Employment Update, The Netherlands - May 2008

06 May 2008

Marlie Koopstra, Stella Evers, Rogier Keuning

Reclamation of study costs unreasonable when fixed term contract is not extended on initiative of employer

Facts

The employee was informed by his employer that his contract would not be renewed in view of unsatisfactory performance.

During his employment the employee received external training. The costs thereof were borne by the employer. Parties concluded a contractual arrangement pursuant whereto part of the study costs should be re-paid if the fixed term employment contract would not be renewed or if the employment contract would be prematurely terminated by employer or employee. Based on this arrangement the employer re-claims 80% of the study costs from the employee.

In the subject court proceedings the employee argued that reclamation of the study costs is in violation of the principles of reasonableness and fairness as the employer decided not to extend the employment.

Ruling

The court ruled that as such it is not unreasonable for an employer, who invested in an employee, to seek an earn back on the investment by attempting to bind that employee to the company by means of a repayment arrangement on study costs. Enforceability of such arrangement will not be unreasonable if the employee resigns or if the employee is to blame for the termination of the employment on the employer’s initiative.

However, in this situation the employer took the initiative to not extend the employment and, with that, accepted that its investment would not be earned back. According to the principles of reasonableness and fairness the employer cannot invoke the repayment arrangement, even though it was clearly formulated and agreed upon.

What does this mean for you?

Employers should be aware that it will not always be possible to invoke a contractual arrangement that is detrimental to employees upon termination of employment, even if such arrangement has been clearly formulated and agreed upon. Whether invoking such arrangement is acceptable, will depend on the specific circumstances of a case.

Employees with multiple employers and legislation regarding working hours

Background

Dutch law allows each party to an employment agreement to request court rescission of the employment at all times.

Within the European Union all legislation regarding the maximum number of working hours is based on the Working Time Directive, which sets a 48-hour maximum working week, including overtime. The Dutch implementation legislation of the Directive, the Working Hours Act, sets a maximum of 768 hours per 16 weeks, which on average also boils down to 48 hours per working week.

Dutch law does not prohibit an employee from having simultaneous employment agreements with two or more different employers.

Case

A Dutch employee is employed by Employer X for 32 hours per week. The employee is also employed by employer Y, for 38 hours per week.

At some point in time employer X requests the employee to change one of his employment relations such that the aggregate number of working hours will no longer exceed the maximum. Employer X bases its request on the Dutch Working Hours Act, the business interests of the company and the company’s obligation to look after the interests of its employees.

When the employee does not comply with Employer X’s request, employer X decides to unilaterally reduce the number of working hours under the employment agreement to 8 hours per month.

After a court ruling which nullified the unilateral change, employer X requested the court to rescind the employment, stating that the labour relation with the employee was irreparably disturbed, since the employee had not informed employer X of his second employment relation.

Ruling

The court rescinds the employment agreement with immediate effect, considering that the employee cannot expect his employer to continue the employment relation in violation of the Working Hours Act. The court does not award a severance to the employee, since the cause for the rescission is fully attributable to the employee.

What this means for you

Employers should be aware that it will depend on the circumstances of each case whether or not they may terminate an employment agreement based on exceeding the statutory maximum amount of working hours. Whether or not the employee has informed his employer(s) of his multiple employment relations seems to be an important factor in this respect.

Need for consultation with the Works Council with respect to a share transaction at the level of the holding company?

Background

In general there will be a need to consult with the Works Council of a Dutch company with respect to a contemplated decision to sell and transfer the shares in the Dutch company. Generally, the need for consultation with the Works Council was also assumed if, instead of the shares of the Dutch company, the shares of a (foreign) holding company were sold, as such would equally lead to a change in the (ultimate) control over the Dutch subsidiary, especially if there were any major influence of the holding company on the policies conducted within the Dutch company and/or if individuals within the holding company also held positions within the Dutch company and/or if directors of the Dutch company were involved in the decision making process at holding level. Recently however, the Enterprise Section of the Amsterdam Court of Appeal ruled that the scope of the exception to the need to consult at the Dutch subsidiary’s level is bigger than previously assumed only if the shares of the foreign holding company are sold.

Case

A Dutch company (“DutchCo”) is, through several holding companies, controlled by a foreign holding company (“Holding”). The sole shareholder of the Holding is an individual who is also a member of the supervisory board in DutchCo. The sole shareholder of the Holding decides to sell his shares in the foreign holding company to a third party. The DutchCo’s Works Council appeals to the Enterprise Section of the Amsterdam Court of Appeal arguing that it should have been consulted on the decision to sell/transfer the shares in the Holding and thus on the transfer of (ultimate) control over the DutchCo. The Enterprise Section of the Amsterdam Court of Appeal ruled that, as the sale/transfer of the shares will take place at the level of the (foreign) Holding and its sole shareholder, it should be investigated whether the Holding company and its sole shareholder should be considered co-entrepreneurs. The court ruled that the Holding and the individual ultimate shareholder could not be considered co-entrepreneurs and that consultation with the Dutch Works Council was not required, since in the court’s view the Holding and its sole shareholder did not have substantial influence within DutchCo, regardless of the 100% shareholder’s control and the supervisory board membership, and since the decision to sell/transfer the shares in the Holding would not have an immediate and direct effect on the DutchCo.

The court in an obiter dictum indicated that the outcome may be opposite if it were to be found that a holding structure had been set up with the intention to avoid the need for consultation within DutchCo.

What this means for you

In case of a share transfer at the level of a (foreign) holding company, consultation with the Works Council within a Dutch subsidiary may not be required, unless a holding structure had been implemented (solely) to avoid consultation at the Dutch level. Consultation will most likely still be required if the share transfer would have an immediate and direct effect on the Dutch subsidiary, e.g. and in case of an announced subsequent merger or reduction in force.