Employee dismissals on the basis of company economic grounds occur relatively often. In this article, you can read about the important aspects of it.
COMPANY ECONOMIC GROUNDS
Dutch employment law includes a company economic ground for dismissal, that can be divided in several concrete situations:
- Poor or worsening economic situation of the company;
- Significant reduction of work to be done within the company;
- Organizational or technological changes that requires a different attribution of work;
- Relocation of the business;
- Termination of (a part of) the business;
- Expiration of wage subsidies by the Dutch government.
In a situation of declining results, there can be a ground for dismissal. However, a bad financial situation is not always required: an organizational change to accomplish greater efficiency can a sufficient cause for a reorganization.
WHO HAS TO LEAVE THE COMPANY?
After the decision on behalf of the employer to reorganize the workforce of the company, the employer should determine which positions need to be discontinued. First, the employer should look into which positions are “interchangeable”, which entails that positions are similar as to its content, required knowledge, skills and competences, temporary or structural nature of the position, level in the company and remuneration.
To determine whether positions are interchangeable, one can look into mutual substitution of people in certain positions because of illness and holidays. If there was such substitution, that is an important indicator for interchangeability.
These comparisons should be done per branch of the company. A branch under Dutch employment law is a part of the company that can be identified by third parties as autonomous entity: for instance a branch office in Amsterdam, and one in Rotterdam.
FLEXIBLE STAFF HAS TO LEAVE FIRST
Before employees with an employment agreement can be dismissed, temp workers have to be dismissed. Employees with a temporary contract of less than 26 weeks to go, have to be told their contract will not be extended. Temp or agency workers have to be dismissed as well, which will mostly not offer any challenges because of the nature of these contracts.
APPLYING THE “REFLECTION PRINCIPLE”
After the flexible staff have been removed, the “actual” workforce has to be assessed. How to determine with employees will need to leave? This happens on the basis of the “reflection principle”. There are 5 relevant age groups:
- 15-25 years
- 25-35 years
- 35-45 years
- 45-55 years
- 55 years up to pensionable age
The point of the age groups is to come to a balance as to the employees that will need to leave. This is to prevent a situation where all older employees or all younger employees in a certain position have to leave the company.
Suppose that there are 3 employees with the same (interchangeable) position. 2 of these employees are in the age group 25-35 years. 1 of the 3 employees is in the age group 45-55 years. The employer has determined that one of the 3 positions is discontinued. The employee in age group 25-35 years that has the least service years has to go. In this way, a balanced result is achieved.
There are some exceptions as to this principle. The employee that is pensionable can be excluded from this equation and has to let go. On the other hand, the employees that enjoy protection from the “dismissal obstacles” (opzegverboden), such as illness or the membership of a works council, are left out of the equation.
The employer can furthermore make an exception for the best employees in the company. The employee that has unique knowledge and skills and which is indispensable, can stay (despite having to leave at first glance on the basis of the reflection principle). The employer has to make a convincing case that he absolutely cannot miss this employee.
Ill employees and members of the works council enjoy protection by dismissal obstacles (opzegverboden). They can only be dismissed in the event of closure of the whole business. Employees that become ill after the request at the UWV has been filed do not enjoy this protection.
The pregnant employee also enjoys protection by dismissal obstacles, unless the whole business closes (or at least the part in which the employee is employed).
As with all dismissal grounds, the employer has the obligation to look for alternative positions for the employees that lose theirs. The employer should look whether there is a suitable position available. If a redundant employee is kept outside the candidate selection process, this may result in rejection of the dismissal request by the UWV or the Court.
It should be possible to realize the alternative employment within a reasonable period. The applicable notice period for the employer is the reasonable period for alternative employment. For instance, if the applicable notice period is 4 months (employee has 15 or more service years) and there is an available position (in which the employee can get adapted within these 4 months), this position should be offered to the employee.
IMPLEMENTATION OF THE REORGANIZATION
How is a reorganization implemented? First, the employer should start drafting a plan. This plan should contain the rationale for the dismissal of employees: for instance the closure of a branch office. The plan should also contain which (interchangeable) positions will disappear and how the reorganization is in the interest of the business.
Usually, the initial implementation boils down to come to a settlement with as many employees by means of settlement agreements. An employer can choose to include a signing bonus for the employee (which applies in the event of an agreement, but not in the case of proceedings), to maximize the number of employees agreeing to their dismissal.
If no agreement can be reached with the employee, the employer can request for permission to give notice at the UWV, a government agency. UWV proceedings typically last 6 to 8 weeks. If the employer proves there is a ground for dismissal on company economic grounds (for instance closure of the branch), the UWV will in principle provide the employer with permission to give notice to the employee.
This permission enables the employer to give notice to the employee, within 4 weeks after it is granted. The employer should still observe the applicable notice period: for an employee with a service record of more than 10 years, the statutory notice period is 3 months.
The employer is not allowed to hire someone else in the same position within 26 weeks after the dismissal.
TAKING THE MATTER TO COURT
If the UWV refuses to give permission to give notice, the employer can request the Court to terminate the employment agreement with the employee. As to company economic grounds, the Court is bound to the exact same rules as the UWV. The dismissal obstacles (illness, pregnancy, membership of the works council) are applicable as well. What’s different from the UWV proceedings is that the Court can award an additional severance compensation (billijke vergoeding) for serious misconduct on behalf of the employer.
If the employer receives permission to give notice from the UWV, the employee can still go to Court to challenge the dismissal. He can also request the Court to grant an additional severance compensation (billijke vergoeding).
For a business of more than 50 employees, the employer should seek advice of the works council. In the request to the UWV, the employer should point out whether this has been done. After seeking the advice of the works council, the employer has to abstain from implementation of the reorganization for one month. If the employer does not take this waiting period into account and files the request at the UWV, it will deny the request. This will result in wasted time for the employer in distress. Therefore, it is recommended to seek timely advice of the works council.
COLLECTIVE REDUNDANCY NOTIFICATION ACT
In the event the employer plans to dismiss more than 20 employees within a 3 month time frame, he is required to give notice about this to the unions and the UWV. After this, there will be a waiting period of one month during which the dismissals cannot be effected.
A “social plan” can be agreed upon with the union(s). This agreement contains provisions as to the reorganization and the conditions that apply to the employees involved. Topics that can be included in the social plan are severance payments, notice periods, voluntary departure and outplacement.