Changes to Fixed-Term Contracts in the Netherlands

183955286As a result of the Dutch Senate’s adoption of the Work and Security Act last month, there are to be significant changes to the way in which fixed-term contracts are managed in the Netherlands. The declared aim of these changes is to close the gap between flexible and permanent employment in the Netherlands and prevent perceived abuse of current regulations.  I outline the changes that are due to be introduced and their probable impact on international contractors working in the Netherlands.

1. Transition payments for termination of employment. Effective date: July 1, 2015

Outline: Employees in the Netherlands who have been employed for at least 24 months will receive a statutory transition payment if their employment contract is terminated, rescinded or not extended on the employer’s initiative or in certain other circumstances where the employer may be deemed at fault.

The amount of the transition payment depends on years in service. During the first 10 years, 1/6 of the monthly salary will be due for each six months of employment and thereafter 1/4 of the monthly salary for each six months of the employment beyond 10 years. The compensation will be capped at the greater of EUR 75,000 or the employee’s annual salary. There will be a transitional period for small businesses (those with fewer than 25 employees): these businesses may pay lower compensation for dismissal if they are compelled to dismiss staff as the result of a poor financial situation.

Until 1 Jan. 2020, for employees aged 50 and older that have been employed for at least 10 years, 1/2 of the monthly salary will be due for each six months of employment after their 50th birthday. This over-50s scheme does not apply to small employers (an employer that has fewer than 25 employees in the second half of the year before the year in which the employment contract ends).

It is expected that the payments will be subject to normal employed rates of tax and social security.

Impact: Evidently only contractors working for longer than 24 months in the Netherlands are affected by this change. It is expected that Dutch payroll providers employing such personnel with simply accrue the relevant amounts as an employer’s cost throughout the contract, to be paid to the contractor upon termination. The impact of this change on international contractors is therefore not expected to be overly onerous.

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2. Restriction of probationary periods. Effective date: Jan. 1 2015

Outline: Any fixed-term employment contract concluded after 1st January 2015 may not include a probationary period. Any probationary period inserted after this date will simply not be deemed valid.

Impact: While this will have an impact on how contracts are written, as this concerns all contractors working in the Netherlands this change is not expected to have any significant impact on the contractor marketplace.

3. Restriction of non-competition clauses. Effective date: Jan. 1, 2015

Outline: Any fixed-term employment contract concluded after 1st January 2015 may not include a non-competition clause unless the clause is clearly and explicitly demonstrated to be necessary for compelling reasons affecting the employer’s business. No such reasons have been given as examples, so the final result of this change is hard to assess at this point.

Impact: The impact of this change is unclear but it is reasonable to expect, in light of the other changes detailed here, that non-competition clauses inserted solely to protect the business of an agency or a payroll company will not be deemed to be compelling reasons as mentioned above. It will therefore be between upstream providers to manage this risk as is already the case in other countries with similar legislation (Switzerland, for example).

4. Notification obligation. Effective date: Jan. 1, 2015, including all ongoing contracts.

Outline: Any fixed-term employment contract lasting longer than 6 months will have to be explicitly cancelled or extended, in writing, no later than one month before the end of the contract. This written notice must also include the conditions of any granted extension. Failure to notify the employee of termination with due notice will result in the employer owing the employee one day’s gross salary per day of delay. Complete failure by the employer to provide notice will result in the contract continuing under the same terms as the previous contract.

Impact: This change is perhaps the most contentious, as it effectively defeats the point of a fixed-term contract. It will be up to employers to manage their workforce, and therefore the requirements of their clients, very carefully so as not to fall foul of this change.

5. Limitation of successive fixed-term contracts. Effective date: July 1, 2015

Outline: With effect from July 1st, 2015, employees may be given a maximum of three fixed-term contracts over a maximum of 2 years before their employment is considered de facto permanent, with all associated rights and benefits. The “reset period” between two contracts for them not to be considered consecutive will be 6 months.

Impact: Successive fixed-term contracts have always been an important aspect of Dutch employment law. This new, more restrictive, regime will certainly make employers more cautious of using temporary workforce, and may encourage higher staff turnover rather than higher conversion to permanent employment.

The long-term impact of all of these changes will only become clear over the coming 12 months, as the implementation and interpretation of the various new rules are worked out. The Netherlands has long been an attractive place to work for international contractors, and this is unlikely to change, but this new bill is sure to draw attention to the complexity of doing business in the Netherlands for foreign companies, and to underline the crucial need for expert local assistance when doing so.

For more information, please feel free to contact Capital Consulting’s team of experts for an informal opinion on how these changes may affect your business.

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Matt Walters

Matt Walters
Matt Walters specializes in labor leasing matters at European labor leasing expert Capital GES.

Matt Walters

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