Employment

Author: | Published: 8 Apr 2002
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The employment contract

In general individuals are employed by companies on the basis of an employment contract. There are three requirements for the existence of an employment contract, namely: a relation of authority between the employer and the employee, the obligation of the employee to perform the labour personally and the obligation of the employer to pay wages. The term authority relation means that the employer is authorized to instruct and supervise the employee in respect of the labour to be performed.

Trial period

In general, employers tend to insist on a trial period in the employment contract. During this trial period both the employer and the employee can terminate the employment contract with immediate effect. The employee may however request the employer to provide a written explanation concerning the reason for termination. The trial period of an employment contract for a fixed period of less than two years, is one month at the most. If the employment contract is concluded for an indefinite term, the trial period is two months, if the employment contract is entered into for a fixed period of more than two years and if the moment at which the employment contract ends is agreed upon beforehand (eg in case of a project), the trial period is two months at the most.

Employment contract for a fixed period

The employee is usually offered an employment contract for a fixed period, for instance for the period of one year. In principle, an employment contract for a fixed period comes to an end when the fixed period agreed upon has lapsed. After the fixed period has expired, an employment contract for an indefinite period of time could be entered into, as well as a new employment contract for a fixed period. A successive employment contract for a fixed period may also come to an end by operation of law.

Successive employment contracts for a fixed period

An employer and employee can enter into a maximum of three successive employment contracts for a fixed period. A fourth successive employment contract for a fixed period is, by law, considered to be entered into for an indefinite period. This means that the last employment contract does not come to an end by operation of law, but needs to be terminated by one of the parties. If the successive employment contracts for a fixed period, including agreements with temporary employment agencies that have seconded the person to the employee, together with the periods of less than three months between the agreements – extends to a period longer than 36 months, the last employment contract entered into is also considered to be for an indefinite period. An exception to this general rule is possible by way of a Collective Bargaining Agreement.

Termination of an employment contract

In order to terminate an employment contract lawfully notice must be given after a dismissal permit is acquired. Furthermore, an employment contract can be dissolved by a cantonal judge, whereby the employee will often receive a severance payment. The employment contract can also end by summary dismissal, for which there should be an urgent reason, such as fraud or theft. The Supreme Court has judged that other circumstances, such as the length of the employment, the performance and even private circumstances are important for a judgment on whether the summary dismissal was justified. To put it briefly, the termination of employment contracts is subject to extensive regulation in The Netherlands.

Collective bargaining agreement

Besides by statutory regulations (the Dutch Civil Code and other more specific provisions of statutory law) and the individual employment contract, the employment relation is often also ruled by a Collective Bargaining Agreement (CBA). Currently, a CBA applies to approximately 80% of the employed population.

Commitment to a CBA

An employer can be committed to a CBA if it is a member of an employers' association which enters into a CBA with the trade union or the branch of business. An employer can also enter into a CBA through the trade unions itself, or voluntarily agree to the applicability of a CBA to an individual employment contract. At a rough estimate, currently 700 business-CBAs have been entered into. A third way to enter a CBA is if the Minister of Social Affairs and Employment declares a CBA universally binding. The minister can, at the request of trade unions or businesses, compel all employers and employees in the same branch of businesses to observe the CBA. Currently there are about 200 CBAs for branches of business.

Duration of a CBA

CBAs exist for five years at the most, but in practice CBAs are entered into for a period of one or two years. A CBA that has been declared universally binding is generally applicable for two years at the most and will last no longer than the duration of the CBA itself.

Bank-CBAs

Until a couple of years ago, trade unions entered into a CBA with banks every two years. This CBA was applicable to all employees, employed within the banking industry. For several years there have been no CBAs for banks. Banks can enter into CBAs through trade unions.

Contents and operation of a CBA

A CBA covers, among other things, employment terms such as salary scales, holidays, fringe benefits, remuneration for overtime and working hours. Employment terms deriving from a CBA prevail over the employment terms in the individual employment contract. However, many CBAs only contain a minimum set of employment terms. Deviation from the CBA in a way that is favourable for the employee is possible at all times. The law explicitly creates the opportunity to – exclusively – deviate from a CBA over several issues, which is usually more favourable to the employer than the statutory regulation.

