Developments in the Dutch Balanced Employment Market

The Balanced Employment Act seeks to bring some equilibrium between permanent and flexible employment contracts in The Netherlands, thereby introducing amendments to benefit both employees and their employers.

On Tuesday, February 5, 2019, the Dutch House of Representatives adopted WAB (Wet Arbeidsmarkt in Balans) – referred to in English as the Balanced Employment Market Act. The bill is now expected to get to the Senate where, if passed, it would take effect from January 1, 2020.

According to the Ministry of Social Affairs and Employment, WAB is part of a broader package of solutions designed to improve the balance between flexible and permanent employment in the job market. The solutions are aimed at reducing the gap between flexible working and permanent contracts, likely to benefit employees. The Dutch are adapting their current law to include a provision on changes to the calculation of compensation packages, the succession of fixed-term employment contracts, as well as the introduction of a cumulation ground (an additional ground for dismissal) for the termination of contracts.

It recently became apparent during the initial debates on the WAB that majority of the House of Representatives was against a strategy meant to allow a provisional or trial period of five months. As a result, the representatives didn’t pass the plan along with another strategy to accept a three-month probationary period for temporary contracts longer than two years.

Projected Changes

Below are the projected changes to be introduced by the Balanced Employment Market Act:

  • After three years of a continuous succession of fixed-term service contracts, it is inevitably converted into a permanent employment contract. Therefore, the maximum number of fixed-term employment contracts will remain at three. If the employment contract continues after the three years then it will change into a permanent employment contract, whether the three years have passed or not. Many organizations take advantage of fixed-term employment in order to avoid paying certain contractual benefits usually offered to permanent employees, such as medical covers and allowances.
  • There will also be changes to the calculation of transition payments. Examples include:
    • The two-year period before an employee qualifies for transition payment will be abolished. Employees will be entitled to transition payment from the beginning of their employment contract.
    • Employers will soon have to calculate employee transition allowances over the actual period of the employment contract. The payout used to be rounded off semi-annually depending on years of service.
    • Transition payment is expected to equal a third of an employee’s annual salary, depending on the year of service. The Balanced Employment Market Act now abolishes the higher payment that is currently effective after ten years’ service.
  • The Act introduces a cumulation ground for dismissal or termination. Employers will be able to combine several grounds for dismissal, thereby making it easy for them to dismiss employees. However, if an employer chooses this option, the courts may award the employee with extra pay, in addition to the statutory transition payment as well as any fair compensation for the dismissal. The payment amounts to a maximum of half the statutory transition payment.
  • The Act also defines the “On-Call Contract”, where employers must offer a contract of employment if their employees have been on an on-call contract for a period of one year. The offer should be based on the average hours worked during the previous 12 months. The proposal also stipulates that the employer will have to call on-call employees four days in advance although there is a possibility to deviate from this rule if both the employee and their employer achieve consensus through a collective agreement.
  • The Balanced Employment Market Act also made changes to the payrollers rule. It stipulates that same terms of employment should be offered to payroll workers, as offered to as employees of the client, as well as an entitlement to a sufficient pension scheme.
  • The Act makes changes to the unemployment insurance contribution. In short, employers are expected to pay lower unemployment insurance for workers on a permanent contract with set working hours, while they will be expected to pay a higher unemployment insurance for those on temporary contracts. However, the higher contributions will not apply to workers under the age of 21 and for work over 12 hours a week. This is for the purpose of differentiation of contributions.
  • The minimum wage for employees aged 18-20 years will increase. At the same time, those aged 21 years or above or above will be entitled to full minimum wage.

More Expected Developments

In addition to the expected developments in the Act, the Dutch government has stated its commitment to tackling phony self-employment. From 2019, it will begin working on strategies to replace the Dutch Assessment of Employment Relationships through a deregulation Act (DBA). The objective is to fight bogus self-employment and competition on benefits for employees especially at the lower end of the labor market. Such measures are being put in place to reassure self-employed people as well as their clients that there is no question whatsoever of an employment relationship. The DBA enforcement has been suspended till January 1, 2020.

Also, the Posting of Workers Directive has been reviewed for the implementation of a new directive in the Member States, to be completed by July 30, 2020. After being posted for 12 months, the new directive gives employees the right to the terms of employment applied in the host country. However, regulations regarding supplementary pensions and dismissal do not apply.

EU service providers will be subjected to the reporting obligation beginning April 1, 2019. It will apply to service providers from member states who have their citizens working in the Netherlands.

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