The Netherlands | 01 April 2011

The International Chamber of Commerce (ICC) sets standardised international commercial terms, the so-called Incoterms® rules, to facilitate international trade. The Incoterms are frequently referred to, for instance, in general terms and conditions, as well as in sales agreements governed by Dutch law. The former Incoterms were drawn up in 2000 and now a new version has been published: the Incoterms® 2010 rules. These new rules took effect on 1 January 2011. There are now 11 Incoterms rules (there used to be 13); four have been added and two removed. Every Incoterms® 2010 rule determines the risk transfer and contractual obligations applicable to the delivery of goods by sellers to buyers. They are therefore contractual arrangements about when a seller delivers goods to a buyer, who bears the transport risks, who pays the transport costs, and who is responsible for any customs and clearance formalities required. If reference is made to an Incoterms® 2010 rule, clarity is provided regarding each party’s responsibilities, which reduces the risk of legal issues. Important reasons for updating the Incoterms included the repeal of part of the US Commercial Code (UCC) and increased willingness in the US to use the Incoterms® 2010 rules. [Continue Reading]

The Netherlands | 01 December 2010

On 14 September 2010, the European Court of Justice (ECJ) ruled that, in the field of competition law, internal company communications with in-house lawyers are not covered by the confidentiality regime regarding communication between external lawyers and clients. This judgment paves the way for the European Commission, in its role as competition regulator, to gain access to the internal communication (eg notes and e-mails) of the legal department of a company. The appeal, brought by Akzo Nobel Chemicals Ltd and its subsidiary Akcros Chemicals Ltd, which relied on the ‘legal professional privilege’ claim, was rejected by the ECJ.

[Continue Reading]

The Netherlands | 01 November 2010

Squatting HAS BEEN A PHENOMENON in the Netherlands since the 1960s. Vacant property is occupied by persons without a valid legal basis. In practice, it has proved difficult for the owner to have squatters removed from the property. This will now change, as the Squatting and Vacancy Act (the Act) came into force on 1 October 2010.

[Continue Reading]

The Netherlands | 01 October 2010

Dutch Public companies, NVs (Naamloze Vennootschappen), are commonly selected as entities for initial public offerings (IPOs), mostly through conversions of existing Dutch private limited companies (BVs or Besloten Vennootschappen) that are part of the group for the purpose of tax structuring. The purpose of this article is to give in-house counsel a headstart on the preparations of an IPO of a Dutch public company by highlighting a few practical aspects relating to the issuer’s prospectus and corporate governance structure that need to be considered and decided at an early stage of the IPO.

[Continue Reading]

The Netherlands | 01 September 2010

International structures as used by multinational companies may typically include limited partnerships or general partnerships.

If the Netherlands is involved in international structures, the partnerships may be set up in such a way that they qualify as transparent for Dutch tax purposes. Further, partnerships could be used to manage the recognition of taxable income (for example, the so-called CV-BV structures). This article may be helpful to further manage and control the tax risks within such structures. [Continue Reading]

The Netherlands | 01 July 2010

On 10 May 2010, the Dutch Temporary (Parliamentary) Committee on the Inquiry Financial System (the committee), also known as the ‘De Wit Committee’ after its chairman, set up by the Dutch Parliament’s House of Representatives, presented its report on the first part of its investigation into the crisis in the Dutch financial system. This report, which the committee titled ‘Credit Lost’, examined the causes underlying the financial crisis and specifically looked at what occurred in the period up to late September 2008, the month in which Lehman Brothers went bankrupt. In connection with its investigation, the committee formulated several conclusions and recommendations to avoid a repeat of such a dramatic crisis in the future.1 [Continue Reading]

The Netherlands | 01 June 2010

The current economic situation has forced many companies to reduce costs. Such cost reductions can often only be effected by implementing important changes in the organisation (reorganisation), which most of the time leads to (collective) redundancies. To have a legally valid reorganisation in the Netherlands, there are several statutory requirements to comply with. This article sets out the general rules of Dutch law that apply in (collective) redundancies.

