Employment in Western Europe and the Balanced Labour Market Act
The laws covering employment and employees in Western Europe are many and multifaceted. If you work in the Netherlands, it is important to be aware of Dutch labor laws and to know what effects they may have on you and your employment contract. The European Union has some of the most attractive employee benefits in the world and the Dutch labor law system is particularly protective of employees. As of 2020, new legislation has been adopted to bring balance to the Dutch labor market, with new laws that aim to reduce the gap in legal protections and financial compensation for fixed-term (temporary) and indefinite-term (permanent) contract employees.
Balanced Labour Market Act
Effective January 1, 2020, there is a series of new laws and regulations in the Netherlands aimed at bringing the Dutch labor market into balance. The package of measures, collectively known as the Balanced Labour Market Act (Wet Arbeidsmarkt in Balans or WAB), was introduced as part of an effort to address the growing trend of temporary, contract employment in the Netherlands, which has been accompanied by lower rates of permanent employment contracts. The law was accepted by the House of Parliament and the House of Representatives in May 2019 and seeks to encourage employers to offer longer-term or permanent employment contracts by reducing the differences in costs and risks associated with permanent and flexible employment. The measures included in the WAB include, among other things, additional termination grounds, changes to transition payments and the extension of duration of successive fixed-term contracts.
Under the previous law, there were eight limited grounds for dismissal (a-h grounds), on which an employer in the Netherlands could base a request for dismissal from employment. Some examples of these grounds included unsatisfactory performance and a damaged working relationship. Under the WAB, there is a new cumulative ground for dismissal (i-ground). Basically, employers are now able to base a request for dismissal on a combination of grounds, which would not be sufficient grounds for dismissal on their own. While the expected outcome of this law is that it will be easier for employers to terminate employment agreements, the trade-off is that if the court terminates employment based on this cumulative ground, it may award the employee an additional severance payment on top of the required transition payment.
Prior to the WAB, only employees who were employed for at least two years were entitled to a transition payment, depending on the reason for termination. Under the WAB, employees in the Netherlands are now entitled to a transition payment from day one, including during any probationary period. The method of calculating the transition payment has also changed. The transition payment due is based on one-third of the employee’s monthly salary for each year of employment, regardless of the number of years of employment. That means there is no longer any differentiation between the first 10 years of employment and the period afterwards. For partially worked years, the transition payment is pro-rated.
Extension of Fixed-Term Contracts
Prior to the WAB, the maximum duration of successive fixed-term (temporary) employment contracts was three in 24 months. That meant employers could conclude three fixed-term contracts over a period of two years before being required to offer the employee a permanent contract. The new law extends this period to three years. As a result, after 36 months of successive fixed-term employment contracts, the contract is converted into a permanent employment contract.
New Pension Agreement
Together with the Balanced Labour Market Act, the acceptance of a new pension agreement seeks to stimulate the Dutch labor market. For years, the Dutch government and social partners in the Netherlands have deliberated on ways to modify the two-part system of public pension and private pension, which has become increasingly burdened by the demographic shift – the issue of an aging population compounded by increased pressure on a smaller labor pool to sustain more retirees. The Dutch pension system has two main components: a pay-as-you-go state pension that everyone who lived and/or worked in the Netherlands between the ages of 15 and 65 is entitled to, and private pensions that employers and employees both pay into. The long-awaited reforms proposed by the new pension agreement, which was accepted in June 2019 and is expected to be completed by the end of 2020, include major changes, such as:
- Freezing the retirement age for state pension at 66 years and four months for the next two years and then gradually increasing it to 67 by 2024. After that, the state retirement age will be linked to life expectancy.
- Allowing workers in physically demanding jobs to retire up to three years early.
- Giving workers the option of choosing a 10% maximum lump sum payment upon retirement.
Transition Compensation for Employees
With the changes implemented as part of the Balanced Labour Market Act, the laws regarding employment contracts, transition pay and dismissal in the Netherlands have also changed, the most important change being that employees are afforded more job security. Under the WAB, temporary agency workers are on an equal legal footing with and are entitled to the same working conditions as permanent employees. Employees are also entitled to a transition payment from their first working day and the payment is due as soon as the employment ends for any of the following reasons:
- There is no longer work for the employee to do
- The employment contract is not renewed by the employer
- The employment contract is terminated early (dismissal), but the dismissal is not the employee’s fault
It is important to note that, while employees are legally entitled to transition compensation for employment that has been terminated, employers in the Netherlands have no obligation to pay the compensation voluntarily. It is up to the employee to claim the transition compensation he or she is owed, and the claim must be submitted within three months of the employee’s final working day for it to be valid.