Europe, Euro financial crisis, pension age, healthcare; a few hot topics during the Dutch Parliamentary elections 2012. Another main issue during the political campaigns this summer was reform of the Dutch dismissal law. This blog will briefly give a broad outline of the dismissal system in the Netherlands and the plans for reform.

Not only in the Netherlands, but also in other countries, employment flexibility is important. Globalization destabilizes traditional employment patterns and more workers are likely to face involuntary termination of employment. At the same time, the flexibility to reduce staff and to dismiss unsatisfactory workers is a necessary measure for employers to keep enterprises productive. So for governments in general, it is important to find the balance between maintaining the employer's right to dismiss workers for valid reasons and ensuring that such dismissals are fair and are used as a last resort. This to prevent a disproportionate negative impact on the worker.

Why does the dismissal law system in the Netherlands need reform and should be more flexible? Will this reform result in more productivity and economic growth?

The reform plans are the working-out of the so-called ‘Lenteakkoord’ (Spring Agreement) in June 2012 by the Dutch political parties, VVD, CDA, D66, GroenLinks and the ChristenUnie. The Spring Agreement provided outlines to relax the conditions to dismiss permanent staff.

Mobility

According to the former Minister of Social Affairs, Henk Kamp, there is little occupational mobility in the Netherlands. The reform would increase the Dutch labour productivity by +0.4%, equivalent to 2.5 billion Euro. This applies especially to older employees and employees with a permanent contract and is closely connected to the great extent of protection against dismissal enjoyed by these groups of employees. According to the former minister, mobility will ensure employees finding the right job to suit their abilities quicker and easier. The recommendations will also ensure the divide between permanent and temporary contracts to become less and provide more schooling.

Dutch labour and employment law does not consist of separate laws but is included in the Dutch Civil Code, Burgerlijk Wetboek (Boek 7:610-686 BW).

In the present system there are two routes for dismissal. The employer can ask the district judge to set aside the employment contract or he/she can ask the public benefit authority (UWV) for permission (a dismissal permit) to terminate the employment contract. Following the ‘Lenteakkoord’, former Minister Kamp reverses this procedure. He believes that there should be just one main route for dismissal. Dismissals will also no longer be tested in advance by the district court or UWV:  the employer can cancel an employment contract after having heard what the employee has to say on the matter.

Dismissal

An employer will be allowed to dismiss an employee with a 2 month term of notice without a preceding consent from 2014 onwards. However, a hearing in which the employee may respond to the dismissal should take place. Should he or she wish to contest the dismissal, he or she will be able to do so in court. The severance pay will be turned into a ‘transition budget’ for schooling or coaching for a different position. It will amount to a quarter of a monthly salary per working year with a maximum of half a year’s salary. In the current situation, employees may receive larger amounts, depending on age and length of service.

Temporary Contract

In principle the transition budget is also meant for employees on a temporary contract. It is being looked into whether or not recently made training costs may be settled by the transition budget. Employers will be paying the first 6 months of WW (unemployment benefit). According to the former minister, this will motivate them to get the dismissed employee working somewhere else as soon as possible and will save the government 1 billion euro annually.

Various trade unions have turned against these reform plans. The objections are mainly aimed against the cancellation of the preventive dismissal review. On the other hand, a lot of political parties are aware of the need to modify the outdated dismissal system.

The former Minister of Social Affairs, Henk Kamp, has already presented a new bill before the summer and before the new parliamentary elections.

On 12th September 2012, the results of the parliamentary elections was surprising. Former Prime Minister Mark Rutte's Liberal party (VVD) has won 41 seats in the 150-member House of Representatives (Tweede Kamer), only three more seats than the rival Labour party (PvdA) of Diederik Samsom. Regarding reform of the dismissal system, the VVD supports the business and employers interests and is in favor of a more flexible system. The PvdA, the more social party, has a different point of view. They believe that reform of the current dismissal system is bad for economy and would not have the effect of stimulating mobility in the Dutch labour market. Regarding to older employees and employees with a permanent contract, employers should not just fire them. According to Diederik Samsom, employers should take more responsibility and give this group of employees more confidence. Further on employers should also invest in coaching, training and schooling. This will raise the productivity needed in the labour market!

Although the VVD and the PvdA have won the most seats in the House of Representatives, the question is, which parties will form the new Dutch government. Although both parties are pro-EU, both are very keen to be ruling the country and solve the financial crisis, in my opinion that’s about the only issues they have in common. Both parties have different point of views about lots of issues thus also regarding the reform of the dismissal system. It remains to be seen what will be the outcome of the reform. Just as the formation of the new Dutch government, I expect it to be a matter of compromises...

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