A bird-eye’s view of Dutch employment law
Dutch employment law holds a distinctive place due to its unique characteristics. Below, we briefly outline the most important aspects.
The Dutch Civil Code and collective labour agreements
Employment in the Netherlands is governed by EU Law, the Dutch Civil Code and can also be regulated by a Collective Labour Agreement (hereafter: CLA). A CLA is a formal agreement between employer(s) and employee representatives, usually unions, outlining employment terms within the company or in a specific sector, influencing industry-wide standards. One characteristic of a CLA is that its contents legally form an integral part of each individual employment contract with employees who are covered by the CLA. Its provisions usually contain pay scales, annual payments, specific allowances, working hours, leave, training, etc. CLA’s can be declared generally binding within a certain sector by the Minister of Social Affairs and Employment for a certain period of time. In that case, the CLA is applicable to all companies operating in a specific sector (provided they fall under the scope of applicability).
Types of employment contracts
Flexibility
Next to employment contracts for an indefinite term, Dutch law provides the possibility to agree upon employment contracts for a fixed term. A maximum of 3 employment contracts within a timeframe of 3 years can be concluded. In case of the 4th employment contract, or if the duration exceeds the 3 years period, the employment contract will be for an indefinite term. A fixed term contract can also be entered into for a specified amount of work. In that case, the end of the term should be objectively determinable (for instance the completion of a project).
Notification of termination of fixed term contract
When a fixed term contract is concluded for a period of 6 months or longer with a fixed end date, the employer is required to notify the employee at least one month before the end date on its decision to either extend the employment contract or not. This intention may also be made clear in the employment contract itself. In case the employer does not timely notify the employee in writing, a compensation should be paid to a maximum of 1 month salary gross.
Probationary period
Dutch employment law recognizes the importance of assessing the compatibility of the working relationship during the initial phase of employment. To facilitate this assessment, a probationary period of one month may be agreed upon if the employment contract has a duration of more than 6 months. If the employment contract has a duration of at least two years, the probationary period can last two months. During this probationary period both the employer and employee are permitted to end the employment contract without giving notice. The employer may neither abuse the probationary period nor terminate the employment contract in the probationary period on discriminatory grounds.
Working Conditions
Minimum wage and working hours
The Minimum Wages Act ensures a minimum wage for an employee aged 21 years and over. Young employees, between the ages of 15 and 21, are entitled to the minimum youth wage.
The Working Hours Act applies unless a CLA is applicable. As such, it includes standards for – amongst others – working and rest periods. In principle, an employee may not work more than 60 hours per week on average. A more standard working week in the Netherlands, however, is 40 hours per week.
Vacation days and holiday allowance
An employee is at least entitled to holiday leave equal to four times the weekly working hours. It is common practice to grant more leave on top of aforementioned statutory minimum. Both the statutory as non-statutory holiday leave lapses 6 months respectively 5 years after the calendar years in which the vacation days have been accrued.
An employer has an obligation to pay a holiday allowance, on top of the employees gross wages, of at least 8% of the employees gross annual wage. In regards to employees who earn a salary equal to at least 3 times the minimum wage, other agreements can be made, for example a monthly payout instead of a yearly payout. The statutory obligation to pay holiday pay can also be deviated from by CLA.
Continued payment of wages
If an employee falls ill, the employer is obliged to continue payment of a minimum of 70% of the employees’ wages for a period of 2 years. Simultaneously, it is mandated that the employer undertakes measures to facilitate the employees return into the workforce (re-integration). The financial risk can be insured and reintegration can be expedited with the cooperation of a company doctor.
Restrictive clauses
An employer is permitted to protect itself from (unfair) competition, especially in regards to (ex)-employee’s. For this purpose some restrictive clauses can be agreed upon in the employment contract. Most common are the:
- Non-competition clause (restricting an employee’s freedom to find employment elsewhere e.g. with a competitor or start a competing company themself),
- Non-solicitation clause (prohibits the employee from maintaining (business) contacts with his employer’s business relations after leaving the company,
- Ancillary activities clause (prohibits or restricts an employee from carrying out work for others outside the established working hours),
- Penalty clause as a sanction on a breach of any of the abovementioned clauses.
Unlike other countries, Dutch employment law does in principle not require the employee to be financially compensated for being restricted by any of the above mentioned clauses.
Pension
The Netherlands has no statutory pension obligation. This means that an employer does not always have to offer a pension scheme. In certain industries companies may be obliged to register their employees with an industry-wide pension fund (bedrijfstakpensioenfonds). Please bear in mind that it is a rather common employee benefit to provide an employee with a pension scheme.
Works Council
When a company has 50 or more employees working in the Netherlands, it is obliged to install a Works Council. The Works Council’s primary purpose, as a staff representative body, is to provide employees with a platform to participate in decision-making processes that affect their working conditions and the overall direction of the company. While not having decision-making powers, the Works Council’s insights and recommendations may hold significant influence. A well-functioning Works Council can be an asset to the company.
Termination
Employment can end by mutual consent or due to expiration of the fixed term that has been agreed upon. Other legal ways for the employment relationship to end are:
- during the probationary period;
- due to immediate dismissal for urgent cause;
- upon resignation of the employee; and
- termination initiated by an employer prior to the assessment by either the governmental body Employee Insurance Agency (in Dutch: UWV) or the court.
Valid reason
The employer requires a valid ground for termination of the employment contract. Examples of valid reasons for termination are underperformance, a seriously disturbed employment relation and a combination of multiple grounds for termination. Please bear in mind that each ground for termination has its own criteria, and that it is important to seek legal counsel before initiating termination of employment.
Statutory notice of termination
For employers the statutory notice period depends on the length of service of the employee; for every 5 years of service, the notice period increases with a month up to a maximum of 4 months. The statutory notice period for the employee is, in principle, 1 month, regardless of the length of service. However, this can be deviated from in an CLA or individual employment contract. Please bear in mind that employers require prior permission for termination from the Court or UWV, before notice of termination can be given (see above).
Increased protections
Increased protection is in place fIncreased protection is in place for certain groups, such as pregnant employees, those on sick leave, and members of Works Councils.
