Termination of employment in the Netherlands

Employment law in the Netherlands offers far reaching protection to employees with respect to dismissal and termination of their employment. Generally there are four ways to terminate an employment contract:

1. by mutual consent
2. by permission from the Dutch Employment Insurance Agency (UWV WERKbedrijf)
3. by dissolution of the contract by the cantonal court
4. by summary dismissal for urgent cause.

Termination of employment under Dutch law by mutual consent

In many cases employer and employee opt for termination by mutual consent (beeindiging met wederzijds goedvinden) and agree to an amicable settlement. In such cases, no prior permission is required from the authorities. Employer and employee must agree a written settlement agreement (vaststellingsovereenkomst) regarding termination and severance pay to satisfy the employment authorities that dismissal is not due to the fault of the employee, thus curtailing his or her right to unemployment benefit. The employee has a reflection period of 14 days from signing an agreement to terminate employment within which the employee may rescind the agreement.

Termination of employment under Dutch law by permission of the UWV

If the employer wants to give notice to an employee on economic grounds or after a period of illness of more than two years, the employer will first have to obtain permission to terminate the contract from the Employment Insurance Agency (UWV WERKbedrijf). Notice given without such permission is null and void.

The UWV reviews whether there are valid reasons for termination, such as company restructuring or closure. The grounds for termination must be substantiated with sufficient evidence, such as recent company accounts, prognoses etc.

The employee may file objections to the request and in total it takes 8 to 12 weeks for the UWV to decide whether to grant permission. Unless there are clear grounds for dismissal, the UWV may, however, refuse permission.
Once permission has been obtained, the employer may give notice. At the end of the notice period (opzegtermijn), the contract will be officially terminated and no further compensation is due.

If the employee has been employed by the company for more than two years severance pay is due to the employee upon termination of the employment contract.

Dissolution of employment under Dutch law by the cantonal court

If an employer has other grounds for terminating the employee's contract, the employer must apply for leave to dissolve the employment contract through the courts. If, for example, an employee is structurally underperforming or has been accused of gross negligence, then the courts must be applied to for a dissolution.

Severance pay is due to the employee with over two years of service unless the employee is to blame for the circumstances leading to the request, in which case compensation can be set at zero.

Severance pay under employment law in the Netherlands

As of 2015 severance pay under Dutch law (transitievergoeding) has been set by the government and is due irrespective of which route termination takes (via agreement, permission or court order).

The calculation of severance pay is as follows:

1. 1/6 gross monthly salary (including holiday pay, fixed bonuses etc.) for every six months service during the first 10 years of employment;
2. 1/4 monthly salary for every six months service thereafter;
3. If an employee is over 50, they are entitled to one full months' salary per year served over the age of 50 (this rule will expire in 2020).

The award is capped at € 75,000 (plus indexation as of 2016) or a years (gross) salary, whichever is greater. There are also some special rules for small employers and companies in serious financial difficulty, but in most cases the above will be applicable.

The protection against dismissal extends further: in cases of unfair dismissal or gross misconduct by the employer, the courts may award an equitable amount of extra severance pay to compensate the employee. As this legislation is relatively new, there are no exact guidelines in place yet as to when an equitable award will be granted. These damages are not capped.

Summary dismissal of an employee in the Netherlands for urgent cause

Under Dutch employment law, an employer may dismiss an employee for an urgent cause with immediate effect, in case of serious misconduct. Summary dismissal for urgent cause (ontslag op staande voet) is used in cases of theft, fraud, situations immediately endangering others, repeatedly refusing to follow urgent instructions etc.

Summary dismissal is the heaviest sanction that an employer can invoke, so the reasons for dismissal must warrant that the employer in all reasonableness cannot tolerate the employee on the work floor anymore. In such cases no prior permission by the courts or Employee Insurance Agency is required. However, the employee must be notified forthwith about the dismissal and can dispute the urgent cause. As the employee will forfeit all rights to unemployment benefit if the dismissal stands, in most cases the employee will contest the dismissal. In such cases, it is often wise to file a conditional petition for dissolution of employment, in case the employee is reinstated by the court.

As an experienced employment lawyer in the Netherlands, I am able to advise clients on all aspects of termination of employment under Dutch law. I would be happy to discuss further details regarding this.