The Labor Market in Balance Act (or ‘Wet Arbeidsmarket in Balans’ in Dutch) went into effect on January 1, 2020. This act incentivizes employers to hire employees on permanent or indefinite contracts rather than fixed-term contracts or as independent contractors. The law also aims to reduce the gap between legal protections and income differences among fixed- and indefinite-term employees.
The changes resulting from this act are extensive, and employers must be aware of these updates before hiring in the Netherlands.
Extended Probation Period Wet Arbeidsmarket in Balans
Limited risk applies when hiring in Western Europe and paying out a large severance for an employee who does not work out. Most employers and employees determine if a relationship will work long-term or not within five months. And, with a deep talent pool, employers in many sectors have access to exceptional talent to replace workers who do not remain with the company.
Changes apply to temporary contracts, too—not just hiring permanent employees. There is no probation period for contracts lasting six months or less; contracts six months to two years include one-month probation, and contracts longer than two years include three-month probation. A probation period does not apply if it succeeds a contract with the same employer unless the agreement outlines different skills or responsibilities.
Additional Termination Grounds
The new employment law in the Netherlands updates the grounds on which employers terminate employees, and enables employers to combine grounds for termination, known as I-ground. Under original legislation outlined in the Dutch Civil Code, employers had eight different reasonable grounds for termination. The new act introduces the I-ground, which allows employers to combine different grounds for dismissal. Combining grounds gives employers a more straightforward path to termination; in the past, single-ground termination cases proved difficult.
If courts rule the employer’s I-ground termination just, the employee potentially qualifies for compensation in addition to the transition allowance, up to half of their transition allowance. Additional compensation depends solely on the combination of grounds used to build the I-ground case, is case-specific, and determined by the courts.
The grounds for termination include:
- A: Redundancy due to shut down of the company or restructuring
- B: Long-term incapacity to perform work (more than 24 months)
- C: Frequent absenteeism
- D: Incapability or lack of competence to perform the agreed work for reasons other than illness
- E: Culpable conduct or employee omission
- F: Refusal to work due to objection without the possibility of adaptation
- G: Work-related conflict between the employer and employee
- H: Other circumstances, not included in A to G, that make continuation unmanageable
- I: Culmination of multiple grounds
Employers pay terminated employees’ transition allowances, which compensates for expected expenses in between jobs. Wet Arbeidsmarket in Balans makes two updates to transition allowances. Under current legislation, employees’ transition allowances apply only after two years’ employment. The new employment law in the Netherlands provides a transition allowance from the first day of work and includes their trial period.
Transition allowance calculation also changes; the new act covers one-third of the employee’s monthly salary for each year employed and prorated for each month or day, independent of age or the employee’s time with the company. The transition allowance covering employees dismissed due to long-term inability to work ended on January 1, 2020. Beginning April 1, 2020, employers apply to the Employee Insurance Administration Agency for compensation. Only long-term disability (B-ground) applies.
Successive Fixed-term Employment Contract Extension
The Labor Market in Balance Act amends the length of time employers can successively extend employment contracts. Current legislation caps successive employment contracts at 24 months, and a total of three consecutive contracts. The new legislation extends successive contracts to 36 months.
However, the new law also means the fourth successive contract automatically converts to an indefinite employment contract, underscoring the Dutch government’s goal to bring contract workers on as full-time employees.
In the past, the 24-month timeline tied employers’ hands, and left them with limited options to bring the employee on full-time—or end the relationship. While the Dutch government believes the new law invites increased full-time employment, employers must consider that no matter how well a relationship works, full-time employment is imminent after 36 months, whether wanted or not.
Mandatory Pension Plans and Lower Unemployment Insurance Contributions
Pension plans extend to both indefinite and fixed-term employees, and employers pay lower unemployment insurance for indefinite employees. Payroll employees (staff employed via a payroll company) receive the same primary and secondary employment conditions as indefinite employees, including “adequate” pension plans, often leading to higher contributions for payroll employees; employers save money converting payroll employees to indefinite employees. The changes do not apply to temporary workers or seconded employees. Similarly, employers cut costs to unemployment insurance with permanent employees.
Grow Your Dutch Team with an Experienced Expansion Partner
The new employment law in the Netherlands enables firms to hire qualified talent with more attractive benefits than utilizing contract workers. But navigating the legislation is challenging.
Velocity Global helps firms just like yours navigate complex international employment law, and assist with building a global team. Reach out to us today to learn more about how we help you find, onboard, and support the brightest global talent to grow your organization.