Cross-Border Catch-Up: The Complexities of Terminating Employment in the Netherlands

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Maya Barba: Welcome to the Cross-Border Catch-Up, the podcast for global employers who want to stay in the know about cutting-edge employment issues worldwide. I’m Maya Barba, and I am here with my colleague, Patty Shapiro. We’re cross-border attorneys at Ogletree Deakins, and today we’re going to do a deep dive into a fascinating and complex topic: terminating employees in the Netherlands. Thanks for joining us today, Patty. How are you?

Patty Shapiro: I’m great, thanks Maya. Happy to be here. Looking forward to our discussion. The Netherlands is a really tricky place to terminate and lots of our U.S.-based clients are often surprised to learn just how difficult it is.

Maya Barba: Let’s dive right in. To start, can you explain why terminating an employee in the Netherlands is so challenging for employers?

Patty Shapiro: Absolutely. It’s because the Netherlands has very strict employment laws that are very employee-friendly. So, employers have to adhere to a very specific set of procedures to terminate, and they include, in many cases, obtaining government permission to terminate, which is often very surprising to U.S.-based employers. And it’s a long process oftentimes, and a very technical one that has to be executed strategically to protect the business. So, it’s really that government permission component that makes it very difficult.

Maya Barba: Thanks, Patty, I understand that employees in the Netherlands are also entitled to more protections than employees maybe are in the U.S. Could you speak about those protections and why termination in the Netherlands is difficult as a result?

Patty Shapiro: Exactly, yes. Lots of employees are protected from dismissal. For example, if they are pregnant on maternity leave, if they are involved in certain roles like being a member of the company’s works council, and most importantly, if they are ill. So, in the Netherlands, you are protected from dismissal for up to two years if you are injured or ill and you continue to get paid during that time. So that’s part of what makes the termination process so tricky because somebody could just claim that they are ill and be protected from dismissal. So, you have to approach the process very strategically with that in mind so that the employee doesn’t go out and then you’re kind of stuck with them for two years or up to two years, until you can find a lawful way to terminate.

Maya Barba: Thanks, Patty. What about grounds to justify termination? What are the main grounds on which an employer can lawfully terminate an employee in the Netherlands?

Patty Shapiro: So, like in all countries, there is a way to terminate for what’s called serious cause. So that’s misconduct, right? Like theft or some sort of really breach of trust and loyalty to the company, something that’s very significant. So that though doesn’t really come up as much in practice because it’s such a high bar. What we see more of are performance-based terminations and redundancies. So, meaning that there’s been some sort of restructuring, maybe downsizing such that the employer no longer needs that position and therefore the employee of course is no longer needed. So that’s what we see most often. But both process or both grounds require government permission. They’re different procedures, which we’ll get into I’m sure in a moment, but those are the two most common grounds that we see.

Maya Barba: Can we break them down a little bit more? I’d love to start with serious cause. What kinds of actions would qualify and how would an employer prove this?

Patty Shapiro: Yeah, so serious cause is severe misconduct, a very high bar, so we’re talking theft or substance abuse. And to prove it, the employer must have clear evidence of the misconduct and demonstrate how it is so severe that continuing the employment relationship would be unreasonable. It’s a very kind of vague concept, but the underlying theme is that you have to have something concrete that you can point to and a reason that you can articulate of why this situation amounts to misconduct and serious cause.

Maya Barba: Sure. All righty. And what about for poor performance? What steps should an employer take before they can terminate somebody on that ground?

Patty Shapiro: So similarly, and you’ll see the theme here is being able to demonstrate and articulate the reason and then not just explain it, but then turn and point to evidence supporting the rationale. So, in a performance situation, that means having basically a performance improvement plan and sometimes multiple performance improvement plans because the court is going to want to see that the employer clearly explained to the employee where the deficiencies were, what the expectations were, what resources were available to the employee to improve the timeframes that they were expected to improve, that kind of thing before proceeding with dismissal. They really want to see that the employer has exhausted all efforts to make the employment work.
And then if that exists, if all of that has taken place, the employer can file a petition with the court to dissolve the employment agreement. And that starts with a pre-hearing and then possibly a court hearing where both sides actually can present their case. So, the employee does have an opportunity to present to the court why they are performing adequately or they are meeting the expectations of the job. I think it’s surprising to American employers is that it’s not just about an employee not being super good at their job and exceeding expectations. It’s about meeting the bare minimum requirements. So, you have to demonstrate to the court that the employee, despite all your efforts, hasn’t even met those bare minimum expectations. And that can be difficult.

Maya Barba: Thanks, Patty. That is quite the distinction in comparison to the U.S. and is really interesting. So, the last ground you mentioned was termination for redundancy. Could you talk through that process a little bit?