Works Councils Act

According to the Dutch Works Councils Act (WCA), every entrepreneur with 50 or more employees is obliged to set up a works council. Under the WCA, the works council has a right to give advice in relation to any intended decision that involves (among others) important changes in the organisation of the employer. Once the works council’s advice is acquired, the employer takes a final decision about the reorganisation. If the decision deviates from the works council’s advice, this deviation has to be motivated.

Moreover, in case of such deviation, the employer must suspend the execution of its decision for one month. During this month, the works council may file an appeal against the decision with the Enterprise Chamber of the Court of Appeal in Amsterdam or commence interlocutory proceedings.

Termination of employment

Perhaps the most notable feature of Dutch employment law is that, other than in cases of gross misconduct or termination by mutual consent, employers require the approval of a government agency or the court before terminating an employment contract.

Employers require the approval of a government agency or the court before terminating an employment contract.

It is important to carefully determine which employees can be dismissed in a collective redundancy, as selection of the employees who will be dismissed is a very important issue. To determine which employees will be made redundant, the so-called ‘balance principle’ applies. Pursuant to the balance principle, the number of people with exchangeable jobs to be dismissed in one business location is divided among the various age categories, in such a way that the percentage of representation of each age category in that group of employees remains more or less the same.

Selection of the employees who will be dismissed is a very important issue.

After the definitive dismissal list has been drawn up, an employer can proceed with the termination of employment. Under Dutch law, employment agreements may be (prematurely) terminated unilaterally by the employer by:

  1. giving notice to the other party, normally after a dismissal permit has been granted; or
  2. by a Cantonal Court procedure.

Termination by giving notice

An employment agreement may be terminated unilaterally by giving notice to the other party. Such notice by the employer, however, requires prior permission from the government agency, the so-called UWV WERKbedrijf (UWV). UWV has different offices, each one taking care of a specific geographical working area in the Netherlands. UWV investigates the reasons for the requested termination of the employment agreement. If there are sufficient grounds for termination, permission by UWV (permit) will be granted. The UWV procedure itself takes about two months. Once the dismissal permits have been issued, the employer should still serve notice of termination on the redundant employees.

UWV does not decide on redundancy payments, nor are such payments mandatory under Dutch law. If no (or little) redundancy payment is offered and the permit is still issued, the employee involved may begin litigation after their dismissal, to obtain damages on the basis of ‘apparent unreasonableness’ of the dismissal.

Cantonal Court procedure

Instead of following the UWV procedure, the Cantonal Court procedure can be followed. In this procedure the employer can request the Cantonal Court judge to dissolve the employment agreement due to serious reasons (eg economic reasons). The procedure before the court usually takes about two months and involves a written request, a written defence and a hearing. When dissolving the employment agreement, the court is not bound by notice periods. It should be noted that in relation to the termination of the employment agreement, the Cantonal Court usually grants the employee a severance payment, based on the so-called Cantonal Court Formula.

This Cantonal Court Formula results in the payment of a lump sum, based on the age, length of service and salary of the employee involved. As per 1 January 2009, the Cantonal Court judges have adjusted this formula. This adjustment lead to lower severance payments in dismissals and is therefore favourable for employers.

Severance payments in the Netherlands are calculated in accordance with the Dutch Cantonal Court Formula.

Collective layoff

The Act on the Notification of Collective Layoff applies in the event that an employer intends to dismiss at least 20 employees employed within a working area of UWV in a single period of three months.

The employer must notify both UWV and the trade unions, state the reasons for the proposed collective layoff, the number of employees they intend to dismiss with specific particulars of function, age, years of service, all in relation to the background of the total group of employees. Furthermore, the employer must state the projected dates of termination and the date on which the works council was consulted.

The employer must discuss with the trade unions not only the need to reorganise, but also the consequences thereof. In most cases, social plans will have to be prepared.