Minimum wages

Wages are not allowed to be less than the minimum amount required by the Act on minimum wages. In case a lower amount has been agreed on, the employee still has the right to receive the statutory minimum wage. In principle, the statutory minimum wage applies to employees of 23 years and older. For employees younger than 23, the statutory minimum wage for youths is applicable, which is a percentage of the statutory minimum wage. The Minister of Social Affairs and Employment frequently adjusts the statutory minimum wage. The employee also has a statutory right to at least 8% of the wages received in holiday allowance. The holiday allowance year is not fixed, but in practice usually runs from June up to May, the latter being the month in which payment of the holiday allowance takes place. An employer and employee can agree on the absence of holiday allowance when the salary exceeds the minimum wage threefold. As stated above, CBAs usually contain complementing stipulations in respect of employee wages.

Overtime work

In principle, the employer should remunerate overtime. This can be different in higher positions, since overtime is considered inherent to such a position and compensation for overtime is considered to be included in the salary. The employment contract usually contains a stipulation in respect of the remuneration of overtime in time or in money. Most CBAs also contain a stipulation pertaining to overtime.

Wages during illness

During the first 52 weeks the employee is ill, the employer must continue to pay the employee at least 70% of his wages not exceeding the maximum daily wages, (€149.99 per day) with a minimum being the statutory minimum wage that applies to that employee. In practice employers pay 70% to 100% of the wages of the employee. CBAs in general contain regulations with regard to the obligation to continue payment of wages during illness. However under certain conditions the employer is not obliged to continue paying wages during illness. This is, for instance, the case when an employee refuses to perform suitable work or when an employee obstructs his recovery.

Employers, like banks, often make additional provisions for employees on a collective basis in case of long-term illness. After the first year of illness, the employee will, in the case of continuous disablement, be entitled to a statutory occupational disability benefit (WAO). This benefit amounts to 70% of the daily wages, applicable to the employee with a maximum of €149.99 gross. A supplementary benefit can be insured. The premiums are sometimes fully paid by the employer.

Alteration working hours

According to Dutch law, the employee may file a request with the employer to work less or more hours. The employee is not required to explain his request. In principle, the employer will have to accept this request unless important business or service interests dictate otherwise. These interests can consist of severe problems for security or business operations caused by the reduction in working hours, for instance if no personnel can be found to fill up the released hours. In case of an increase of working hours, important business and service interests can consist of severe problems of a financial or organisational nature, such as if there is not enough work. The employer may plan the working hours during the week according to the wishes of the employee.

The employee can only file a request for an alteration of working hours once every two years. An accepted request for the reduction of working hours is not a guarantee for the employee to increase the working hours again later on. On the basis of recent rulings of the Supreme Court the employer can, under strict conditions, unilaterally alter the employment conditions, including the working hours.

Holidays

The normal entitlement to holidays on full pay is four times the number of working days per week. An employee, working full-time, is therefore entitled to at least 20 days holidays a year. Many CBAs allow employees a maximum of 25 holidays a year. In addition to this, the employee is entitled to a day off on the 6 or 7 national holidays. National holidays include the Queen's Birthday (30 April), Ascension Day, and Easter Monday.

Reduction of working hours

In general, but not based on any Act, a working week consists of 40 hours. Many CBAs however contain a regulation with regard to the reduction of working hours (ATV-dagen). This regulation was drafted when the unemployment rate was high, in a bid to contribute to the employment policy. The regulation – in short – allows the employee to work 36 hours a week and allows the employee to consider, for instance, four hours as leave. In practice employees take every other week one ATV-dag as leave. In the financial industry this situation is especially applicable to staff and lower and middle management.

Maternity leave/ Adoption leave

A female employee is entitled to a maternity leave of 16 weeks. This entitlement exists as of six weeks before the day of the expected delivery. The maternity leave may continue after the delivery for 10 to 12 weeks. Under most CBAs or individual agreements, employees are entitled to full payment of their wages during maternity leave.

