Grounds for Termination

A fixed-term employment contract or a contract for a specific project ends by operation of law upon expiration of the term or completion of the project, without notice being required. However, as from 1 July 2015 an employer is obliged to notify the employee at least one month before the ending of a fixed-term contract of six months or longer whether the employment contract will be extended and, if so, subject to what terms and conditions. Furthermore, pursuant to Article 7:657 of the Dutch Civil Code, the employer is obliged to inform an employee who has a fixed-term contract about vacancies with an open-ended employment contract.

An open-ended employment contract can be terminated in the following ways:

• the employer gives notice after receiving permission from a governmental organisation;
• the employee consents after the employer has given notice, without the abovementioned permission;
• court proceedings;
• mutual consent;
• dismissal because of an urgent reason;
• notice given by the employee.

Employer gives notice to terminate

In case of dismissal on economic grounds or because of long-term incapacity of work, an employer can terminate an employment contract by giving notice after the Employee Insurance Agency (in Dutch: UWV) has given permission to do so by a dismissal permit. The Employee Insurance Agency will grant permission only if there is a reasonable ground for dismissal and redeployment within a reasonable period of time is (even after training) not possible or reasonable. The Employee Insurance Agency procedure takes approximately four weeks as soon as it has received all the necessary information.

After permission has been granted, notice is to be given with due observance of the notice period. Due to the time involved in obtaining permission from the Employee Insurance Agency, the employer can deduct the duration of the procedure from the notice period (provided that at least one month of notice remains).

Notice must be given with effect from the end of the calendar month, unless another day has been designated by written agreement, internal regulations, a Collective Labour Agreement or by custom. Please see section III. part 4. above for the notice period that has to be observed.

Permission will not be granted in case – among others – termination is impossible because of a statutory prohibition against terminating an employment contract by giving notice, for instance, during illness shorter than 104 weeks (unless the illness starts after the request for permission to give notice was received by the Employee Insurance Agency), pregnancy, if the employee is a member or the secretary of the works council.

Since 2015, there is a possibility of appeal against a decision of the Employee Insurance Agency.

Termination with the consent of the worker

In case an employer has given notice without permission of the Employee Insurance Agency, an employee can give his/her consent concerning the termination of the contract. However, there is a reflection period of 14 days, during which the employee can withdraw his/her consent. The employer has to point out the reflection period within two days after the employee has given his/her consent. If the employer fails to do so, the reflection period will be extended to 21 days. In principle, the employee does not waive his/her right to receive the benefits on the basis of the Unemployment Insurance Act (in Dutch: Werkloosheidswet) when he/she gives consent, if he/she meets the conditions of that Act.

Termination by decision of the Court

The Court can terminate an employment contract in case a reasonable ground for dismissal exists and redeployment within a reasonable period of time is (even after training) not possible or reasonable. An employment contract can be terminated by decision of the Court, by filing a petition for dissolution in case of:

• frequent and disruptive absence due to illness;
• unsuitability for the position/underperformance (other than because of illness);
• culpable acts or omissions of the employee;
• refusal to work due to a serious conscientious objection;
• impaired working relationship as a result of which the employer cannot reasonably be required to continue the working relationship;
• dismissal based on cumulation ground;
• other reasons and/or circumstances (by way of an exception).

A new ground for dismissal, called the cumulation ground, was introduced as part of the Balanced Labour Market Act (in Dutch: WAB). The cumulation ground allows an employer to combine different grounds for dismissal, whereas these other grounds are, by themselves, insufficient to justify a dismissal. The cumulation ground can only be applied for the dismissal motives mentioned above and cannot be employed for dismissals on the grounds of (i) business economics or (ii) due to long-term incapacity for work. In case an employment is terminated on the basis of a cumulated dismissal, the Court can grant an extra severance, equal to a maximum of half of the transition payment, in addition to the statutory transition payment that the employee is ordinarily entitled to receive.

After filing the petition with the competent Court, the employee is offered the possibility to file a statement of defence. The Court will then set a date for a hearing, during which the parties can explain their opinions. The Court could grant the request for termination and dissolve the employment contract, or it could deny the request. The Court must take into account the notice period in the case where the contract is dissolved. Since 1 July 2015, there is a possibility to appeal against the Court’s judgment.

