Termination of Employment Contracts in the Netherlands

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, since 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 judgement.

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 dismissal for 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 judgement;
  • 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 dismissal for urgent cause;
• employee elects to resign, with due observance of the applicable notice period.

Is Severance Pay Required?

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 94.000 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.

It is possible for employers to apply for a compensation for the transition payment if they dismiss an employee on the grounds of long-term occupational disability (after two years of sickness).

Moreover, 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 Court may also grant the transition payment, in whole or in part, if the absence of any payment, regardless of the amount, would be considered unacceptable according to 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. Fair compensation may be awarded by the court in cases of serious culpable conduct by the employer, wrongful termination, violation of prohibitions on termination, causing medical problems, or non-renewal of an employment contract for prohibited discriminatory grounds (such as pregnancy or chronic illness). The amount of compensation depends on the severity of the situation and may include lost wages and future years of service.

Additional decisions and regulations

Employers can deduct certain costs from the transitional payment under specific conditions. These include outplacement or training expenses and costs incurred during a longer notice period where the employee is exempt from work. The costs must be related to the dismissal and agreed upon with the employee. Additionally, if the employer incurred costs to improve the employee’s employability within or outside the organisation, they can also be deducted (with the employee’s consent). However, costs aimed at improving performance in the current job or relating to reintegration or redeployment obligations cannot be deducted.

The following conditions apply for costs to be deducted from the severance pay (Not all requirements apply to some dual programs):

• The employer has specified the costs and informed the employee accordingly.
• The employee agrees in writing in advance to deduct the costs from the transitional compensation.
• The employer has incurred the costs itself.
• The costs have been incurred for the employee’s benefit.
• Wage costs may not be deducted. This is different if the employee and the employer agree on a longer notice period and you are exempt from work during this period.
• The costs are in reasonable proportion to the purpose for which they were incurred.
• The costs will be deducted from that part of the transitional compensation accrued during the period in which the costs were incurred or hereafter.
• The employer cannot elsewhere claim the costs.
•  The costs cannot be recovered from the employee through, for example, a study expenses clause.

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 personal data of the parties involved;
• the current position and salary of the employee;
• 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);
• post-contractual obligations, such as the non-competition clause or the business relations clause;
• 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

The Whistleblower Protection Act partially come into effect on 18 February 2023, replacing the House for Whistleblower Act. Initially, this only applied to large employers with more than 250 employees. Since 17 December 2023, medium-sized employers in the private sector with 50-429 employees are required to update their whistleblowing procedures to comply with the Whistleblower Protection Act. The current obligations are as follows:

1. Internal reporting procedure: Employers with at least fifty employees are required to establish an internal reporting procedure. This procedure must outline the circumstances under which a suspicion of misconduct can be reported, specify who reports can be made to, and describe how these reports will be handled. The procedure must also include an acknowledgement of receipt within seven days and a reasonable timeframe of up to three months for the evaluation and follow-up of the report.
2. Extended protection: The law provides protection to a broader group of individuals than before, including independent workers, (sub)contractors, shareholders, job applicants, suppliers, and volunteers. This means that not only employees but also others engaged in work-related activities are safeguarded against retaliation.
3. Reversed burden of proof: In cases of retaliation against the whistleblower, it is presumed that the retaliation is related to the report unless the employer can prove otherwise.
4. Confidentiality obligation: A confidentiality obligation applies to all individuals involved in a report or the investigation of suspected misconduct. This includes protecting the identities of both the whistleblower and the person whom the misconduct is alleged.
5. External reporting procedure: Authorities are required to establish an external reporting procedure within their jurisdiction. This allows whistleblowers to report misconduct outside their own organisation.
6. Reporting register: Employers are required to maintain a register of all incoming reports. This helps in monitoring and following up on reported misconduct.