New Dutch government announces employment law changes

After more than seven months of negotiating following the March 2017 Dutch parliament elections, the four political parties forming the government coalition have unfolded their plans for their four year term in office. The labor market chapter of the so-called coalition agreement includes an ambitious package of proposed changes in Dutch employment law.

Some of these changes are aimed at softening the impact of the 2015 Work and Security Act, which is said to have had too many negative effects on employers and has led to the exact opposite of its intent – employers have become more reluctant to offer permanent employment contracts.

The most important changes announced in the coalition agreement are the following:

Termination of employment contracts will be easier

• Since the implementation of the Works and Security Act, courts may only terminate an employment contract if one of a limited number of statutory dismissal grounds has been fully substantiated. This has made it virtually impossible for employers to seek termination based on a blend of several partial dismissal grounds, for instance a combination of underperformance and a conflict, which both on their own would have been insufficiently severe to justify a termination of the employment contract. In such cases, courts have no option but to reject the request termination. The new government will enable courts to terminate employment contracts in case of cumulative partial dismissal grounds in cases where courts find that these partial grounds would jointly justify a termination. This will facilitate employers in successfully seeking termination of an employment contract if numerous partial dismissal grounds are present, but none of them would be sufficient on its own.
• If a court chooses to terminate an employment contract based on a mixture of partially present dismissal grounds, it will have the possibility to offer additional financial compensation to the employee of up to 50 % of the statutory severance payment payable.

Severance payments

• Only employees who have been employed for at least two years are currently entitled to the statutory severance payment upon termination of their employment. The new government has announced that in the future all employees will be entitled to the statutory severance payment, regardless the duration of their employment.
• The height of the severance payment will be decreased. Currently, the severance payment amounts to one sixth of a monthly salary for every half year of employment during the first ten years of employment and a quarter of a monthly salary for six month period thereafter. The increased severance payment for employment years after the ten year mark will be abolished.
• The possibilities for employers to deduct the costs of training and education made for the benefit of employees who are being dismissed will be expanded.
• The government will provide financial compensation to employers who have paid severance payments to employees who are being dismissed after having been on sick leave for two years or longer and to employers who have paid severance payments due to a closure of their business as a result of (their own) sickness or retirement.

Probationary periods

• The possibility to include probationary periods in employment contracts will be expanded:
  • For fixed term employment contracts of more than six months but less than two years, the maximum probationary period remains 1 month.
  • For fixed term contracts for two years or longer, a three month probationary period will be permitted.
  • For permanent contracts, the maximum probationary period will be increased from two months to five months. A probationary period is and will only be possible in the first employment contract between parties.

The latter measure is clearly aimed at encouraging employers to offer permanent employment contracts. As an additional benefit, these permanent contracts may include non-compete clauses, which is not the case for fixed term contracts (unless in very exceptional situations.

Temporary contracts

• New possibilities to deviate from the so-called chain rule will be introduced for ‘seasonal work’. The purpose of the chain rule is to limit the possibility to enter into fixed term employment contracts. Under the chain rule, consecutive fixed term employment contracts following each other with intervals of less than six months are considered to form an uninterrupted chain. If the total during of the chain is two years or longer, the employment relationship becomes permanent by operation of law. This maximum period of two years will be increased to three years. This means that where employers can currently offer employees two consecutive one year contracts (or three contracts of other duration with a maximum duration of two years in total) before the employment becomes permanent, they will in the future be able to offer three one year contracts (or three contracts of other duration with a maximum duration of three years in total).

Salary payments during illness

• For businesses employing 25 or less employees, the duration of the obligation to continue salary payment during illness of employees will be reduced from two years to one year. During the second year of illness, the salary payments will be provided by the government. This measure is aimed at decreasing the risks of permanent employment contracts for smaller businesses.
• These employees will remain protected against dismissal for a period of two years.

Payrolling

• In payrolling constructions, employees are offered an employment relationship with a payrolling company (the formal employer) whilst actually working for another business (the factual employer). These employment relationships currently fall within the scope of a more flexible regime when it comes to terminating them, offering employers making use of this construction a more flexible workforce. The new government has announced that it will introduce measures to make payrolling constructions less attractive, which will include denouncing this more flexible termination regime.
• In addition, employees working through a payroll company will become entitled to the same primary and secondary employment terms and conditions as the regular employees in the business of their factual employer.

Zero-hour contracts

• Zero-hour contracts are employment contracts whereby the employee is not entitled to a specific number of working hours, but is available on call. Part of the flexibility that this construction offers to employers will be eliminated. The time period during which an employee has to respond to a call-to-work will be limited.
• In cases where employees are called for work, but the call is cancelled later, the employee will become entitled to financial compensation.

Parental  and adoption leave entitlements expanded

• From 1 January 2019, partners of women having given birth will be granted five days of paid leave, to be taken within four weeks.
• From 1 July 2020, partners also will become entitled to additional supplementary parental leave of five weeks, which must be taken within six months after the child is born. During this additional leave, the employee will be entitled to 70 % of their salary (capped at 70 % of the maximum daily wage for social security purposes), payable by the government (i.e. not by their employer).
• The possibility to take leave following adoption of a child will be expanded from two to six weeks.

30%-ruling

• The period during which many expats working in the Netherlands enjoy a tax benefit under a so-called 30%-ruling will be decreased from eight to five years.