Explained: Dismissal procedures in the Netherlands

Dismissals aren’t easy for anybody – least of all for employees, but especially business owners and HR teams unfamiliar with dismissal procedures in the Netherlands. If your business needs restructuring – and dismissals are your best option – it’s important to have a plan in place several months before any dismissals occur.

In the Netherlands, it is not possible to dismiss or terminate an employment contract without permission. You either need permission from the district court, employment insurance agency (UWV), or, ideally, the employee themselves.

HR teams should always try to keep contract negotiations between the company and the employee(s) in question. In the event your team does need external permission, it is important to abide by contractual and common law obligations, as well as the statutory provisions when terminating an employee’s employment. A strict and fair dismissal procedure must be adhered to, to reduce the legal risks of an unfair dismissal claim.

In this article, we will help you know your rights as an employer and learn how to dismiss an employee while staying within your obligations. It is also advisable to obtain legal advice before ending an employment relationship.

When am I allowed to dismiss a(n) employee(s)?

Typically, in the Netherlands, there are four ‘fair’ grounds for dismissal. What this means is that you are dismissing staff using a fair and consistent procedure and for a good reason.

In the event your business does need to dismiss an employee or several employees, your goal should be to come to an agreement for dismissal with the employee(s). Dismissal by mutual agreement means that you and your employee can come to an agreement in which your employee will voluntarily leave your company. This normally involves “buying out” your employees’ contract via severance pay, or by offering job placement/career development services in exchange.

Dismissal by mutual agreement

The best course of action for the business is to seek contract termination is by reaching an agreement with the employee. A mutual agreement with your employee is by-far the “cleanest” way to end the working relationship. When done correctly with a proper strategy in place, mutual agreement dismissals will keep the dismissal process from being too drawn-out, as well as keep feelings from getting too hurt.

Preferably, you and your employee agree on specific terms in writing, with a so-called settlement agreement. The document would indicate that the employee agrees to have their contract of employment terminated in return for an amount of compensation, and does not have a claim against the employer at the time the contract is terminated.

Different subjects can be included in the settlement agreement. An agreement can be reached on the employment end dates, dismissal compensation or severance pay, payment of outstanding salary, holiday pay and vacation days, a confidentiality clause, et cetera.

Keep in mind that throughout this procedure your employee may still be working for you. This means they’ll still be in contact with their colleagues, and need to perform in their roles. For this reason, it’s especially important that your dismissal procedure and communication is transparent and authentic. Depending on their role, you may outline in the settlement agreement that the employee will not be expected to work for the duration of their contract – but you will still be required to pay them.

One thing to bear in mind is that the employee is entitled to a 14-day reflection period, in which he/she can withdraw the consent of the termination agreement without stating a reason. You must notify the employee’s right to this reflection period.

How do I achieve a mutually agreed dismissal?

The main take-away to learn from dismissal procedures in the Netherlands is that dismissals should always be handled with care. As a business owner in the Netherlands, it is your responsibility to ensure that your employees have the best chance possible at finding work again quickly. That’s why, it’s best to work with your employee and offer them a severance plan that they will value.

Start with a demographic analysis of the types of employees that need to be dismissed. What is their age? Gender? Lifestyle? Do they have families? Are they expats or Dutch nationals? Is there any unpaid overtime or unused vacation days? Are there unions involved? Once you have a clear understanding of who they are, you and your HR team will be better prepared to develop severance packages that your employees are bound to accept. We outline a few items to consider offering in a severance package later in the article here.

Dismissal permit by the Dutch Employee Insurance Agency (UWV)

If your employee does not agree with the dismissal, you can request a dismissal permit with the Employee Insurance Agency (UWV). This is only possible if your business can no longer afford to pay the employee (see economic grounds for dismissal) or if your employee is unable to perform due to illness or injury. In either case, you must be able to provide sufficient evidence that dismissal is the only option possible for your business.

The UWV would then investigate and decide whether to grant permission. The UWV is interested in keeping everybody in the Netherlands employed – so your case for dismissal is stronger when you can show that you’ve tried to help your employee stay employed. Either by looking for a new place in your organisation, or by offering job-search services in their severance package. If the UWV rejects the application for dismissal, you can always file an objection.

Economic grounds for a dismissal

Business economic circumstances that lead to layoffs is considered a reasonable ground for dismissal. The UWV lists 7 scenarios in which dismissals may be accepted on economic grounds. The following scenarios are listed below, and on the UWV website (in Dutch).

Work reduction
Company relocation
Organizational restructuring and/or technological changes
Suspension of (a part of) the company activities
Company bankruptcy
Expiration of (remuneration costs) subsidy

To proceed with the termination of a contract based on economic grounds, you must also be able to show that you have searched for a suitable position within the organization for the employee.

