Responses by Desiree Kemperlink, associate in the Employment, Pensions and Benefits team at Freshfields Bruckhaus Deringer in Amsterdam.
According to law, what are the main steps that employers must take during a redundancy process?
Dutch employment law does not allow the unilateral termination of an employment agreement by an employer, unless during the trial period or if there is an urgent reason for dismissal.
The employer must either request the court to terminate the employment agreement or apply for a permit to serve notice with the Dutch Labour Authorities (UWV). This rule applies to both individual and collective dismissals. In general, the court procedure is followed for individual dismissals, whereas the employer is expected to follow the UWV route for a collective redundancy scheme.
However, Dutch law allows for parties to come to a consensual termination. Since the outcome of formal termination proceedings is unpredictable (termination may be refused or high severance can be awarded), employers will generally first try to reach agreement with the employee on the termination which will then be laid down in a compromise agreement. If the employee does not agree to a consensual termination, the formal procedure will have to be followed.
If an employee is ill for up to two years, pregnant or on maternity leave or a member of a works council, they receive special protection from dismissal.
When selecting employees who will be made redundant, employers need to apply the reflection principle (afspiegelingsbeginsel). This means that employees within one organizational unit who have positions that are exchangeable should first be divided into age groups (15-25, 25-35, 35-45, 45-55 and 55 years+). Subsequently, the “last-in-first-out” principle should be applied within each age group.
Is there a requirement for employers to legally justify redundancies and if so, what reasons do they need to provide?
An employer needs to have a good reason for the termination of employment. A redundancy (boventalligheid) as a result of economic, technical or organisational reasons is recognised as a potentially fair reason, as is performance-related dismissal.
If an employer is unable to provide or prove that they have a good reason, it will generally result in a higher compensation being awarded by the court. In exceptional circumstances, the court can even refuse termination of the employment agreement. The Dutch Labour Authorities (UWV) may refuse to grant a permit to serve notice.
In case of a performance-related dismissal, the employer should have a file substantiating the non-performance, which also shows that the employee has been given the opportunity to improve.
In redundancies (dismissal for economical, technical or organisational reasons), the employer should be able to demonstrate (bad) financial figures or other evidence why such cost saving measures are needed.
What is the statutory minimum notice period for redundancies (if any)?
The statutory minimum notice period depends on the length of service of the employee, and is one month where they have less than 5 years of service, two months for between 5 and 10 years, three months for between 10 and 15 years and four months for 15 years or more. The notice period for the employer can only be shortened by a collective labour agreement.
A court will not award compensation for the notice period and will also not take into account the notice period when terminating the employment. In negotiations on an amicable settlement, employees will generally either ask for the notice period to be observed, or if not, will request compensation instead. Whether or not this forms part of the definitive settlement depends on the dynamics of the negotiations.
What is the statutory minimum calculation for redundancy payments (if any)?
If the redundancy is amicable, a formula called Cantonal Court Formula (Kantonrechtersformule) used as a starting point. This is:
- 0.5 gross monthly salary per year of service up to the age of 35.
- 1 gross monthly salary per year of service between the age of 35 and 45.
- 1.5 gross monthly salaries per year of service between the age of 45 and 55.
- 2 gross monthly salaries per year of service from the age of 55.
In this case, the payment includes base salary, holiday allowance and, importantly for those in the banking sector, the average bonus paid over the three years before the redundancy.
What are the consequences for employers who fail to comply with redundancy laws? What kind of compensation can employees claim, and is the amount capped?
If an employer doesn’t follow the procedure above, the UWV may not grant a dismissal permit or the court could award a higher compensation, or even refuse termination of the employment agreement.
Employees may file a claim for unfair dismissal after their employment has been terminated through the UWV route if they feel the compensation offered, if any, is insufficient and does not do their specific situation justice. In unfair dismissal proceedings, the court has discretionary power to award reasonable compensation.
The amount awarded by the court should compensate the employee for the actual damage. In assessing the actual damage, a court will take into account all financial and non-financial damages suffered by the employee. In practice, it is very difficult to make an exact calculation of such damages as this involves an assessment of e.g. How long the employee will remain unemployed, if he finds a new job, whether the salary will be lower etc.
Statutory minimums aside, what is the standard practice for making redundancies and calculating payments at banks in the Netherlands?
There is no specific standard practice for making redundancies and calculating payments at banks in the Netherlands. An important element in the negotiations, however, will usually be bonuses, as these often form an important element of bankers’ remuneration packages.
The Dutch Banking Code, which operates on a “comply or explain” basis, stipulates that for executive board members of financial institutions, the severance pay may not exceed one year’s salary (the ‘fixed’ remuneration component), or, if that would be manifestly unreasonable for an executive board member who is dismissed during his or her first term of office, twice the fixed part of the annual salary.