Labour aspects of reorganisations in the Netherlands

Labour aspects of reorganisations
in the Netherlands
Progress through innovative employership
Colophon
Text:
Ian Lendering
Design:
Julian Huiswoud
(JayD-sign)
Printing:
AWVN, Den Haag
2 / Labour aspects of reorganisations in the Netherlands /
Labour aspects of
reorganisations in
the Netherlands
This brochure looks at labour law
aspects of reorganisations. As used
here, a reorganisation is defined as a
major structural change and not the kind
of minor changes that occur routinely
at most organisations. In other words,
the article is about processes resulting
in the reassignment or redundancy of
groups of employees.
A reorganisation is a complex,
delicate process both for management
and for the employees and their
representatives.
A successful reorganisation depends
largely on how much effort management
puts into the preparatory phase and
into addressing the interests of the
parties affected. When planning a
reorganisation, a number of statutory
rules and customs have to be observed
in the Netherlands. Over the years,
an open approach to this matter has
evolved in Dutch labour relations.
In this article we will examine the
employer’s obligation to consult with
employees’ representatives, the
dismissal procedure and the social plan/
redundancy scheme. New legislation
that came into force on 1 July 2015
(‘Wet werk en zekerheid’) has a
major impact on dismissals and by
consequence on reorganisations. Below
we will briefly outline how the new
legislation impacts on reorganisations.
/ Labour aspects of reorganisations in the Netherlands / 3
1. Obligatory consultation with
employees’ representatives
Any reorganisation starts with a
decision-making process within the
company. On completion of the process
it is possible to resolve to reorganise
and embark on the phase of negotiating
with employee’s representatives (works
council and unions).
Works Council
The final decision to reorganise
cannot be taken until after the works
council has formally given its opinion,
or ‘advice’. The Works Councils Act
stipulates that this advice must be
sought ‘in good time’. By law the works
council’s advice must be allowed to
have a significant effect on the final
decision to reorganise.
The request for advice submitted to the
works council must be accompanied
by a review that sets out the grounds
for the decision to reorganise, the
foreseeable consequences of the
reorganisation for employees and the
measures to be taken to address those
consequences. A works council usually
enlists the support of an independent
expert during the advisory procedure,
especially where the proposed
reorganisation will seriously affect
employees.
The law does not impose a timeframe
within which the works council
must put forward its advice. Factors
4 / Labour aspects of reorganisations in the Netherlands /
affecting the duration of the advisory
procedure include the complexity and
length of the proposal and the facilities
afforded to the works council, e.g.
how quickly additional information is
provided, exemption from normal work
for works council members and the
hiring of experts. The need to carry
out a reorganisation quickly, perhaps
to ensure the company’s survival, can
incentivise the works council to speed
up its advice. It is not unusual for an
advisory procedure to take up to two or
three months.
The employer may start the
reorganisation immediately after
receiving positive advice from the works
council. But the employer must observe
a waiting period of one month if the
work council’s advice is negative. The
waiting period is designed to allow the
works council to object to the employer’s
intention to reorganise by placing the
matter before the Enterprise Division
of the Court of Appeal. The Enterprise
Division examines mainly the formal
aspects of the advisory procedure,
e.g. whether advice was requested on
time and whether the works council
received sufficient information to give
its advice. But the Enterprise Division
also looks at whether the employer’s
decision was sufficiently substantiated.
The Enterprise Division may rule that
the proposal is unreasonable and it
holds the power to order the employer to
cancel the intended reorganisation.
Unions
How quickly a social plan can be agreed
with the unions is another important
factor affecting the duration of the works
council advisory procedure. Whereas
the works council will focus on the
economic and financial aspects of the
reorganisation and the consequences
for the workforce, the unions will usually
concentrate more on the social plan to
mitigate the social and financial effects
of the reorganisation for the employees.
The dividing line between subjects
discussed with the works council and
subjects discussed with the unions is
not always clear. But generally speaking
the works council and the unions will
maintain close contacts with each other
with the common goal of getting the best
outcomes on both negotiating tables.
Although there is no legal obligation to
reach agreement with the unions on
a social plan, there is sometimes an
obligation to discuss the social issues
of the reorganisation with them. This
obligation exists under the Collective
Redundancy (Notification) Act whenever
the employment contracts of 20 or
more employees will be terminated
(including terminations by mutual
consent) over a period of three months
within a particular region. Moreover,
many collective labour agreements
contain clauses obliging the employer
to notify the unions and discuss with
them the social issues of any planned
restructurings.
