The second tranche of the Work and Security Act (‘Wet Werk en Zekerheid’): consequences for your organisation as from 1 July 2015

The Work and Security Act (WWZ) is initiating far-reaching changes in labour and dismissal law. The first tranche of the WWZ entered into effect on 1 January 2015 and the second tranche of the act will enter into effect as from 1 July. What is going to change? The following will take a comprehensive look at the forthcoming changes and report on the latest developments.

The provisions on successive fixed-term employment contracts (chain rule)

Current situation
Currently, an employer may enter into no more than 3 fixed-term employment contracts within a three-year period. Upon the fourth employment contract or if several employment contracts have exceeded three years, the contract will be converted to an indefinite employment contract. The chain of contracts is only broken if there is a gap of more than 3 months between employment contracts, in which case it is possible to start counting anew.

Situation as from 1 July 2015
As from 1 July 2015, a fixed-term employment contract will apply if no more than three temporary contracts are entered into within a two-year period. The maximum duration of the successive employment contracts will therefore be reduced from 36 months to 24 months. The duration of the interval period will be raised from three months to six months.

It is only possible to deviate from this chain rule in case of a collective labour agreement, and this is restricted to temporary employment contracts and jobs or professions whose collective labour agreement stipulates that this deviation is necessitated by ‘the intrinsic nature of the business operation’. A maximum of six temporary contracts within a four-year period applies to this deviation. The aforementioned six-month gaps cannot be altered. If set out in a collective labour agreement it is possible to deviate from the maximum period of 24 months if the main reason for entering into the employment contract was for the employee’s education. It must also be noted that it is possible to deviate from the chain rule in the case of directors of legal persons if this is agreed upon.

The new legislation will only apply if a new or successive employment contract is entered into on or after 1 July 2015. This seems to mean that if a fixed-term employment contract is entered into before 1 July, the old law will continue to apply, even if the effective date of the employment contract in question is after 1 July 2015. This would mean that if there are two successive employment contracts for the duration of a year, the last of which ends, for example, on 15 July 2015, it is still possible to enter into a new employment contract for the duration of a year if the contract was entered into before 1 July 2015.

You should be aware that in the case of employment contracts that were entered into on or after 1 July 2015, a period of six months (and not three!) prior to this employment contract will be considered in order to determine whether there was a prior employment contract that should be counted in the chain. For interruptions previous to this, the ‘old’ three-month rule for intervening periods will apply.

It is also important to note that the transitional law stipulates that in the case of employment contracts that include a collective labour agreement containing exceptional clauses on the basis of the current chain rule, the new law on the chain rule will not apply until 1 July 2016, or earlier if the collective labour agreement ends before that date.

One dismissal route

Current situation
Currently, employers may choose between dismissal through the Employee Insurance Agency (UWV) by applying for a dismissal permit and termination of the employment contract by the cantonal court. This choice will cease to exist.

Situation as from 1 July 2015
The law will decide in which cases which route must be taken. So, for example, the UWV will be the agency designated to deal with dismissals on economic grounds and long-term incapacity for work. For all other reasons, such as unsatisfactory performance or an impaired working relationship, it will be necessary to go to the cantonal court.

Appeal after UWV proceedings

Current situation
Under the current system it is not possible to appeal against a decision by the UWV.

Situation as from 1 July 2015
If the UWV issues a negative decision on a dismissal on economic grounds, the employer may submit a request for termination to the cantonal court. An employee who has been dismissed through the UWV may also request the court to restore the employment contract.

Appeal after termination proceedings

Current situation
Under the current situation, it is not possible to appeal against a court decision in a termination case.

Situation as from 1 July 2015
The new rules mean that employees can bring an appeal or appeal in cassation to rescind a granted dismissal. This means a longer period of uncertainty about the question of whether or not an employment contract has been terminated. If an employee submits a request for termination, the appeal or appeal in cassation may only apply to the payment that was thereby granted to the employee.

Termination with mutual consent

Situation as from 1 July 2015
It will still be possible for employers and employees to terminate their employment contract by means of a settlement agreement. One important difference to the current situation is that the employer must state in the termination agreement that the employee has a ‘withdrawal period of 14 days without stating reasons’. This reflection period gives the employee the right to revert to their previous agreement within 14 days of signing the termination agreement. If this withdrawal period is not included in the termination agreement, it will be extended to three weeks. Employees can only make use of this withdrawal period once within a six-month period.

