Reorganizing in NL: a 5-step guide
It's the fear of many founders: after a growth phase funding dries up, and due to economically uncertain times a new capital injection is absent. One way to save costs is by downsizing your workforce. A reorganisation. We explain in five steps how this works in the Netherlands.
By Michelle Immerzeel
Expertise: Employment Law
01.11.2023
It's the fear of many founders: after a growth phase funding dries up, and due to economically uncertain times a new capital injection is absent. The end of the financial runway is in sight and action needs to be taken to prevent a downfall. One way to save costs is by downsizing your workforce. A reorganization. We explain in five steps how this works in the Netherlands
The Rules Summarized
But first, we guide you briefly through Dutch dismissal law. You can't just fire employees; there has to be a valid reason. One of the legal grounds for dismissal is the loss of jobs due to economic reasons. Whereas for other dismissal grounds you need to go to court, for economic dismissalyou need to ask the UWV (the Dutch Employee Insurance Agency) for a dismissal permit. The UWV then tests whether the following conditions are met:
A. Is there a structural loss of jobs due to an economic reason?
This could, for instance, be a poor financial situation, a decrease in work, or implementing organizational or technical changes to compete. You must substantiate this thoroughly using (financial) documents.
B. Is the correct order of dismissal applied?
As an employer, you're not free to decide who stays and who goes. No cherry-picking. So how do you determine who is eligible for dismissal?
First, you need to determine how many redundancies there will be in each category of interchangeable positions. Positions are interchangeable when they are comparable in terms of content, level, compensation, nature (temporary or structural), and required knowledge, skills, and competencies. Within the category of interchangeable positions, you must first dismiss external workers (such as temporary agency workers and freelancers). If this doesn't achieve the necessary reduction, the "reflection principle" (in Dutch: afspiegelingsbeginsel) should be applied. This means that within each age group the order of dismissal is determined on a "last in, first out" basis, provided that employees of retirement age, on zero-hour contracts, andon temporary contracts shorter than six months are eligible for dismissal first (in that order).
C. Is reassignment possible?
An employee can only be dismissed if it's impossible or unreasonable to reassign them to another suitable position within the company or global group within the applicable notice period of 1 to 4 months, depending on the length of service. A position is suitable if it (after additional training) matches the employee's education, experience, and abilities. When reassigning, you must also consider vacancies that will become available within the notice period and the positions occupied by self-employed workers, temporary workers, on-call staff, agency personnel, retirees, and employees with contracts ending within the next six months.
Note: You may need to consult the works council or employee representation for advice. Additionally, there are extra rules for collective dismissal (20 or more employees).
The Steps
1. Submit a preliminary dismissal request to the UWV
If you want to negotiate an end to the employment contract with your employees (step 2), it's important to first submit a preliminary dismissal request to the UWV. This is because, in principle, employees who are on sick leave cannot be dismissed. However, if they report sick after submitting a preliminary dismissal request, they are not protected against dismissal. After submission, you have 14 days for negotiations (and possibly an additional 14 days upon request).
2. Try to reach an agreement with the employee(s)
Often, employers try to terminate the employment contract by mutual agreement instead of going through the dismissal process with the UWV. The terms are then recorded in writing in a settlement agreement. This has several advantages over a UWV procedure:
If you don't want to negotiate or if you don't reach agreement with the employee, you must submit a dismissal request to the UWV. If the dismissal request is incomplete, you have eight days to provide additional information.
4. Hearing and Response
The UWV then shares the dismissal request with the concerned employees. They have 14 days to respond. The UWV usually decides within about 14 days. After submitting a complete dismissal request, the UWV procedure takes about four weeks in total. This can take longer if the UWV needs more information or if there's a second round of hearing and response.
5. Terminate the employment contract or go to court
If the UWV grants a dismissal permit, you must terminate the employment contract within four weeks, keeping in mind the statutory notice period. You can deduct the duration of the UWV procedure (starting on the day the dismissal request is complete and ending on the day the dismissal permit is granted) from the notice period, provided that at least one month remains. If the employee disagrees with the dismissal, they have two months from the end date of employment to go to court.
If the UWV refuses a dismissal permit, you can ask the court for permission to proceed with the dismissal. This must be done within two months after the UWV's decision.
What's the price?
Nothing comes for free; reorganising also comes with a price. When laying off via the UWV, you have to pay the statutory transition payment. As a rule of thumb: 1/3 of the gross monthly salary per year of service. Financial perks such as holiday allowance, compensation for overtime, bonuses, and shift allowances are included in the gross monthly salary.
With a settlement agreement, in theory, you can bypass the statutory transition payment and notice period. However, an employee will not readily agree to a termination. In practice, you will often have to offer a compensation that exceeds thestatutory transition payment. Additionally, agreements can be made about the notice period, compensation for legal or outplacement costs, and payment of vacation days.
Want more information? The UWV's 'Uitvoeringsregelsontslag om bedrijfseconomische redenen' thoroughly explain the rules and procedures applicable to dismissals due to a reorganisation.
Next Steps:
Navigating the complexities of a reorganisation requires a clear understanding and strategic approach. As you consider your next moves, having an expert perspective can be invaluable. Feel free to send Michelle a message to share your thoughts on this topic or if you have any questions. She's here to guide and assist.
