Netherlands Introduces Major Changes to Labor Law

Five years ago, the Dutch Work and Security Act completely overhauled the dismissal law in the country. While a significant step, the Dutch labor law has been under reform since then in order to improve its current legislation and provide more security to employees. The focus of 2020 Dutch labor law changes seems to have shifted towards bridging the gap between temporary and permanent employees and protecting employer rights.

The Dutch senate introduced new legislation on May 28, 2019, effective from January 1, 2020. The new legislation introduces various changes, including defining termination grounds, increasing the fixed-term contract duration to 36 months, severance payment policies, and additional legal protection extended to employees.

Termination Rules and Regulations
The Dutch Labor law provides eight reasonable grounds for termination. If the employer can justify the firing of an employee based on any one of the grounds, then the court allows it. Eight is a significant number of reasons and gives employers quite a bit of leeway when making their case. Thus the termination rate is relatively high in the Netherlands.

The new legislation has introduced another ground called the cumulative ground. The employer can now combine multiple grounds to present their case. So now the employer can state unsatisfactory performance and poor working relationship as the cause for termination of the employment contract.

If found satisfactory, the court will approve the termination and decide whether an employee is entitled to severance pay. If the court deems fit, it can also order employers to provide additional compensation besides traditional severance pay.

Changes to Transition Allowance
The new Act also provides changes to regulations regarding transition allowance or severance pay in two significant ways.

All employees will be entitled to receive severance pay from the very first day. Before the 2020 Dutch labor law changes, employees were entitled to receive transition allowance only after two years of service.

The new legislation has also made changes to the calculation method of transition allowance. The new calculation method follows a retrenched calculation method. For the first ten years, the severance pay is calculated at 1/3rd of the employees per month salary. For the next ten years, the severance pay accounts for half of the monthly salary.

Extension of Fixed-term Employment Contract Duration
Employees on short fixed-term contracts were previously eligible for a maximum of two years. The new legislation has extended the employment term to a maximum of 36 months. It allows for improved job security amid the extremely uncertain economic conditions around the globe. The new change is essentially a reform of the changes introduced in the Work and Security Act.

The 2020 Dutch labor law changes aim to strengthen employer and employee rights in the country. It also reduces the gap between the rights of fixed-term and short term employment contracts. The new changes are a significant step in bridging the legal differences as well as the monetary divide between the two contract types.

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