Legal Briefing

How to reorganise a business in the Netherlands

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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