The Rules Summarized
But first, we guide you briefly through Dutch dismissal law. You can't just fire employees; there has to be a valid reason. One of the legal grounds for dismissal is the loss of jobs due to economic reasons. Whereas for other dismissal grounds you need to go to court, for economic dismissalyou need to ask the UWV (the Dutch Employee Insurance Agency) for a dismissal permit. The UWV then tests whether the following conditions are met:
A. Is there a structural loss of jobs due to an economic reason?
This could, for instance, be a poor financial situation, a decrease in work, or implementing organizational or technical changes to compete. You must substantiate this thoroughly using (financial) documents.
B. Is the correct order of dismissal applied?
As an employer, you're not free to decide who stays and who goes. No cherry-picking. So how do you determine who is eligible for dismissal?
First, you need to determine how many redundancies there will be in each category of interchangeable positions. Positions are interchangeable when they are comparable in terms of content, level, compensation, nature (temporary or structural), and required knowledge, skills, and competencies. Within the category of interchangeable positions, you must first dismiss external workers (such as temporary agency workers and freelancers). If this doesn't achieve the necessary reduction, the "reflection principle" (in Dutch: afspiegelingsbeginsel) should be applied. This means that within each age group the order of dismissal is determined on a "last in, first out" basis, provided that employees of retirement age, on zero-hour contracts, andon temporary contracts shorter than six months are eligible for dismissal first (in that order).
C. Is reassignment possible?
An employee can only be dismissed if it's impossible or unreasonable to reassign them to another suitable position within the company or global group within the applicable notice period of 1 to 4 months, depending on the length of service. A position is suitable if it (after additional training) matches the employee's education, experience, and abilities. When reassigning, you must also consider vacancies that will become available within the notice period and the positions occupied by self-employed workers, temporary workers, on-call staff, agency personnel, retirees, and employees with contracts ending within the next six months.
Note: You may need to consult the works council or employee representation for advice. Additionally, there are extra rules for collective dismissal (20 or more employees).
The Steps
1. Submit a preliminary dismissal request to the UWV
If you want to negotiate an end to the employment contract with your employees (step 2), it's important to first submit a preliminary dismissal request to the UWV. This is because, in principle, employees who are on sick leave cannot be dismissed. However, if they report sick after submitting a preliminary dismissal request, they are not protected against dismissal. After submission, you have 14 days for negotiations (and possibly an additional 14 days upon request).
2. Try to reach an agreement with the employee(s)
Often, employers try to terminate the employment contract by mutual agreement instead of going through the dismissal process with the UWV. The terms are then recorded in writing in a settlement agreement. This has several advantages over a UWV procedure:
- After signing the settlement agreement, the employee has 14 days to reconsider. After those two weeks, the termination is final and can't be undone or challenged. A UWV dismissal, on the other hand, can be challenged by the employee in court.
- Employment law does not apply, so you are free to agree on alternative arrangements with the employee.
- It allows you to have some influence over who leaves and who stays. For instance, you can prevent having to part ways with your most valuable employee.
- It often takes less time, and the legal costs are lower.
- By parting ways amicably, your employees can leave with their heads held high. Former employees remain ambassadors of your company!
If you don't want to negotiate or if you don't reach agreement with the employee, you must submit a dismissal request to the UWV. If the dismissal request is incomplete, you have eight days to provide additional information.
4. Hearing and Response
The UWV then shares the dismissal request with the concerned employees. They have 14 days to respond. The UWV usually decides within about 14 days. After submitting a complete dismissal request, the UWV procedure takes about four weeks in total. This can take longer if the UWV needs more information or if there's a second round of hearing and response.
5. Terminate the employment contract or go to court
If the UWV grants a dismissal permit, you must terminate the employment contract within four weeks, keeping in mind the statutory notice period. You can deduct the duration of the UWV procedure (starting on the day the dismissal request is complete and ending on the day the dismissal permit is granted) from the notice period, provided that at least one month remains. If the employee disagrees with the dismissal, they have two months from the end date of employment to go to court.
If the UWV refuses a dismissal permit, you can ask the court for permission to proceed with the dismissal. This must be done within two months after the UWV's decision.
What's the price?
Nothing comes for free; reorganising also comes with a price. When laying off via the UWV, you have to pay the statutory transition payment. As a rule of thumb: 1/3 of the gross monthly salary per year of service. Financial perks such as holiday allowance, compensation for overtime, bonuses, and shift allowances are included in the gross monthly salary.
With a settlement agreement, in theory, you can bypass the statutory transition payment and notice period. However, an employee will not readily agree to a termination. In practice, you will often have to offer a compensation that exceeds thestatutory transition payment. Additionally, agreements can be made about the notice period, compensation for legal or outplacement costs, and payment of vacation days.
Want more information? The UWV's 'Uitvoeringsregelsontslag om bedrijfseconomische redenen' thoroughly explain the rules and procedures applicable to dismissals due to a reorganisation.
Next Steps:
Navigating the complexities of a reorganisation requires a clear understanding and strategic approach. As you consider your next moves, having an expert perspective can be invaluable. Feel free to send Michelle a message to share your thoughts on this topic or if you have any questions. She's here to guide and assist.