An employee who adopts a child can take four continuous weeks as adoption leave. This leave can be taken up to two weeks before the adoption and up until 16 weeks after. During adoption leave employees receive full payment of their wages under most CBAs or individual agreements.

Male employees are entitled to a paternity leave of two days after the birth at the most. During paternity leave the employee is entitled to his full salary.

Calamities leave and other short-term absence leave/ short-term care leave

If special personal circumstances arise, an employee can take a leave of absence for a short period of time, to be determined in fairness. Special personal circumstances are for instance the birth of a child, the registration of a birth or a notification of death. It may also include things such as time at home because a broken water pipe has to be repaired. The duration of the leave will depend on the reason why the leave is taken.

In connection with the necessary care of a sick relative, an employee can take a short-term care leave. The employee working full-time is entitled to 10 days short-term care leave a year at the most. During the leave the employee will receive at least 70% of the daily wage under social security legislation. Often the CBA or the individual employment contract contains the provision granting the employee full payment of his wages during the leave.

Parental leave

An employee who has been with the employer for at least one year can file a request with the employer to take parental leave. The entitlement to parental leave exists with regard to a child of up to eight years old. During parental leave the employee is not entitled to payment of wages. The total duration of parental leave is the amount of working hours in 13 weeks at the most. The leave will be taken each week during a maximum period of six months, taking into account that the number of hours leave a week may not exceed half of the workings hours that is agreed upon. The employee can however also request to take full-time parental leave for three months or 25% during 12 months. The employer must accept the employee's request unless weighty reasons dictate otherwise. In practice a judge will hardly ever acknowledge the presence of weighty reasons.

Leave saving

Many companies in The Netherlands, such as banks, offer their employees, if applicable on the basis of a CBA, the chance to save up for long-term unpaid leave. The leave can be taken by the employee for, for instance, study or care purposes or to make a trip around the world. Depending on the regulation the employee can save up for his leave by time or money. The employee can save time if he does not take all the holidays he is entitled to in a year. By giving up part of his gross wage the employee can also save up for long-term leave by means of money. In both cases the employer will have to transfer the saved money to a financial institution (banks, insurers and funds appointed by CBA) on behalf of the employee.

Each calendar year an employee is not allowed to save up more than 10% of his annual wages. The leave saving regulation is a fiscal regulation. If more than 10% of the annual wages are saved, the surplus will be taxed progressively. The employee cannot take the leave one year before his retirement. The benefits that the employee will receive during his long-term leave as a consequence of his savings, will be taxed as wages, and therefore progressively.

Representation of personnel/ Works council

A company in which more than 50 persons usually work must establish a Works Council (OR or Ondernemingsraad). Companies that employ at least 10 but not more than 49 are not obliged to set up an OR. Nevertheless such companies could set up an employee representative body voluntarily. The authorities of an employee representative body are limited. The employee representative body has a right of consent with regard to a working hours regulation and a regulation concerning working conditions and absenteeism due to illness. Besides this, the employee representative body has a right to prior consultation with regard to intended decisions that can lead to the loss of jobs or an important alteration of the work or employment conditions of at least one quarter of the employees. If requested the employer must provide the employee representative body or the OR with all information it reasonably requires for discharging its duties.

Right to prior consultation of the OR

The OR has a far-reaching authority. The employer must consult the OR concerning, among other things, an intended decision of transfer of control of the undertaking or a part of it, the establishing, taking over or disposing of control of another undertaking, the termination of activities of the undertaking or a major part of it, a major reduction, expansion or other alteration of activities of an undertaking and major changes of the organization or the apportionment of competencies.

