On January 1st 2020 the Labour Market in Balance Act will take effect in the Netherlands. This law seeks to erode some of the significant differences between permanent employees and those working on fixed term contracts. The Act will have a considerable impact on payroll and contracting in the Netherlands.

There are six significant changes:

  1. New Grounds for Termination

The Act adds a new ground for dismissal; Cumulation.

The Dutch Civil Code currently permits the involuntary termination of employment on eight statutory grounds (“The A-H Grounds”). At least one of these must be satisfied in order for an employment contract to be terminated. In addition, unilateral termination currently entitles the employee to a statutory “transition allowance” if they have been employed for 2 or more years.

Cumulation enables employers to present multiple circumstances which – while not individually meeting any of the A-H dismissal grounds – nevertheless form a convincing case for dismissal when considered as a whole.

While the Act offers a solution for employers who cannot make a case for dismissal under the current provisions, there is a trade-off. If the employment contract is terminated on the new “I” ground, additional compensation to the worker of up to half of the transition allowance may have to be paid.

By making permanent employees easier to dismiss, the Act seeks to make them a more attractive option. Rigid Dutch labour laws are one of the reasons contracting has become so popular among employers in the Netherlands.

  1. Changes to the Transition Allowance

The transition allowance changes in two ways;

  • Employees are entitled to the transition allowance from the day their employment begins, including any probationary period. Employees no longer need to work for 2 years in order to qualify.
  • The way the allowance is calculated will change. Employees will be entitled to a third of their gross monthly salary for each year of service (pro rata). Long serving employees – with 10 or more years of employment – will no longer receive a higher allowance.

Additionally, small scale employers who discontinue their business in order to retire – or who are obliged to discontinue their business due to sickness or disability – will be compensated for the transition allowances they must pay by the Employee Insurance Administration Agency (UWV).

These changes offer short term employees similar entitlements to long term employees, reducing the incentives employers currently have to offer short term contracts to avoid incurring these liabilities.

  1. Increased Duration Applied to Successive Fixed-term Contracts

The rules increase the duration of the rule regarding successive contracts.

Currently, an employee who works under a fixed term contract for two years automatically becomes a permanent employee. The term of the contract is changed by law to one of indefinite duration. This occurs sooner if the employee receives a fourth successive contract.

Under the new rules this period increases from 2 to 3 years.

This move runs contrary to the prevailing direction other European countries are taking. Germany, Italy and Poland have reduced the length of fixed term and temporary contracts in recent years. The Netherlands is loosening the rules a little here to apparently give contractors more breathing room.

  1. Notification for On-Call Contracts

The Act improves the conditions of employees on “on-call” contracts.

Employees who have deferred duties and no fixed working hours have an “on-call” contract. In some countries this is known as a zero hours contract.

Under the new rules, employees must be given 4 days notice of when work is to be performed. If notice is not given, the employee is under no obligation to perform the work. If work is cancelled with less than 4 days notice, the employee must still be paid for the cancelled hours.

A term of less than 4 days may be agreed in a collective bargaining agreement (but not less than 1 day).

After one year employers are obliged to offer “on call” employees guaranteed working hours, which must be based on the average number of hours worked in the previous year.

Rules to tighten the rules on casual contracts are afoot in much of Europe or have already been implemented. The EU increased regulation for casual contracts this year. While these rules are aimed at low paid “gig economy” work, they have the potential to complicate the lives of employees using all kinds of contractors.

  1. Harmonisation for Payroll Workers

Additional protections for payroll workers will apply from 1st January 2021.

Employees who work on a payroll basis (i.e. agency workers) will be entitled to the same primary and secondary employment conditions as if they were being employed directly by the principal. This must include an adequate pension plan.

This measure is aimed at reducing hidden employment, whereby agency workers are really employed by the end client. The very real risk to contractors is that they will be deemed as employees of the end client when they are not.

  1. Lower Unemployment Insurance Contributions

Employers will incur lower unemployment insurance contributions when they employ a worker on a permanent contract rather than a fixed term contract.

Employees aged under 21 and who work fewer than 12 hours a week are unaffected.

This is a straightforward incentive to prefer permanent employees over contractors.

Conclusion

Employment in the Netherlands is governed by many and various laws. While contracts of employment determine pay and conditions, Dutch employment law covers significant areas such as trial periods, holidays, notice and dismissal, the Dutch minimum wage, health and safety – and equality.

The rules for dismissal are especially complex. In most cases an employer needs the permission of the labour office (UWV) – or a court – to fire an employee.

Employers have responded to some of these rules by using agency staff and short term contracts, which are now attracting fresh rules.

All we can say for certain is that labour markets like the Netherlands seem to become more complicated every year. When working abroad what you need most of all is reliable information and good advice.

At Access Financial we provide both.