UWV may not consider a request for permission to give notice of termination until one month after the date of notification of the collective layoff to UWV and the trade unions, unless the statutory delay risks the chances of re-employment of the redundant employers or the other workers in the company. If an employer does not give the required advance notification to UWV and the trade unions, but eventually requests permission to give notice from UWV to dismiss 20 or more employees within the three months period, the statutory delay is increased to two months. The mandatory delay serves to facilitate consultations between the employers, the trade unions and UWV, and in major cases, the Ministry of Economic Affairs for the Ministry of Social Affairs and Employment.

Social plan

In the event of a dismissal of a considerable number of employees for economic reasons, employers normally draw up a so-called ‘social plan’. If trade unions are involved, then the content of a social plan is often agreed on. In such a social plan, the social and financial consequences for the employees are arranged.

In principle, if the employees and/or their representatives have been involved in the negotiations for a social plan, and if the implementation of the social plan does not have evidently unreasonable consequences for the employee involved, the Cantonal Court judge will be bound to the social plan. This means that terminating the employment contract can easily be effected by requesting the Cantonal Court judge to dissolve the employment contract.

Conclusion

Reorganising a business in the Netherlands means fulfilling certain statutory requirements, and fulfilling them in a correct and timely manner. Depending on the size and structure of the company, and the extent of the redundancy (20 employees or more), there can be additional rules that need to be taken into account when reorganising a business. Considering the wide scale of statutory requirements, it is advisable to provide for a strict timetable. When having a correct preparation on the steps to be taken and a measured timetable, reorganising a business can be an effective way to cut down costs.

Boekel De Nerée is a leading independent Dutch law firm of advocaten and civil law notaries.

Based in Amsterdam, it offers specialist advice to clients in a wide range of industries. Its corporate practice includes an Anglo-American advisory group specifically geared to serving the interests of clients from English-speaking parts of the world, providing clients with a peace of mind when dealing with matters in the Netherlands jurisdiction.

www.boekeldeneree.com

The Netherlands | 01 May 2010

A sound corporate governance policy requires managing directors to guarantee compliance with competition law in the organisation. Violations can lead to penalties of millions of euros, and serious damage to the reputation of the organisation and the persons involved. In practice, it is difficult to identify and control competition law risks. This problem can be avoided by introducing a compliance program. Such programs are an internal control mechanism that promote compliance by making employees aware of the dos and don’ts in competition law.

Competition law

Competition law prohibits, among other things, price-fixing or market allocation agreements and the exchange of sensitive competitive information. Several forms of co-operation between competitors are therefore prohibited. Agreements between non-competitors, such as customer or territorial restrictions, and price restrictions in the context of a distribution relationship, may also be sensitive from a competition law perspective. Companies with a dominant market position may not abuse their position, force competitors off the market, or exploit customers by charging extremely low or high prices.

Competition law has been one of the few boom areas of the past few years. The Netherlands has changed from a cartel paradise to a country with active enforcement by the Netherlands Competition Authority (NMa) and the European Commission. Penalties for the violation of competition rules are increasingly high and may be as much as 10% of the company or group’s annual turnover. NMa has recently been given the right to impose maximum penalties of €450,000 on those involved in anti-competitive practices. It is likely that the violation of competition rules in the Netherlands will, in the near future, result in imprisonment.

Advantages

A compliance program offers various advantages:

  • It reduces the risk of a high penalty or other sanction. The Commission has stated that, in some circumstances, a compliance program can even be reason to mitigate the penalty if the rules are accidentally violated.
  • It guarantees an organisation’s integrity and offers protection against serious damage to its reputation. It should also reduce the risk of claims for damages from competitors, suppliers or customers. Market parties are increasingly attempting to recover losses incurred as a result of restraints of trade from companies involved in anti-competitive practices.
  • It can help to avoid a situation in which it becomes apparent at a late stage that crucial agreements are not enforceable or that certain actions must be changed in the interim. An important aspect in this context is an analysis of the day-to-day management and new market initiatives.
  • It limits the risk of market parties making a formal complaint about an organisation to NMa or the Commission, which may result in close monitoring by competition authorities. By establishing a compliance program, organisations avoid the loss of management time and resources entailed by time-consuming and expensive investigations. In the past, the introduction of such programs in the pharmacy, metal-working and insurance industries has resulted in NMa ending its investigation of prohibited conduct.