If the advice is not requested or if a decision is taken which does not meet the advice, the OR may seek legal remedy at the Enterprises Chamber of the Amsterdam Court of Appeal. The enterprise chamber will evaluate whether the employer, during the decision-making process, has decently considered the interests involved and has acted reasonably. The enterprise chamber can oblige the company to wholly or partly withdraw its decision, as well as to undo the consequences of that decision. The enterprise chamber may also forbid the company from implementing the decision. Within two months after the decision of the enterprise chamber proceedings before the Supreme Court may be instituted. The Supreme Court will not investigate the facts again, but will solely judge whether or not the enterprise chamber has violated the law in its decision.

Right of consent of the OR

The OR has a right of consent over a number of intended decisions, such as the decision to determine, amend or withdraw a regulation concerning a retirement benefit, a profit-sharing scheme, a working hours arrangement, a vacation arrangement, a rewarding – or job assessment system, a regulation concerning safety, health or well-being in the context of labour or absence caused by illness, and a regulation concerning appointment, discharge and promotional policy. A decision taken without the consent of the OR is void, or if it appeals within one month. The employer on the other hand may ask the court to approve the intended decision in the absence of consent of the OR.

Central Works Council/ Group Works Council

If several undertakings, each with their own works councils, are allied to one, it may establish a Central Works Council. The Central Works Council will be the central organ for all undertakings belonging to the group of companies. The group of companies may also establish a Group Works Council for a specific sub-group of undertakings. The members of the works councils involved elect from their members, the members of the Central Works Council or the Group Works Council.

The Central Works Council and the Group Works Council deal with matters of general interest to all or the majority of the undertakings for which the Central Works Council or the Group Works Council has been established. With regard to similar common subjects the authority of the individual works councils pass to the Central Works Council or the Group Works Council by law. The Central Works Council and the Group Works Council have the same rights as the individual works councils with regard to these subjects. Consequently, they have a right to prior consultation, a right of consent and the right to receiving information. If a Central Works Council or a Group Works Council has been set up, the company has only one or a few conversation partners instead of several individual works councils.

European Works council

Under the Act on the European Works Councils, which is based on an EU directive, Dutch multi-nationals must inform and consult their employees in The Netherlands and in other parts of the group within the European Union with regard to cross-border matters of the multi-national at least once a year. Foreign multi-nationals with branches in The Netherlands also have a similar obligation. Many multi-nationals have set up a European Works Council for this purpose. Most of the time the Central Works Council is represented in the European Works Council. In this manner, subjects under discussion within the European Works Council are also discussed within the Central Works Council.

Irreproachable conduct of the employee at financial institutions

Irreproachable conduct is especially required of employees of financial institutions. Employees must stay clear of activities with criminal bias, both during, as well as outside office hours. Theft, embezzlement, fraud, disclosure of confidential information, abuse of insider dealing rules or negligent behaviour towards responsibilities, is often a reason for dismissal, sometimes even with immediate effect (summary dismissal).

Significance of rules of conduct and procedure

Within the scope of summary dismissal, judges appear to attach great importance to rules of conduct and procedure. Such rules are present at practically all institutions in The Netherlands. Most banks, for instance, pursue a clear and knowledgeable policy concerning financial transactions that are connected with criminal activities. Employees entering into an employment contract are often obliged to sign a code of conduct explicitly warning them that they might be approached to cooperate in illegal criminal transactions. Such codes of conduct indicate that violation of the code is a reason for summary dismissal. It is not sufficient solely to report the presence of the code of conduct. It is of great importance that the guidelines are constantly renewed and enforced.

Most banks have rules of procedure in case irregularities are discovered. These rules are often coordinated with labour unions and/ or the OR. A bank that suspects fraud has to act prudently and has to carry out an expeditious investigation. In order to be able to dismiss the employee instantly, the bank must suspend the employee during the investigation. The rules of procedure often prescribe that a special commission advises the management on instant dismissals. The crime must also be reported to the police. The damage caused can usually wholly or partially be recovered from the employee. Case law shows that summary dismissal persists if the bank has rules of conduct and has conducted a prudent procedure.


Steins Bisschop Meijburg & Co
Hullenbergweg 300
Amsterdam 1101 BV
Netherlands
Tel: +31 20 656 1777
Fax: +31 20 656 1700