For international employers, terminating an employment agreement in the Netherlands can be surprisingly complex. In many countries, an employer can terminate employment agreements relatively quickly, provided the dismissal does not violate anti-discrimination or other employment laws. The Netherlands takes a different approach.
Dutch employment law provides employees with strong protection. An employer cannot simply decide to terminate an employment agreement because the employment relationship is no longer working as expected. The employer must have a legally recognised ground for dismissal, follow the appropriate procedure, and, in many cases, be able to demonstrate that it has taken reasonable steps before termination is possible.
Depending on the circumstances, the employer may need permission from the Dutch Employee Insurance Agency (UWV) or a decision from the court. A more common alternative is to reach a mutual agreement with the employee on the termination of the employment agreement. This is usually documented in a settlement agreement. No approval from the UWV or the court is required, but the employee must agree to the termination.
In addition to the applicable dismissal procedure, employers should also take into account the applicable notice period and the employee’s entitlement to a statutory transition payment, generally calculated at approximately 1/3 of a monthly salary for each year of service.
How does this compare with other jurisdictions, and what should international employers take into account when managing employees in the Netherlands?
Netherlands: a legal ground for dismissal
Under Dutch law, an employer generally needs a statutory reasonable ground to terminate an employment agreement. There are several possible grounds, including poor performance, misconduct, a disrupted employment relationship, and business economic circumstances.
A company may have a valid business reason for wanting to terminate an employee, but that does not necessarily mean that Dutch legal requirements for dismissal have been met. In addition to establishing a reasonable ground, the employer must, in most cases, consider whether the employee can reasonably be redeployed to another suitable position within the organisation. This can include a suitable position elsewhere within the employer’s group.
The procedure depends on the reason for dismissal. For example, dismissal for economic reasons requires prior permission from the UWV, while dismissal for personal reasons (such as poor performance or a seriously disrupted employment relationship) is dealt with by the court.
Example: poor performance
An employee’s poor performance is a good example of how the Dutch system may differ from what international employers are accustomed to.
Suppose a company employs a manager in the Netherlands. After a period of employment, the employer concludes that the manager is not meeting expectations. In another jurisdiction, the employer might be able to terminate employment after giving the employee a warning or following a relatively short performance management process.
In the Netherlands, that is generally not enough. The employer must be able to demonstrate that the employee is genuinely not meeting the requirements of the position and that the employee has been informed about the performance concerns. The employer must normally give the employee a reasonable opportunity to improve, including appropriate guidance, feedback, and, where appropriate, training or coaching.
This will often take the form of a performance improvement plan. What constitutes a reasonable improvement period depends on the circumstances, including the employee’s position, length of service, nature and seriousness of the performance issues, and the time reasonably required to demonstrate improvement. In practice, a period of three to six months may be considered reasonable, although this depends on the specific circumstances of the case. The employer should keep a clear record of the concerns raised, the expectations communicated, the support provided and the employee’s progress.
If the employee does not improve sufficiently and no settlement can be reached, as discussed below, the employer will generally need to ask the court to terminate the employment agreement. This procedure can take several months, during which the employee generally remains employed and entitled to receive their salary.
How does this compare internationally?
The contrast with the United States is significant. In most US states, employment is generally based on the employment-at-will principle. Subject to important exceptions, an employer can terminate employment without having to establish a specific statutory dismissal ground.
The UK takes a different approach. There is no general requirement to obtain prior approval from a court or government agency before dismissing an employee. Instead, an employee may challenge the dismissal afterwards before an employment tribunal. For a dismissal to be fair, the employer generally needs a potentially fair reason for the dismissal and must act reasonably in the circumstances, including following a fair procedure.
France also provides relatively strong protection against dismissal. For personal dismissals, the employer must generally be able to demonstrate a genuine and serious reason. French law also prescribes a formal procedure, including a prior meeting with the employee and a written dismissal letter setting out the reason for dismissal.
Settlement agreements: a practical alternative
There is an important alternative to formal dismissal proceedings in the Netherlands: termination by mutual consent.
The employer and employee can agree to terminate the employment agreement and record their arrangements in a settlement agreement. This can cover, among other things, the termination date, salary and benefits, outstanding holiday entitlement, legal fees, and any termination payment.
The employee must agree to the termination. This can make a settlement agreement an attractive option when both parties want to avoid lengthy proceedings and uncertainty about the outcome.
For employers, this means that the question is not always simply whether there is sufficient basis to dismiss an employee. It is also important to consider whether a negotiated exit is commercially and legally preferable.
Conclusion
For international businesses, the Dutch dismissal system can initially appear more restrictive than the systems they are familiar with. The main difference is that termination is not simply a managerial decision: the employer must generally be able to demonstrate a legally recognised reason for the decision, and comply with applicable dismissal requirements.
The most important practical lesson is to seek advice before starting the termination process. Early assessment of grounds for dismissal, available evidence, and the preferred route can make the difference between a lengthy dispute and a controlled and efficient exit.