Termination by mutual consent

An employment contract can be terminated by mutual consent. No notice period needs to be observed (although it is usual to do so) and the employer and the employee can agree on a reasonable severance package. An employee is (in principle) entitled to unemployment benefits in case he/she accepted the proposal of the employer to terminate the employment contract.

If the parties agree on termination by mutual consent, the employer would of course not need to substantiate its reasons for termination to either the Court or the Employee Insurance Agency. However, the employer would still need to convince the employee to agree. If the employer does not have sufficient reasons, the employee may not be willing to accept a termination by mutual consent at all or only if the employer pays a fair amount of severance.

The employee has a reflection period of 14 days, during which the employee can terminate the termination agreement in writing. If no written reflection period is inserted in the termination agreement, the reflection period will be extended to 21 days.

Immediate dismissalfor urgent cause

Pursuant to Article 7:678 of the Dutch Civil Code, the employer may summarily dismiss an employee if the employee has engaged in such misconduct that the employer cannot reasonably be expected to continue the employment relationship any longer. An urgent reason must exist, in which case the employment contract will be terminated with immediate effect. The urgent reason must be communicated to the other party immediately and the employment contract must be terminated without notice.

Employee elects to resign

An employee is always permitted to terminate the employment contract with due observance of the applicable notice period.

Collective Dismissals

If an employer wants to dismiss 20 employees or more within a term of three months within one of the working areas of the Employee Insurance Agency, it must, according to the Dutch Collective Redundancy (Notification) Act (in Dutch: Wet Melding Collectief Ontslag), notify and consult the relevant trade unions and notify the Employee Insurance Agency of its intention to do so. It is also necessary to take into account all employments contracts that will be terminated by mutual consent. If the employer fails to comply with its obligation under this Act, the employee has a right to nullify the termination of his/her employment contract.

Individual Dismissals

An open-ended employment contract can be terminated in the following ways:

• the employer gives notice after receiving permission from a governmental organisation. Since 2015, there is a possibility of appeal against a decision of the Employee Insurance Agency;
• the employee consents after the employer has given notice, without the abovementioned permission. However, there is a reflection period of 14 days, during which the employee can withdraw his/her consent. The employer has to point out the reflection period within two days after the employee has given his/her consent. If the employer fails to do so, the reflection period will be extended to 21 days;
• termination by decision of the Court, by filing a petition for dissolution in case of:
  • frequent and disruptive absence due to illness;
  • unsuitability for the position/underperformance (other than because of illness);
  • culpable acts or omissions of the employee;
  • refusal to work due to a serious conscientious objection;
  • impaired working relationship as a result of which the employer cannot reasonably be required to continue the working relationship;
  • a new ground for dismissal called the “cumulation ground” was introduced, which allows an employer to combine different grounds for dismissal, whereas these other grounds are, by themselves, insufficient to justify a dismissal. The cumulation ground can only be applied for the dismissal motives mentioned above and cannot be employed for dismissals on the grounds of (i) business economics or (ii) due to long-term incapacity for work. In case an employment is terminated on the basis of a cumulated dismissal, the Court can grant an extra severance, equal to a maximum of half of the transition payment, in addition to the statutory transition payment that the employee is ordinarily entitled to receive. Since 1 July 2015, there is a possibility to appeal against the Court’s judgment;
  • other reasons and/or circumstances (by way of an exception).
• mutual consent (no notice period needs to be observed, although it is usual to do so);
• immediate dismissalfor urgent cause;
• employee elects to resign, with due observance of the applicable notice period.

Is Severance Pay Required?

A statutory transition payment (in Dutch: transitievergoeding) was introduced, effective 1 July 2015.

From 1 January 2020, employees are entitled to a transition payment (in Dutch: transitievergoeding) from the first day of employment, as well as during probationary periods. An employee will receive a third of the monthly salary per calendar year. The transition payment is capped at EUR 83.000 gross – or if the employee is entitled to a higher annual salary – then one annual salary. The transition payment is not due if the employee terminates the employment contract, unless this termination is a result of seriously culpable actions on behalf of the employer.

As of 1 April 2020, a new compensation scheme entered into force. Employers can apply for compensation for the transition payment, if they dismiss an employee on the grounds of long-term occupational disability (after two years of sickness).

Moreover, as of 1 January 2021, in the event of a closure of a business by the employer for reasons of illness or pension, the employer will now be compensated. Employers must satisfy a number of narrowly circumscribed conditions in order to qualify for compensation. It is important to note that this option is only available to small-business employers (with less than 25 employees) who owe a transition payment incurred during a period of six months prior to the consent of the Employee Insurance Agency or termination of an employment contract.