Negotiating with the unions can be
conducive to securing the employees’
acceptance of the necessity of the
reorganisation, the advisory procedure
with the works council and the
procedures for individual redundancies.
Reaching a ‘good deal’ with the unions
also helps to avoid some of the bad
publicity that often comes with collective
redundancies. This is one of the
reasons why notably large companies
are inclined to negotiate with the unions
on a social plan.
2. Dismissal procedure
Under Dutch law employees due to be
made redundant must first be listed
in categories of interchangeable jobs/
positions arranged according to age
brackets. This boils down to applying
the last-in, first-out principle in a way
designed to ensure that after the
reorganisation the age distribution of the
workforce mirrors the age distribution
before the reorganisation. The age
brackets are 15-24, 25-34, 35-44, 4554 and 55 to statutory retirement age.
New legislation that came into force
on 1 July 2015 allows minor deviations
from this mirroring principle, but only
within the context of a collective labour
agreement.
Negotiating with the
unions can be
conducive to securing
the employees’
acceptance of the
necessity of the
reorganisation, the
advisory procedure
with the works council
and the procedures for
individual redundancies
Until 1 July 2015, an employer in the
Netherlands that wanted to dissolve
an employment contract had two
options. The first was to apply to
UWV (the government department
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that administers social insurance
entitlements for workers) for permission
to dismiss the employee. The second
was to ask a Sub-District Court to
dissolve the employment contract.
This option ceased to exist on 1 July
2015. Dismissal on economic grounds
must now be channelled through the
UWV. In the new situation a SubDistrict Court may dissolve employment
contracts solely on personal grounds
such as incompetence. Also new is
the right to appeal against UWV and
Sub-District Court decisions. While
it remains possible to terminate an
employment contract with the mutual
consent of employer and employee, the
employee has the right to set aside the
settlement within two weeks of signing
the agreement.
It is a legal requirement to notify UWV
and the unions if 20 or more employees
are due to be made redundant within a
period of three months within the same
region (see above). After being notified,
UWV will not be able to deal with the
individual dismissals for a month, unless
the unions confirm that they have been
informed of and have no objection to the
dismissals.
Until recently, the UWV procedure
could take up to eight weeks. Since
1 July 2015, the procedure has been
shortened to four weeks (in most cases),
or seven weeks if a second round of
deliberations is requested. After UWV
6 / Labour aspects of reorganisations in the Netherlands /
has given permission, the employer can
terminate the employment contract with
the customary period of notice. Since
1 July 2015, it is possible to deduct the
time taken for the UWV procedure from
the period of notice (subject to minimum
notice of one month).
The simplest way to dissolve an
employment contract is by mutual
consent between employer and
employee. This obviously presupposes
that the employee agrees to termination
of his or her employment. Terminating
an employment contract by mutual
consent does not impair the employee’s
entitlement to statutory unemployment
benefits (subject to compliance with the
legal requirements for such cases).
3. Social plan/redundancy scheme
Dutch law does not directly require
an employer to have a social plan
for a reorganisation. A company that
needs to put in place a social plan will
usually negotiate with the unions. The
parties concerned will treat the social
plan as a contract just like a collective
labour agreement. Occasionally, a
social plan will be negotiated with the
works council, or drawn up unilaterally
by the employer. Not negotiating with
the unions has several advantages.
In large measure the employer can
then determine the terms and level
of provisions it considers necessary
and proper. However, a social plan
not negotiated with the unions can
undermine workforce motivation, thus
adversely affecting the restructuring
process. In general, redundancy
operations go more smoothly when a
social plan has been negotiated with the
unions.
Negotiating a social plan with the unions
used to have an additional advantage
when an individual employee went to
court for higher redundancy pay. The
court would not deviate from a social
plan brokered with the unions unless
particular (individual) circumstances
dictated otherwise. However, the new
legislation brought in on 1 July 2015 has
limited the power of Sub-District Courts
to set compensation.
Factors influencing the level of
redundancy payments
In the past (before July 2015) there was
no legal framework determining either
the content of a social plan or the size
of redundancy payouts. Typically, a
social plan would contain one or more
of the following provisions: redundancy
payouts, supplementing statutory
benefits (temporarily) after dismissal,
relocation/outplacement and retraining.
The new legislation that came into force
on 1 July 2015 introduced a statutory
redundancy payment called ‘transitional
compensation’. Employees are legally
entitled to transitional compensation
(after completing 24 months of service)
if the employer dissolves the contract.
The transitional compensation equals:
• one-sixth of monthly salary for each
full six-month period for the first
10 years of employment
• one quarter of monthly salary for each
subsequent period of six months.
