Types of employment contracts/situations

·  Employment contracts for an indefinite period of time: If the employer and the employee have not agreed on a specific duration, an employment contract is considered to be entered into for an indefinite period of time. Employment contracts for an indefinite period of time may be terminated by:

  • the death of the employee;
  • summary (instant) dismissal;
  • mutual agreement;
  • the giving of notice (employers may only serve notice on an employee if they have been granted a dismissal permit from the Dutch Labour Office – UWV WERKBedrijf - or by serving notice during the trial period);
  • cancellation by the court (also referred to as dissolution).

·  Employment contracts for a fixed period of time: Employers can agree upon three successive fixed-term employment contracts, which automatically expire after the lapse of each term. However, a successive fixed-term employment contract will be converted into an employment contract for an indefinite term if the total period of employment lasts longer than 24 months; or a fourth employment contract is concluded following three successive fixed-term employment contracts. An employer should inform the employee ultimately one month before the expiration date of the employment contract whether or not the employment will be continued and, if so, under which conditions. If the employer fails to comply with this notification obligation, he must pay a fine to the employee.

·  Trial period: The employer and the employee may agree upon a trial period. During the trial period, the employment contract may be terminated by either party, with immediate effect, without compensation, by the giving of notice. A trial period must be agreed upon in writing and must be for a ‘valid’ period of time. The valid trial period for a fixed-term employment contract of more than six months and less than two years is: one month. For an employment contract lasting two years or for an indefinite time period, the valid trial period is a maximum of two months. Trial periods in employment contracts for six months or less are invalid.

·  Employee sickness: In the event that an employee is unable to work due to sickness, the employer must, in principle, continue to pay at least 70% of the last-earned salary for the first 104 weeks (two years) that the employee is unable to work. However, the sick-pay should not exceed 70% of the social security maximum, which amounts to approximately €4,400 gross per month (2016). In the Netherlands, it is not uncommon to agree on sick-pay of up to 100% of the last-earned salary for the first 52 weeks of sickness and 70% thereof for weeks 53 to 104.

Methods of contract termination

·  Dismissal permit from the UWV WERKBedrijf: Employers must obtain permission from the UWV WERKBedrijf to terminate a contract. The UWV WERKBedrijf will only grant permission if it is convinced that a serious reason for termination exists. Serious reasons for termination include "economic business reasons" and the evident incompetence of an employee. Once the UWV WERKBedrijf has granted permission, the contract may be terminated by the giving notice to the employee, taking into account the statutory or contractual notice period. If the employer fails to pay a severance to the employee upon termination of the employment, the employee court claim a severance in court.

·  Cancellation by the court: The employer or employee may request the court to terminate the employment contract by cancellation. The court will assess whether a valid termination ground exists. Valid grounds are for instance: proven incompetence or disturbed employment relation. The court could also order the employer to pay a severance to the employee.

·  Mutual consent: Employment contracts may be terminated by mutual consent. Such a settlement agreement should be concluded in writing, stating that both parties agree upon the termination and settling all outstanding issues. After signing the settlement agreement, the employee has the right to withdraw his/her consent within 2 (or 3) weeks without providing any reason. In order to receive unemployment benefits, the employee must be 'involuntarily' unemployed, which means that the termination agreement should state that it was the employer’s initiative to terminate the employment contract and no reason for summary (instant) dismissal existed.

·  Summary (instant) dismissal: Dutch law provides examples of 'urgent reasons', such as theft or fraud, for which termination can take place immediately and without compensation. Urgent reasons for the employer to dismiss an employee are those acts or circumstances that result in a situation in which the employer could not reasonably be expected to continue the employment contract any longer. Every reason justifying the dismissal must be communicated to the employee – preferably in writing – as soon as possible after they have become known to the employer. The employee must be given the opportunity to react and the employee’s explanations must be taken into account. The courts tend to be very reluctant to accept summary dismissals.