one or more employees. Based on our experience in the field of Dutch labor law we can advise you with respect to the appropriate method of termination in a specific case as well as the financial consequences. Please read the outine on Dutch labor law in the Areas of Practice section if you need more information.
