Employment Update Netherlands November 2006

22 November 2006

Philip Hartman

New legislation

State unemployment benefits:
From 1 October 2006 the Dutch Act on state unemployment benefits (WW) modified the eligibility of ex-employees for state unemployment benefits. Previously unemployment benefits could, on the whole, be denied or reduced if termination of employment resulted from an urgent cause or if the employee consented to the termination for any other reason. The concept of urgent cause under Dutch law is similar to the concept of gross misconduct under UK law.

In order to terminate a contract of employment by mutual consent in the past, employers and employees would participate in “pro forma” court proceedings, where the employee would file a limited formal defence. This would cause the employment contract to be rescinded by the court, thus overcoming the obstacles posed by the former legislation. In the past approximately 70,000 such proceedings were held each year in order to safeguard employees’ entitlement to state unemployment benefits. Under the new law state unemployment benefits will now only be denied to ex-employees if termination resulted from an urgent reason caused by the employee, if the employee resigned, or if the employee chose to terminate the employment. Where an employee consents to termination initiated by the employer, state unemployment benefits will not be denied (other than for an urgent cause). It will therefore now be far easier for employers to obtain an employee’s consent to termination in return for severance.

Retirement: Whether or not an employment contract terminates automatically upon the employee reaching the age of 65 (the standard retirement age in The Netherlands) or whether some further action will be required is unclear. Clauses in employment contracts which stipulate that employment will terminate automatically upon the employee reaching any age below 65 are, generally speaking, not enforceable (see case law below). An exception to this is if the employer can demonstrate an objective justification for “forced” retirement at an earlier age. In addition to other changes, the government has implemented tax provisions aimed at discouraging early retirement. As from 1 January 2006 contributions made to early retirement schemes are no longer tax deductible; standard taxation of wages will now be due on any such contributions. Additionally, from 1 January 2006, employers making contributions to early retirement schemes will be subject to a fiscal penalty. Exceptions apply to early retirement schemes for employees who were older than 55 on 1 January 2005.

Medical costs insurance: New measures introduced in January 2006 require employers to compensate employees for mandatory contributions made to the state sponsored system. Employers may be obliged to make additional contributions either due to the contents of any collective bargaining agreement that may exist or as a result of the terms of an individual’s employment agreement.

Child care: A legislative process is pending in respect of employers’ mandatory contributions to child care. The proposed system is similar to the new medical costs system (see above).

Case update

No obligation to take early retirement: In a recent case an employment contract contained a provision that employment would terminate by operation of law on the day that the employee became entitled to early retirement benefits. The cantonal judge decided that such an obligation to retire before 65 was, in the absence of objective justification, in conflict with Equal Treatment and Non-discrimination legislation.

No obligation to take early retirement: In another recent case a company restructure gave rise to a redundancy situation. The ultimate candidates for redundancy were an older and a younger employee. The older employee was entitled to early retirement benefits. The employer argued that given this, the older employee should allow the younger employee to remain in employment. The employer therefore requested that the court rescind the older employee’s employment agreement. The cantonal judge denied the request stating that an obligation to retire before 65 for this reason would be in conflict with Equal Treatment and Non-discrimination legislation.


Philip Hartman


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