There are three ways to terminate an employment agreement under Dutch law:
1. Mutual consent of both parties;
2. Termination by employer or employee with a permit;
3. The employment agreement is dissolved by the court with a meritorious defence of the employee.
Dismissal under Dutch Law
Ad 1: The first possibility to terminate an employment agreement is to reach a settlement in mutual consent. No legal proceedings are necessary and the employment agreement and the conditions for termination are settled between employer and employee. In case of a conflict between employer en employee that can not be solved both sides will usually seek legal advice. It is common practise for Dutch employment lawyers to try and reach a settlement between employer and employee out of court. It is my rough estimate that only 10% of all employment conflicts is dealt with by a judge and maybe even less. The reason for that is the court formula (to be explained hereunder) that is used by judges to establish the amount of severance payment the employer may have to pay, is also used by the Dutch employment lawyers to work out the settlement. Dutch employment lawyers are very familiar with the court formula and it’s application in many court cases. Therefor the employment lawyers will always try to negotiate a settlement out of court on the basis on the court formula. For questions mail to email@example.com.
Settlement out of Court; the usual way to settle employment dispute
The employment agreement will be terminated in a way parties have agreed upon in a so called “package deal” in which every aspect of the employment agreement and the termination thereof will be arranged. Parties will usually draft a settlement agreement with the arrangements they have agreed upon and which employer and employee will sign.
Permission Employment Authority for Dismissal
Ad 2: According to Dutch Law employment agreements for indefinite period cannot be terminated without a permit of the UWV. So, if an employer in the Netherlands wants to terminate an employment agreement, he has to have a permit of the UWV before he can give notice. The employer can file a motivated request with this agency that he wants terminate the employment of employees because of economic reasons (position of this employee is lapsing, or (a plant of) the company is closing).
After the permit has been granted the employer can give the employee notice per the end of the month in which the permit has been granted. Of course the employer still has to take into account the proper notice period.
After termination of the employment agreement, there is still the possibility that this termination is a manifestly unreasonable dismissal and the employee can claim damages at the court.
This procedure at the UWV takes quite some time (6-8 weeks)and afterwards the employer is also obligated to take into account the notice period. After giving notice, the employee can be of the opinion that the dismissal is unfair and that he wants to claim damages in Court Employees (and their lawyers) will anticipate on this and weigh their chances in court, in order to try and come to a settlement out of Court.
Termination procedure in Dutch Court
Ad 3 Additionally, it is possible to request the court to terminate the employment agreement. This procedure will take less time than the procedure at the UWV. Furthermore, there is no possibility to appeal to the decision of the court, so both parties know where they stand.
In this case parties apparently have not been able to come to a settlement and/or the employee maintains the position that there are no valid reasons to terminate his employment agreement. If the court is of the opinion that the employment must be terminated, the court will grant a severance payment to the employee. In the Netherlands you have a so-called “sub district court formula” or “cantonal court formula”. I will discuss this formula hereunder. But again also for this legal proceedings the Social Plan is important: based on the fact that the Plan has a very high legal status and is agreed upon with the representative unions, a possible court will take this Plan into account as reasonable for the severance payment.
Severance payment in the Netherlands
The sub district court formula is the guideline to indicate the severance payment. The court will –in most times- use this guideline to determine a severance payment. Besides, this guideline is also used by parties to determine a severance payment in a settlement between parties.
The sub district court formula is as follows:
A X B X C
A = working years of the employee.
The working years until the age of 35 will count as 0,5. The working years between the age of 35 and 45 will count as 1. The working years between 45 and 55 will count as 1,5 and the working years above the age of 55 will count as 2.
B = monthly salary + 8% holiday allowance and structural bonuses.
C= 1, when the termination take place on neutral bases. This C (multiplier) can go up and down, for instance 1,5 or even 2 or to 0,5. Furthermore, the factor can go up or down in case the employee proves that his position on the labour market is bad and that it will be very difficult for him to find a new job within a certain period and e.g. the employer proves that he is unable to pay any severance payment as a result of his bad financial position.