When USFMs hire employees in the Netherlands, awareness of Dutch employment law is critical because it differs substantially from US employment law. Below we highlight several important Dutch rules.
Written employment agreements are standard and recommended. Employment agreements may be concluded for a fixed or indefinite term. Concluding consecutive employment agreements for a fixed term is restricted.
Depending on the term, a trial period of maximum 1 or 2 months may be permitted. During such period, both parties can terminate the employment agreement at any time.
After a trial period, Dutch law provides extensive dismissal protection. Employment at-will is not recognized. Hence, employers cannot validly terminate an employment agreement by simply giving notice. A reasonable ground for dismissal (as set forth in the law) is required and, depending on the reasonable ground, employers must (i) request prior permission from the Dutch Employee Insurance Agency (UWV) to give notice, or (ii) file a request with the subdistrict court to terminate the employment agreement. Sometimes termination is not permitted (e.g. in case of illness or pregnancy).
If the employer takes the initiative to terminate the employment agreement, the employee is in principle entitled to a statutory severance payment (a so-called transition payment), which equals 1/3rd of a monthly salary for each year of service. The monthly salary includes base salary, fixed allowances/fringe benefits and average variable remuneration over the last 3 years. In exceptional circumstances, a court may grant an employee fair compensation on top of the transition payment if the employer acted with serious culpability (e.g. invoked a false dismissal ground or purposely created an unworkable situation).
Termination by mutual consent through a settlement agreement is allowed at all times and is often preferred. Severance packages then usually exceed the statutory minimum.
Dutch law provides for various mandatory employment terms, including minimum number of holidays (20 days, excluding public holidays), minimum holiday allowance payment (generally 8% of the annual base salary), sick leave (in principle 2 years with continued pay of minimum 70%), maternity/birth leave and parental leave.
Why it matters: USFMs setting up business in the Netherlands must be aware of the above rules. Non-compliance, especially in case of termination, can lead to legal exposure and reputational risk.
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