Comprehensive changes to Dutch employment law

On February 18, 2014, The House of Representatives in The Netherlands voted with a large majority in favour of the legislative proposal for the Work and Social Security Act (WWZ). In the coming months, the Senate of the Dutch Parliament will be considering the proposal. Provided the Senate also agrees, part of the WWZ will be effective as early as July 1, 2014. This note discusses upcoming changes for your consideration. The WWZ contains changes to the rules governing flexible employment, dismissal, and the Unemployment Insurance Act (WW). The legislature decided to introduce the changes in these three areas at different times, July 1, 2014 (flexible employment), July 1, 2015 (dismissal) and January 1, 2016 (WW). Below, you will find information about changes effective of July 1, 2014.

From July 1, 2014

Notification obligation / continuation of fixed period employment contracts
The WWZ introduces a new employer obligation. In case of employees with a temporary employment contracts with a duration of six months or more, the employer is obliged to notify the employee in writing, one month prior to the expiry of such contract (i) whether or not he intends to renew the contract, and if yes (ii) under what terms. This obligation also applies to subsequent temporary employment contracts with a duration of six month or more. Please note: this obligation only applies to temporary employment contracts that expire at least one month after this part of the WWZ comes into effect, therefore as of August 1, 2014. The notification obligation will thereby effect nearly all temporary contracts concluded before July 1, 2014.

Different sanctions apply for neglecting to comply, failing to comply fully, or not complying in a timely manner with the notification obligation.

• If the employer entirely neglects to inform the employee whether he intends to renew the contract or not (sub i), he will be obliged to pay the employee one months’ salary.
• If the employer informs the employee too late, meaning less than one month before the expiry of the contract (sub i), he is obliged to pay the employee a late fee of one day’s salary for each day the notification was delayed.
• If the employment contract continues without the employer fully complying with the notification obligation (sub i or ii), then it remains in effect with the same terms, for a period equal to the delay in notifying the employee, up to a maximum of one year. Therefore, should the employer wish to continue the contract on different terms, it is vital that he notifies the employee of this in a timely manner.

The notification obligation does not apply to temporary employment contracts without a fixed term (for instance in case of temporary replacement due to illness).

Current regulation
The employer has no notification obligation. The contract ends automatically.

From July 1, 2014.
The notification obligation comes into effect.

1. In case of a fixed term contract, the employer must notify the employee in writing, at least one month prior to the expiry of the contract, whether or not he intends to renew it.
2. This applies to employment contracts with a duration longer than six months.
3. Should the employer wish to renew the contract, he must also indicate the terms according to which he wishes to do so.

Probationary clause
From July 1, 2014, any probationary period, stipulated in an employment contract with a duration of six months or less, is null and void. This applies to employment contracts concluded on or after July 1, 2014 and therefore does not apply to current contracts concluded before July 1, 2014. Please note: this regulation also applies to consecutive contracts for the same position, and consecutive employment, for instance when directly hiring someone who previously held the same position through placement by an employment agency.

Current regulation
Fixed term employment contracts = maximum 1 month of probationary period
Permanent employment contracts = maximum 2 months of probationary period

From July 1, 2014
Contracts with a duration of less than six months = no probationary period possible (this is unchanged)
Fixed term contracts for six months or more = maximum 1 month of probationary period
Permanent employment contracts = maximum 2 months of probationary period

Non-Competition clause
Fixed term contracts concluded on or after July 1, 2014, may not contain a competition clause, unless such clause is necessary due to vital business- or operational interests. Competition clauses included in contracts concluded before July 1, 2014 will remain valid for the duration of those contracts. If an employer wishes to include a competition clause in a fixed term contract after July 1, 2014, they have to justify in writing what interests are at stake, and why those interests necessitate the inclusion of such clause. According to the explanatory memorandum to the bill, these must relate to specific, temporary activities or specific positions, in order for the advantage gained by the employer to outweigh the disadvantage to the employee. The government does not provide any concrete example of what such vital interests might be. The non-competition clause must fulfil the above criteria, both at the time when it is agreed and at the time when the employer applies the clause. According to the new regulation, a non-competition clause in a fixed term contract can become void and voidable in three situations:

• If the clause lacks justification, it is null and void.
• If, having considered the interests specified by the employer, the court deems the clause unnecessary; the court has the right to set aside the entire clause.
• If the court deems that the employee is highly disadvantaged by the non-competition clause, compared to the advantage to the employer if the clause is upheld, the court has the right to set aside the entire clause or any part thereof.