For calculating the duration of an employment contract, one or more employment contracts between the same parties (or successors) that have followed each other with intervals lasting no longer than six months, will be counted together.

Exceptions to entitlement of the transition payment

There are a number of exceptions regarding the transition payment, the most important of which are set out below.

The statutory transition payment will not be due if the employee is younger than 18 and the average working hours did not exceed 12 hours per week. The transition payment will also not be payable if the employment contract ends as a result of the employee reaching the pensionable age, or another age at which the employee is entitled to a pension. Furthermore, the transition payment will not be paid if the employment is terminated or otherwise ceases to continue as a result of a grave culpable act or omission, on the part of the employee (e.g., a legally valid summary dismissal). In the latter case, the Dutch Cantonal Court may also grant the transition payment, in whole or in part, if the absence of any payment, regardless of the amount, would be deemed unacceptable in accordance with the criteria of reasonableness and fairness.

Fair dismissal payment

In addition to the statutory transitional payment, the Court may also award a fair dismissal payment in case of seriously culpable acts and omissions on the part of the employer. This only applies to exceptional situations.

Additional decisions and regulations

In 2015, supplementary orders and decrees became effective. The ‘Decision on conditions for deducting costs from transition payments’ stipulates for example, the conditions under which it is permissible for an employer to deduct costs that were made for the benefit of the employee, during the employment, from the transition payment. A distinction is made between transition costs (such as costs for retraining and outplacement) and employability costs (costs that increase an employee’s employability outside the employer’s company).

Separation Agreements

Is a Separation Agreement required or considered best practice?

In Dutch employment law, separation agreements are used when the employment contract will be terminated with mutual consent (the so-called settlement agreement). In an agreement as such, the employer and employee arrange under which conditions they may terminate the contract. A settlement agreement is not a legal requirement but is considered best practice (as an employee is also able to apply for unemployment benefits after concluding a (legally correct) settlement agreement).

What are the standard provisions of a Settlement Agreement?

The settlement agreement usually contains provisions including (among others):

• the names of the parties involved;
• the reason for termination;
• the dismissal payment (can be zero);
• the termination date;
• whether or not the employee will be exempt from work;
• payment of the remaining number of holidays (if any, or in derogation of the statutory provision);
• the right of the employee to dissolve the settlement agreement within 14 days after conclusion. If this is not included in the agreement, the reflection period will be extended to 21 days after conclusion;
• usually full and final discharge when all the provisions of the settlement agreement are fulfilled.

Does the age of the employee make a difference?

Under Dutch law everyone from the age of 16 years old is considered to be legally competent to sign a (employment) contract. However, when the employee is under 18 years old, the legal representative of the underage employee can void a signed contract. Therefore, it would be wise to involve the legal representative(s) of an underage employee when signing a settlement agreement.

Are there additional provisions to consider?

Possible additional provisions in the settlement agreement to be considered are how to settle the non-competition, non-solicitation and non-poaching clauses (if any), to reconfirm the secrecy clause and penalty clause, to return company property and to refrain from negative statements about one other.

Remedies for Employee Seeking to Challenge Wrongful Termination

After concluding a settlement agreement, the employee has a reflection period of 14 days. During that period the employee can withdraw the given consent at any time, without having to give an explanation for his/her change of mind. When this period is over, it is still possible under Dutch law to void a contract. A contract is voidable if for example one of the parties misused the circumstances that the other party was in while signing the settlement agreement, or if a party was misled into signing the contract by the other party. The time limit for invoking a voidable settlement agreement on one of the above-mentioned terms is 3 years. If the employment contract is not terminated by a settlement agreement, the possibilities for an employee to challenge a wrongful termination are discussed under section VIII. part 1. above.

Whistleblower Laws

In the Netherlands, we have the Dutch Whistleblowers Authority, which is for employees who want to report an abuse in the workplace within the public or private sector. The Whistleblowers Authority provides advice, support and, if necessary, carries out investigations. The Whistleblowers Authority Act, which came into force in the Netherlands on 1 July 2016, underlies the establishment of the Whistleblowers Authority. This Act obliges all organisations in the Netherlands with more than 50 employees to introduce an internal reporting procedure for reporting abuses. The Act also bans retaliation against the whistleblowers (individuals) who have reported a possible abuse in the proper manner.