Employment Update, The Netherlands - October 2007

09 October 2007

Stella Evers, Philip Hartman

International employment relations and mandatory law

Background

A German company employed a Dutch national to work in The Netherlands and Belgium. The employment agreement contained a provision stating that German law would be the applicable law.
  • Issue 1: The Company gave notice of termination to the employee in accordance with the contract. The employee nullified the notice given to him and claimed salary (in arrears).

  • Issue 2: After realising that it failed to give valid notice to the employee, the Company asked the court to rescind the employment contract. The employee countered this by requesting rescission and high severance.

Applicable law

Based on the EC Convention on the Law Applicable to Contractual Obligations (the “Convention”) a contract shall be governed by the law chosen by the parties. However, based on article 6 of the Convention in a contract of employment, a choice of law made by the parties shall not have the result of depriving the employee of the protection afforded to him by the mandatory rules of the law which would be applicable in the absence of a choice of law.

Ruling on Issue 1

A lower court recently ruled that article 6 of the Dutch Labour Relations Special Decree 1945 is ‘mandatory’ law in the sense of the Convention. This article provides for a prohibition on dismissal, unless prior consent has been obtained from a Dutch government body called “CWI”, if the employee involved is likely to rely on the Dutch labour market upon termination of employment. Therefore, in international employment, if the parties have chosen a foreign (non-Dutch) law system and Dutch law would have been applicable in the absence of a choice of law, valid notice can only be given with the prior consent of the CWI. If notice is given without prior consent it can be nullified by the employee as was done in the instant case. The employment should thus be deemed to have continued and salary continues to be due.

Effect on employers

Regardless of the choice of law in the employment contract, certain Dutch law provisions on termination of employment may supersede the chosen foreign law.

Ruling on Issue 2

The court ruled that the Dutch law provision allowing court rescission is ‘mandatory’ law in the sense of the Convention. The court however also ruled that, in relation to article 6 of the Convention, only the employee may invoke the relevant Dutch law provision, regardless of the chosen (foreign) law. Article 6 of the Convention does not grant the company the right to invoke those same provisions. As a consequence of this ruling, an employee is at all times authorised to request a Dutch Court to rescind the employment agreement, provided that Dutch law would have been applicable in the absence of a choice of law.

Effect on employers

Regardless of the choice of law in the employment contract, only the employee may invoke certain Dutch law provisions on termination of employment. If the employing company also wishes to retain the option to invoke such Dutch law provisions, it should ensure that Dutch law exclusively governs the contract.

Case law

International employment relations and social security premiums

Case

A German company employed a Dutch national to work in The Netherlands. The German company withheld German social security premiums from the employee’s salary. The employee claimed repayment of the withheld German premiums.

Applicable law

Based on Regulation (EEC) No 1408/71 on the application of social security schemes to employed persons and their families moving within the European Community (the “Regulation”), the principal rule is that a worker employed in the territory of one Member State shall be subject to the legislation of that State even if he resides in the territory of another Member State or if the registered office or place of business of the undertaking or individual employing him is situated in the territory of another Member State. Although the Regulation allows for exceptions to the principal rule, those did not apply to the instant case.

Ruling

The Dutch court recently ruled (in appeal proceedings), that, based on the Regulation, the German company erroneously withheld German social security premiums and that the relevant amount should be repaid to the employee, without the option of setting-off that amount against any Dutch social security premiums that might have been due.

The German company argued that it erred on the question of the applicable social security system as a consequence of incorrect information provided by the German social security authorities and that the company could thus not be ordered to repay the amount to the employee. The court set aside that defence by arguing that it is the responsibility of the employer (as a ‘good employer’) to ascertain which deductions need to be made.

Effect on employers

Employers should be aware that it is their responsibility to ascertain what deductions need to be made and that they will be obliged to repay any erroneously withheld social security premiums to the employee. Further, employers cannot retrospectively recover the premiums due under the Dutch social security system from the employee.

Authors

Philip Hartman

Partner
Netherlands

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