In the processing of the legal proposal so far, no mention has been made of non-solicitation of clients. As the court views the non-solicitation of clients as part of the non-competition clause, it seems advisable to apply the same justifications to non-solicitation of clients as are applied in the non-competition clause.

Current regulation
It is legally permissible to include a non-competition clause in the employment contract.

From July 1, 2014
Fixed term employment contracts = a non-competition clause is not permissible, unless the employer can justify it by citing vital business interests that necessitate it.
Permanent employments contracts = a non-competition clause is permissible (this is unchanged)

Also new from July 1, 2014

1. Should the termination of employment be due to a serious omission or fault of the employer, then the employer can no longer make claims based on the non-competition clause.
2. At the request of the employee, the court may set a compensation for the period that the non-competition clause was applied.

Wage payment obligation
Employees retain the right to continuous wage payment even if they have not completed their work in whole or in part. The situation is different if the non-completion of work is reasonably the employee’s responsibility, due to for instance participation in a strike, late arrival or a jail sentence. According to the current regulation, the collective employment contract may depart from the wage payment obligation, for instance in the case of an on-call contract. In collective employment contracts concluded after July 1, 2014, it will still be possible to deviate from the wage payment obligation, for specific positions, outlined in the contract, of an occasional nature or for which employees are recruited on a temporary basis. Any provision in the collective employment contract that was valid on July 1, 2014, remains in effect during the remainder of the contract, up to a maximum of 18 months.

Temporary employment
The WWZ contains specific regulations for employment agencies. The notification obligation described above, does not apply if a temporary contract clause regulates the relationship between the employment agency and the temporary employee. Furthermore, the duration for which employment agencies may make use of temporary employees, will also mean that the use of consecutive temporary employment contracts will be eliminated, and the possibility of deviating from the wage payment obligation will become limited. In collective employment contracts concluded after July 1, 2014, the applicable statutory period of 26 weeks may be extended to a maximum of 78 weeks. It therefore becomes possible to deviate from the wage payment obligation in cases not involving employment of an occasional nature or without a fixed scope. Any provisions within the collective employment contract concerning these issues and in effect on July, 1 2014, will be applicable for the remainder of the of the contract, up to a maximum of 18 months. From July 1, 2014, the period in which the temporary employment clause is applicable and the regulations for consecutive temporary employment contracts do not apply is calculated by adding up the weeks the temporary employee has worked, as long as any period of interruption between those weeks is less than six months. The current regulation stipulated adding up the weeks worked, as long as any period of interruption between those weeks was less than one year.

Renewal of fixed term employment contracts
The intention of the Cabinet was to introduce the changes regarding consecutive contracts on July 1, 2014. During the discussion of the bill in the House of Representatives, the commencement date was postponed to July 1, 2015.

Current regulation (3x3x3)
Fixed term employment contracts may only be renewed a maximum of three times within 36 months. If the contract is renewed for a fourth time or its duration is longer than 36 months, it is automatically converted into a permanent employment contract (therefore no longer ending automatically). It is possible to deviate from this within the collective employment contract. Consecutive contracts with less than three months between them also fall under this regulation.

From July 1, 2014 (3x2x6)
Fixed term employment contracts may only be renewed maximum twice within 24 months. If the contract is renewed for a third time or if it goes beyond the duration of 24 months, it is automatically converted into a permanent employment contract (therefore no longer ending automatically). This can be extended within the collective employment contract to maximum six contracts in 48 months. Consecutive contracts with less than a six months’ period between them also fall under this regulation.

Conclusion
Already now, it would be prudent to take into consideration the new regulations taking effect on July 1, 2014. It is advisable to note the date when the notification obligation comes into effect and make sure all new contracts comply with the terms regarding the probationary period and the non-competition clause. Employers covered by collective employment contracts with a non-standard clause for the wage payment obligation, are advised to check any new collective employment contracts.

Should you have any questions about these issues, please do not hesitate to contact us (1).

Brigitte Vaňatová Jan de Koning

Postscript by the authors:
One day before the publication of this article, the Minister unexpectedly decided that the changes in relation to flex contracts will be postponed for six months and therefore the changes will be effective from 1^st January 2015. The date 1^st July 2014 should be read as 1^st January 2015.

(1) De Koning Vergouwen (DKVA) is a medium size law firm in Amsterdam (the Netherlands). We regularly publish notes on legal issues across jurisdictions. The next issue will focus on corporate law and real estate. The regular contributors are attorneys at law, Brigitte Vaňatová and Jan de Koning. Brigitte was born in Prague and speaks fluently Czech. For further information please see our website, www.dkva.nl