Objective

The main objective of a compliance program is to promote compliance with competition rules in an organisation. This is primarily achieved by giving more internal publicity to the applicable rules and risks. Employees can also be instructed on how to recognise situations in which action can be taken against restraints of trade by other market parties, such as suppliers or competitors. Organisations must also ensure that agreements and arrangements are structured to minimise the risk of violation. It is advisable to instruct employees to avoid the use of any wording in documents and correspondence that may lead to an investigation by NMa or the Commission. Employees also need to know how to deal with correspondence, documents or advice exchanged with an attorney or in-house lawyer. These documents are usually legally privileged. An organisation should also inform its employees about their rights and obligations in the event of a company visit by one of the competition authorities. For example, they must co-operate with an investigation but are not required to answer questions that might incriminate themselves or the organisation.

Fixed components

NMa has announced that an effective compliance program must consist of several fixed components, the most important of which is education. Employees must have sufficient basic knowledge of competition regulations and that knowledge must be continually updated. This can be achieved, for example, by organising an internal workshop each year. It is also important to introduce a control system to the organisation. This is usually achieved by appointing a compliance officer, often an in-house lawyer, responsible for actively monitoring compliance with competition rules and acting as a source of information for employees (anonymously, if necessary).

An effective compliance program also requires sanctions on violation of the rules. Employees must formally declare that they will observe the applicable regulations and will report any violations internally, or face disciplinary measures. Another obligatory component is that restraints of trade, if discovered, must immediately be terminated. Contact with competitors who are known to have violated regulations must also be ended.

Extra components

Several components can be added to a compliance program to protect an organisation against the violation of competition rules more effectively. For example, a risk analysis of an organisation can be made by a review of its contracts and correspondence.

Employees can also be obliged to observe specific rules of conduct. An example is the ‘ten golden rules’ that employees must follow when in contact with market parties. These rules of conduct can be recorded in employment contracts or standing employment conditions. Employees can be required to answer several on the applicable regulations when entering the company’s service or on an annual basis. Such a ‘Highway Code’ examination can, of course, also be taken electronically. It is also possible, after an organisation has introduced a compliance program and risk analysis, to obtain a positive recommendation by competition authorities that an organisation complies with current regulations.

External advice

Organisations can draw up their own compliance programs. However, it is usually advisable to engage an external expert, particularly in light of the obligatory training of employees and the organisation’s risk analysis, if any. Employees do not usually have sufficiently detailed knowledge of competition law. There is also the risk that employees are not able to form a sufficiently objective opinion on the risks in their organisation and companies often do not have sufficient capacity to make an employee available to set up such a program. An external expert is usually cheaper because they can work more effectively and efficiently, allowing employees to focus on their key tasks.

Time and costs

The introduction of a compliance program need not take a great deal of time or money. Programs can often be introduced at an organisation in a period of one month. Naturally, that will depend on the form chosen. Boekel De Nerée will be pleased to advise on how to set up or amend a program that best suits a specific organisation.

Boekel De Nerée is a leading independent Dutch law firm of advocaten and civil law notaries.

Based in Amsterdam, it offers specialist advice to clients in a wide range of industries. Its corporate practice includes an Anglo-American advisory group specifically geared to serving the interests of clients from English-speaking parts of the world, providing clients with a peace of mind when dealing with matters in the Netherlands jurisdiction.

www.boekeldeneree.com

The Netherlands | 01 April 2010

Dutch corporate law needs to be modernised to make it more appealing at an international level. The Dutch Lower House adopted five legislative proposals in December 2009 that are meant to contribute to this modernisation. These proposals will be discussed in this article. [Continue Reading]

The Netherlands | 01 March 2010

We have gone through turbulent times. To say that the world has changed in the past year and a half would be an understatement. Revered institutions have fallen like houses of cards and once untouchable reputations have been severely damaged by economic upheaval. Although there are some indications that life as we knew it has resumed, the way that lawyers do business has changed. This article discusses some of the changes that have occurred, and the lessons that lawyers can and should take away from the recession. [Continue Reading]