Significant change is on the horizon for the methods and rules that manage fixed-term contracts within the Netherlands. The changes are a result of the Dutch Senate and the execution of the ‘Work and Security Act’, applied in June 2014.
The reasoning behind the implementation of the June 2014 act is to clamp down on the gap between permanent and flexible employment, which is viewed as a huge issue for the authorities while also preventing abuse of the current regulations.
The biggest change is on the ‘Transition Payments for Termination of Employment’, due to take place from the 1st of July 2015. This change results in a statutory transition payment for employees who have been contracted out for more than 24 months should their contract not continue; either on the initiative of the employer or under circumstances where the employer is at fault.
The financial amount making up the payment depends on the number of years employed for the company or agency. For example, during the first decade a 6th of the monthly salary will be due for each half-year of employment with the agency or company. After this, a quarter of a monthly salary will replace the previous amount if employed there for over ten years. However, there is a cap on compensation for top end salaries, over EUR 75,000. At the other end, small businesses are allowed to pay out lower amounts of compensation should they have to dismiss staff due to poor financial situations.
A further scheme allows employees aged 50 and over to receive half of their monthly salary for each set of six months employed beyond their 50th birthday. In relation to small businesses this over 50’s scheme is non-applicable. This will be allowed up until the 1st of January 2020.
While not yet cemented in place, it is predicted and expected that the normal rates of social security and tax will be applied onto these payments. The ongoing analysis concludes that only contractors working for over 24 months in the Netherlands will be affected by this change.
A further change is to the ‘Restriction of Probationary Periods’. This will take effect as of January the 1st, 2015. This highlights that any fixed-term contracts finished after the 2015 date should not include a probationary period at all. If, after this date, there is a probationary period then it is not deemed valid. The main impact with this legislation change is that contracts will need to written up in a different manner; something concerning all contractors in the Dutch market place but not expected to have an impact on the demand for contractors.
A further law to change on the 1st of January 2015 is the ‘Restriction of Non-Competition Clauses’.
This amendment outlines that any fixed term employment contract wrapped up after the start of 2015 will not include any non-competition clause unless it can be shown that the clause is vital or necessary for reasons that could affect the employers business or company. This has only been announced so far, no examples have yet been given and therefore the final result of this change is hard to assess until working cases pop up through time.
The impact this will have is unclear, so experts can only speculate. However, in the light of the other legislative changes, the insertion of non-competition clauses in order to protect a business, agency or payroll provider is not going to be accepted as a valid reason not to include the new legislative requirement. In the end, it will most likely boil down to the upstream providers to manage the risk – as this is the case in other countries such as Switzerland.
Changes are also being applied to ‘Notification Obligations’, also commencing from January 1st 2015. This includes all on going contracts. It’s a big one, with any fixed or long-term contract of employment longer than six months
This is a big one, as any fixed or long-term employment contract that is longer than half a year or six months required to be extended or cancelled in writing no later than a month before the end of the contract. The written notice will also need to include all conditions and clauses for any extension granted. Failure to do so will result in the employer paying a full one-days gross salary for every day throughout the delay. Should the employer completely fail to provide notice then the contract will continue under the same terms as the contract previously.
This legislation update is a touchy one, with contractors and business owners stating that the new law will defeat the point of a fixed-term contract. It will also, therefore, be up to the employers to manage their staff or workforce and the requirements of their clients; to avoid falling foul of this charge.
Finally, the ‘Limitation of Successive Fixed-Term Contracts’ is being modified to take effect July the 1st, 2015.
Hereby, employees can be given a maximum of three fixed-term contracts over a maximum of two years before their employment is considered permanent. Once considered a permanent employee, he or she will be entitled to all benefits and rights. In order to not be considered consecutive, the period in between contracts will need to be 6 months.
Fixed-term successive contracts have always been a very important aspect, not just in Dutch employment law but also in the eyes of the Dutch authorities. This new and restrictive change is intended to encourage employers to be cautious of using a temporary workforce with the result being that businesses are encouraged to work with a higher staff turnover, rather than a high conversion rate to permanent employment. However, only time can tell what this change will result in.
The long-term impacts from all of these changes will likely only be made clear once the following year is over with teething problem and issues ironed out, paired with the intricate rules revealed.
The Netherlands has, for a long time, attracted all nationalities and is viewed as a very attractive place to for international contractors to work and this is highly unlikely to change. However, these changes within the new ‘Work and Security Act’ bill are going to draw wide scale attention to the complex procedures of doing business within Dutch Borders and the vital need for expert assistance when setting up a payroll service, or starting work in The Netherlands.