When more than 20 employees are being dismissed within three months, the relevant trade unions and the Employee Insurance Agency (UWV) must be notified. The consequences of this reorganization must also be discussed with the trade unions.

You will also need to consult the work’s council upon the termination of a number of employment agreements, which have a significant impact on the organization.

You can apply for the dismissal permit with the UWV online here.

Dismissal due to illness

Dutch law states that an employer may not end the employment agreement during the first two years that an employee is ill or pregnant. Specifically, the employer is banned from dismissing an employee “because of” the employee’s illness. Exceptions may apply, for example, the employer dismisses the employee on the grounds that is not related to the employee’s sickness (i.e. economic reasons).

After 2 years of illness, the prohibition against terminating the employment contract as a result of the employee’s incapability to work no longer applies. For this, you will need to submit a request and a statement from the company doctor to the UWV. The statement must indicate that it is impossible for the employee to recover within 26 weeks. Additionally, you must be able to show that dismissal is the only possible option for this employee, and that you have tried to reintegrate them to their previous role, or have tried to find a new place for them in your organization.

You can apply for the permit to dismiss employees due to illness on the UWV website here.

Dissolution by the district court

Instead of turning to the UWV, you can instead file a request to the district court to dissolve the employment contract.

This procedure is faster than via the UWV and is meant for the situation that the contract has to be terminated on short notice. Usually, when the court dissolves the contract, the relevant notice period would be taken into account which starts from the date of the court ruling. Unless the allegation responds to the employee’s culpable acts, the court can dissolve the contract at an earlier date.

After receiving the request, the court would invite you and your employee to a hearing on a set date. Your request to terminate the employment should be substantiated, or it would be deemed not conforming to the law and therefore rejected. When the court does decide to dissolve the contract, you may be bound to compensate the employee with a severance payment for the termination. If the dismissal is based upon the alleged misconduct of the employee, compensation can be set at zero.

Summary dismissal for urgent cause

An employer may dismiss an employee with immediate effect in the event of an urgent situation. In the Netherlands, this case for dismissal is very rare. An urgent cause is a circumstance in which the employee cannot reasonably be expected to continue employment. Summary dismissal is considered in cases where the employee’s conduct is deliberately destructive of the employment relationship. Urgent causes are evaluated by the district court and considers the specific circumstances of the case.

If you do need to dismiss an employee due to an urgent cause, this cause must be communicated to the employee immediately so they can seek legal aid to defend themselves.

If the employee is found culpable, they are not entitled to unemployment benefits or severance pay.

What should be included in a severance package?

As a rule, an employee is entitled to severance payment when they are dismissed by their employer. There are fewer legal requirements for severance when you end the employment relationship via mutual agreement – but you must develop an offer that they will agree to.

Depending on the grounds of dismissal, the employee can expect three different types of financial compensation that you will be legally required to pay to your employee —

Transition payment: From January 1st, 2020, the employer is obliged to pay the dismissed employee 1/3 of the gross monthly salary each year of service from the first day of employment. However, exceptions to the rules of the transition payment may apply, for example, when the dismissal results from the employee’s misconduct, declaration of bankruptcy, etc.
Additional payment based on cumulation ground: As of 2020, a new ‘cumulation’ ground was introduced, which set a new basis on how the court can terminate the employment contract. The cumulation allowance (on top of the transition allowance) serves the employee who is confronted with dissolution without the existence of a full ground for dismissal.
Fair compensation in case of seriously culpable behaviour: This compensation may be awarded to the employee by the court if the serious misconduct is committed by the employer.

Based on your demographic analysis, you might consider adding a few items to their severance in order to ease negotiations. Severance is not just about doing the needful of paying out the legally required financial compensation (as listed above), you can also pad your severance package with additional soft benefits to help your employees to their next step. Here are a few examples of benefits you can offer in your severance package:

Letter of reference
Budget for the employee to seek legal aid
Career coaching
Job search or job placement services
Retain the company equipment (such as phone, laptop, etc) after dismissal
Exemption from work or unrestricted vacation days
Modified end date of contract (affects both when the employee can start collecting unemployment, and the residency status of an employee who was hired with a visa)

Octagon’s Outplacement services to improve your dismissal strategy

Restructuring is always a challenge for businesses – especially when it involves dismissals. If dismissals are the best solution for your business’ future, it is best to develop your dismissal strategy in collaboration with an employment expert. Dismissal procedures in the Netherlands are often focused on a case-by-case basis, which means your best bet at avoiding costly mistakes and protecting your reputation is by over-preparing.

That’s why we’ve developed Octagon Outplacement services. Our outplacement services are a ready-to-go solution for HR teams facing mass lay-offs in the Netherlands. Octagon’s outplacement services are one of the best strategies at minimizing a restructuring company’s overall risk, and maintaining control of employment contracts.