Patty Shapiro: Yeah. So, redundancy is actually maybe surprisingly the reason that we see most often for terminations in the Netherlands, likely because it’s such a high bar for both serious cause and performance-based dismissals. So, the redundancy process though is also very tricky because you need permission from what’s called the UWV, which is a government authority. It’s actually the unemployment office in the Netherlands. They’re the ones that approve those kinds of dismissals. It requires filing with the UWV. So, there’s a part A, part B, and part C. So, you start the process with filing what’s called part A with the UWV, and it’s very basic information about the employee, and it just kind of kicks things off. Strategically, it’s very important to file that before there’s a discussion with the employee about the potential redundancy because of this issue of them potentially going out sick. So, there’s a timing component that’s really critical and the case of redundancy specifically.
Once Part A is filed, there are a couple of weeks before you have to file parts B and C, which are the ones that require a lot of evidence. So, the UWV will be looking for as much evidence as you have of the rationale for the redundancy. So that can mean financial records, that can mean internal PowerPoint presentations or communications about why the company needs to do some restructuring or make some roles redundant, can be really extensive, the amount of documentation that’s needed to justify their redundancy. So, because of that, again, the theme of today, it’s all very high bar. Oftentimes what employers do is utilize that two-week period to negotiate a mutual separation agreement with the employee involved. Which is also difficult because the employee has the upper hand, right? They could simply wait out the process. The whole time they continue to be employed, they continue to be entitled to their wages, and it’s very possible that they will be successful in that the UWV will not permit the redundancy, and then the employer has to continue employing them until they can find a different lawful way and the employment relationship.

Maya Barba: Thanks, Patty for talking us through redundancy. Do employers have any obligation to look for other roles for employees?

Patty Shapiro: Yes. So specifically, in the case of redundancy, employers have an obligation to look at any vacant positions and see if an employee would be qualified or could easily be trained to be qualified for that role and then offer that role to the employee. The goal being to preserve the employee’s employment however you can. And this doesn’t mean to be clear that you have to make up a position or create a position for somebody that doesn’t already exist. But you do have to make a good faith effort to look through the vacancies and see if there would be an appropriate place for that individual within the organization. And that also includes looking at roles outside of the Netherlands. So that doesn’t mean that you would have to necessarily pay to relocate somebody, but if there is a position for example, in the U.S. that they would be qualified for, the UWV would expect you to say to them that this position exists. And if they’re interested in it, then they’re welcome to discuss transitioning there. So that often comes as a surprise as well to American-based companies.

Maya Barba: Definitely. That is not something we commonly see here in the US. And so, thanks for highlighting that distinction. So now that we’ve covered the grounds for justifying termination, let’s turn to providing notice of that termination. How does notice work in the Netherlands, and are there any specific requirements of how much notice must be given?

Patty Shapiro: Yes. So, in the Netherlands, there is statutory notice periods like you may have seen in other countries, which are based on the length of service. They typically range from one to four months. But also, sometimes employers and employees agree within the employment agreement to even longer periods of notice. So that’s something that has to be checked. In the case of performance-based dismissal or a redundancy, the notice period can run concurrent to the procedural processes we’ve discussed. However, the employees will always be entitled to at least one month’s notice at the end of that process.
So look, I know it’s a bit confusing, but for example, if you are pursuing a redundancy and the UWV process takes, let’s say three months, but the employee only has an entitlement to a two-month notice period, so the two months would run concurrent with that process. And then at the end, once you have permission to proceed with their redundancy, despite the fact that it’s already taken three months and you’ve already exhausted those two months of notice, you would still have to give the employee at least one month’s notice before the termination can take effect. So, in effect, they would receive, what is that? Four months’ notice of their termination.

Maya Barba: Thanks for going over notice, Patty. Could you next talk to me about severance? Our employees entitled to severance in the Netherlands, and are there any other entitlements such as transition payments?

Patty Shapiro: Yes. So, in the Netherlands, there is statutory severance, which is called a transition payment. And that it depends though whether you have to pay, that depends on the reason for the termination. But in the case of a performance-based dismissal or redundancy, for example, you would need to pay the transition payment, which is one-third of a month’s wages per year of service. But there is a cap, which for the year of 2024 is 94,000 euros. And then of course, at the end of employment, employees are entitled to any wages they’ve accrued through the termination date and any unused but accrued vacation pay.

Maya Barba: This has been incredibly insightful. Before we wrap up, do you have any final thoughts for employers navigating the termination process in the Netherlands?

Patty Shapiro: Yeah, I think the main takeaway is that when you have the need to dismiss somebody in the Netherlands, it’s important or critical really to be very strategic about how you approach that and how you communicate it and making sure that you have all your ducks in a row in advance to support the dismissal. And oftentimes, like I mentioned at the beginning, practically speaking, this ends with employees and employers negotiating a mutual separation agreement. So as part of this consideration in planning for a dismissal on the Netherlands should also be some thought about how much you’re willing to pay should you need to exit the employee that way. Which as you know, will always include whatever they would receive by statute, right? Because they could just wait out the termination. They would have no incentive to sign a mutual separation agreement. So, your ex gratia payment would go above and beyond whatever those statutory requirements are. So that’s something that employers often need to consider as well at the beginning of this planning process.

Maya Barba: Thank you so much, Patty. This has been absolutely fascinating. Thanks everybody for joining us for today’s Cross-Border Catch-Up. Follow us to stay in the know about cutting edge employment issues worldwide.

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