Temporary compensation will apply
until 2020 for employees older than
50 with at least 10 years of service.
The temporary compensation for older
employees is half the monthly salary for
the years of employment from age 50
onwards.
In general, redundancy
operations go more
smoothly when a
social plan has been
negotiated with the
unions
Transition compensation has been
capped at € 76.000 (2016), or one
annual salary for salaries in excess
of the top limit. However, there is no
top limit relating to loss of income until
retirement age.
Contrary to past practice (before
July 2015), the Sub-District Court
may only depart from the transitional
compensation in the event of serious
culpability on the part of the employer
or the employee. On the other hand,
employees and unions are free to
negotiate compensation higher than the
statutory transitional compensation.
Under certain conditions, the following
costs are deductible from the
transitional compensation:
1. costs relating to termination of the
contract of employment aimed at
preventing or limiting the period of
unemployment
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2. costs incurred during the last 5
years of employment to promote the
employee’s general employability.
The new transitional compensation
is based on the Social Agreement
of 11 April 2013 negotiated by
employers’ organisations, unions
and the government. That is why
the unions have formally backed
the new legislation and transitional
compensation. However, the transitional
payout is substantially lower than the
Cantonal Court formula. The question
is whether union backing for the
transitional compensation at national
level will be reflected by union practice
at company level when negotiating
social plans for reorganisations.
The present costs of collective dismissal
in the private sector are determined
largely by the widespread application
of the Cantonal Court formula (widely
known in the Netherlands as the
‘kantonrechtersformule’). The Cantonal
Court formula is calculated as follows:
A x B x C.
A = Years of service with the company:
• y ears of service until age 35 count
for 0.5
• y ears of service between 35 and
45 count for 1
• y ears of service between 45 and
55 count for 1.5
• y ears of service as of 55 count
for 2.
B = Monthly salary, including holiday
8 / Labour aspects of reorganisations in the Netherlands /
allowance, shift allowance and other
structural wage components.
C = Correction factor, whereby 1 is
considered to be neutral where no
exceptional circumstances exist.
The correction factor in social plans
varies roughly between 0.5 and
1.5, depending on circumstances.
Redundancy payouts based on the
Cantonal Court Formula are capped
by relating them to loss of income until
statutory retirement age.
The provisions contained in social
plans and the size of redundancy
payouts both tend to vary according
to circumstances. A number of factors
can influence the sort of provisions
contained in a social plan and the size
of redundancy payouts:
• nature of the reorganisation
(downsizing, closure, etc.)
• reason for the reorganisation
• sector (industry, services, etc.)
• size of the company
• labour relations
• timeframe
• region
• personal factors: the characters of
the managing director and chief union
negotiator.
As a rule, unions will press for higher
redundancy pay in the event of a
closure. From their point of view,
there is nothing to lose by demanding
high redundancy payouts, because
there is no longer any danger of the
costs resulting from the social plan
jeopardising the continuity of the
company. This is particularly true
when the company is a subsidiary of
a multinational and where, in the view
of the unions, the closure is the result
of policy decisions at head office and
has nothing to do with the particular
circumstances of the subsidiary. This
problem is compounded when both the
group and the subsidiary are profitable.
The argument that closure is necessary
for future profitability often fails to
convince the unions or the employees
of the necessity to shut down that
particular subsidiary at that particular
time.
The size of redundancy payouts under
a social plan also varies according to
sector and region. As a general rule,
redundancy payouts in industry are
higher than in the services sector,
with the exception of banking. This
difference probably stems from the
proportion of labour costs in the total
costs of industry and services.
multinationals tend to shy away from
the kind of bad publicity that collective
redundancies often attract.
It is notoriously difficult to predict the
outcome of social plan negotiations
with unions because of the numerous
factors involved. However, the factors
mentioned above may provide a pointer
as to what unions might consider
‘reasonable’ given the circumstances
in which the company finds itself.
When negotiating/agreeing higher
compensation than the current
transitional compensation, it is important
to make the transitional compensation
part of the overall package to eliminate
the risk of liability for the transitional
compensation on top of the agreed
amount.
The size of
redundancy payouts
under a social plan
also varies according
to sector and region
Multinationals and large corporations
typically provide relatively high
redundancy payouts (and other
provisions) when reorganising or
restructuring. The reason for the
relatively generous payouts offered
by multinationals is roughly twofold.
First, the unions are determined that
the money for a ‘good’ social plan
should be found somewhere within the
company. Second, as mentioned earlier,
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/ Reorganiseren / 11
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