Employers Checklist for the Balance Employment Market Act
The year 2020 brought some big changes with regard to Dutch labor and employment laws. Among other things, these changes sought to reduce the gap between Dutch employees with indefinite-term contracts and those with fixed-term contracts, making it more beneficial for employers to hire employees on a permanent basis. In May 2019, the Dutch Senate approved the Balanced Labor Market Act, also known as the Labor Market in Balance Act (Wet arbeidsmarkt in balans inDutch, or WAB), and the law entered into force on January 1, 2020. The Act contains a number of important legislative changes that affect Dutch dismissal law, temporary employees, transition allowance, payroll staff and stand-by workers, among other areas of the law. The Labor Market in Balance Act affects all employers in the Netherlands. If you are a Dutch employer, it is imperative that you understand these changes so you can remain compliant. The following is a checklist of some of the most important legal reforms introduced by the WAB.
- New Cumulative Ground for Dismissal
- Employees’ Right to Transition Pay
- Compensation Scheme for Dismissal After Long-Term Illness
- Extension of the Chain Provision
- Uniform Employment Conditions for Payroll Employees
- Expanded Rights and Protections for Stand-by Workers
- Lower Unemployment Benefit Contributions for Permanent Contracts
- Contact Our Dutch Labor and Employment Law Attorneys for Help
New Cumulative Ground for Dismissal
Prior to the Labor Market in Balance Act, there were eight limited grounds upon which a request for termination of an employment contract could be based, and employers were not permitted to combine multiple grounds. The new law introduced an additional ground, known as the “cumulative” ground, which allows employers to combine multiple grounds for dismissal, with dismissal for economic reasons and dismissal due to long-term incapacity for work being the only exceptions. It is important to note that any Dutch employee whose employment contract is terminated on the basis of a cumulative ground may be entitled to the standard transition payment, plus an additional severance payment of up to half of the transition payment.
Employees’ Right to Transition Pay
One of the biggest changes introduced by the Labor Market in Balance Act is the right of employees to collect transition pay from their first day of employment. Effective January 1, 2020, employers are required to pay transition compensation to any employee whose employment contract is terminated or not renewed, regardless of the duration of the employee’s employment. The previous law stated that an employee must have worked for his or her employer for at least two years before being eligible for transition pay. The transition payment is also calculated differently under the WAB. The amount of transition compensation you will now be required to pay upon dismissing an employee is equal to one-third of the employee’s gross monthly salary for each year of service and pro rata for each additional month or day of service after that. Transition pay in the Netherlands is currently capped at €83,000, or if the employee’s annual salary is greater than €83,000, the employee is entitled to a maximum transition payment of one year’s gross annual salary.
Compensation Scheme for Dismissal After Long-Term Illness
Dutch labor and employment laws are notoriously protective of employees, and in most cases, employers in the Netherlands are barred from dismissing employees who are on sick leave. However, Dutch law makes an exception for employees who, due to long-term sickness or disability, are unable to work for more than 104 weeks (two years). After two years of illness or disability, the employer is permitted to terminate the employment contract with the permission of the Employee Insurance Agency (Uitvoeringsinstituut Werknemersverzekeringen, or UWV), under certain strict conditions. First, the employer must have used all possible means to help the employee return to work as quickly as possible. Second, the employer must have continued paying the employee’s salary payments during the sick-leave period.
Any Dutch employee dismissed from employment due to long-term illness or disability is entitled to transition compensation for the full duration of employment, and the compensation must be paid within one month of the employee’s dismissal. Previously, it was common practice for employers to draw out the employment contracts of long-term ill employees (keep the employment relationship dormant) to avoid making this transition payment, a practice this new law aims to put to an end. As of April 1, 2020, any Dutch employer who terminates the employment contract of an employee who has been made redundant due to long-term illness and pays the requisite transition payment, can submit a request for reimbursement from the UWV and reclaim the payment. This new compensation law, known as the Transitional Compensation Fee Scheme, can be applied retroactively to dismissals dating back to July 1, 2015.
Extension of the Chain Provision
Another important provision of the WAB has to do with the obligations of employers regarding employees who have a chain of successive fixed-term employment contracts. Under the Dutch Work and Security Act of 2015, employers could enter into a maximum of three fixed-term employment contracts within a period of two years (24 months), with a maximum interval of six months between contracts, before being required to offer the employee an indefinite-term contract. If more than six months passed between successive contracts, the chain was “broken,” and the old contract did not count towards a permanent contract (or towards the employee’s total duration of employment for the purposes of calculating transition pay).
Under the Balanced Labor Market Act, the chain provision is extended to three years (36 months). So, as an employer, if you complete three fixed-term contracts with an employee within a period of three years and a fourth employment contract is agreed upon by you and the employee, the contract is automatically converted from a fixed-term contract to an indefinite-term contract. The six-month interruption period remains the same under the WAB. In some cases, employees and employers can agree to deviate from this rule and establish different conditions for temporary contracts in a collective labor agreement.
Uniform Employment Conditions for Payroll Employees
Some employers in the Netherlands who need staff but do not want to employ the staff themselves will hire workers through a payroll company. In the Netherlands, this is known as “payrolling,” the Dutch term for outsourcing staffing, and the Labor Market in Balance Act establishes a new definition of “the payroll agreement.” As of January 1, 2020, employees working on a payroll basis are entitled to the same employment conditions as employees who are directly employed by the employer. If you hire staff through a temp agency or payroll company, you are required to inform the company about the employment conditions for your employees ahead of time. Under the WAB, payroll employees also have the same protections against dismissal as employees with a temporary or permanent employment contract.
Expanded Rights and Protections for Stand-by Workers
The main principle of the WAB is to bring balance to the Dutch labor market. One way the Act does this is by bringing permanent employees and temporary or flexible employees more in line with one another in terms of the rights and protections provided to them by law. This includes the rights of stand-by workers, or on-call employees. Under the new Dutch labor law, stand-by workers are no longer required to be permanently available for work, when their specific work duties do not require such a commitment. This gives stand-by workers the opportunity to accept a second (part-time) job, if they so desire. Instead, employers are required to call stand-by employees four days in advance to request that they come to work (this mandatory calling period can be shortened to one day in a collective labor agreement). Furthermore, if the employer cancels the assignment during the calling period, the employee is entitled to be paid for the cancelled hours. The law also requires employers to offer on-call employees who have worked for one year or longer a fixed-hour employment contract for the average number of hours the employee worked in the previous year.
Lower Unemployment Benefit Contributions for Permanent Contracts
In order to make indefinite-term (permanent) employment contracts more appealing to employers, the Balanced Labor Market Act establishes a new system for unemployment benefit premiums that differentiates between indefinite-term contracts and fixed-term (temporary) employment contracts. Under the Act, Dutch employers will pay a lower unemployment insurance contribution for permanent employees than they will for temporary employees. The difference between the monthly premiums is 5% per employee, which means this new law can have a big financial impact for employers.
Contact Our Dutch Labor and Employment Law Attorneys for Help
As an employer in the Netherlands, there are certain laws you must abide by with regard to transition pay, termination of employment contracts, working conditions, and the rights of your employees, among other legal requirements. These laws are strict, even more so with the reforms introduced in 2020, and failing to comply with the requirements set forth in the Balanced Labor Market Act could expose you to damaging litigation. If you have questions about your requirements as an employer, or if you have been accused of violating the legal rights of an employee, do not hesitate to seek legal guidance from our labor and employment law attorneys.