It is not possible to predict how much use will be made of the reflection period or the possibility to lodge an appeal. Employment law experts and lawyers have already thought of several ways in which this could be dealt with in practice.

Obligation to offer training

Situation as from 1 July 2015
As from 1 July this year, employers will be legally obliged to enable employees to follow training courses that are necessary for the performance of their job and insofar as can reasonably be required from them, to continue the employment contract if the employee’s job ceases to exist or if they are no longer able to fulfil it. It is therefore necessary to document which training is being followed. In principle, there are no penalties for not complying with the training obligation. However, failure to comply with the training obligation may, for example, lead to a request for termination on the grounds of unsatisfactory performance being denied.

Statutory transitional payment

Current situation
Under the current situation, it is up to the employer to decide which dismissal route to take. If the employer opts for termination proceedings at the cantonal court, then as a rule, a severance payment will be granted on the basis of the Cantonal Court Formula. If the employer opts for an UWV procedure no severance payment will be granted to the employee. The employee may eventually receive a payment on the grounds of a redundancy package. It is also possible for the employee to turn to the cantonal court after the procedure at the UWV to request compensation for manifestly unreasonable dismissal. Even if there was a manifestly unreasonable dismissal and payment is granted, the payments allocated in the latter proceedings are considerably lower than the payments granted in termination proceedings on the basis of the Cantonal Court Formula. The difference in outcome between these two proceedings will come to an end as from 1 July this year.

Situation as from 1 July 2015
As from 1 July 2015, employers will no longer be free to choose the dismissal route, as described above. Regardless of which dismissal route is chosen, employees will be entitled to a statutory transitional payment upon termination of an employment contract that has lasted at least 24 months. The transition payment will also be owed if a fixed-term employment contract that has lasted at least 24 months is terminated by operation of law. When deciding whether or not the transition payment must be made, it is important that the initiative to terminate the employment came from the employer. This applies unless the employee took the initiative to terminate the employment due to grave culpable acts or omissions on the part of the employer. The payment will also be owed in case of termination of the employment of an employee who has been unfit for work for longer than 104 weeks. The statutory transitional payment can be used for training or outplacement, although the employee is not obliged to do so. The Cantonal Court Formula will expire upon 1 July.

When calculating the amount of the statutory transitional payment, only the length of employment will be taken into consideration. For calculating the duration of an employment contract one or more employment contracts between the same parties (or successive employers) that have followed each other with intervals lasting no longer than six months will be counted together. When calculating the payment the following will apply. For the first 10 years of the employment the employee will receive 1/6 of his/her monthly salary for every six months that the employment has lasted. If the employee has been in service for longer than 10 years, he/she will receive 1/4 of his/her monthly salary for every six months that the employment has lasted, counted from the 10 years. The maximum payment is set at € 75,000 or, if the annual salary is higher than this amount, a maximum of one year’s salary.

Fair dismissal payment
In addition to the statutory transitional payment, the court may also award a fair dismissal payment. Such a fair compensation payment will only be granted if there have been grave culpable acts and omissions on the part of the employer. It therefore applies to exceptional situations.

There are a number of exceptional situations regarding transition payment, the most important of which are set out below.

Until 1 January 2020, employees over the age of 50 with an employment contract lasting at least ten years must be paid a transition payment of 1/2 of their monthly salary for every six months that the employment contract with the employer has continued after reaching the age of 50. This does not apply if the employer had less than 25 employees in the second half of the calendar year preceding the calendar year in which the employment is terminated.

In the case of ‘small’ employers who had fewer than 25 employees on average in the second half of the calendar year previous to the calendar year in which the employment contract ended whereby the employment contract was terminated because redundancies were made necessary by economic circumstances resulting from the employer’s poor financial situation, it will only be necessary to take account of the duration of the employment from 1 May 2013 when calculating the transition payment. The years of service prior to this date will not be taken into consideration. This exceptional arrangement will also continue until 1 January 2020. A poor financial situation within the meaning of this exceptional arrangement is rare. To qualify as such, there must be a net result under zero in the three financial years prior to the financial year in which the employment is terminated. There must also be negative equity at the end of the financial year prior to the financial year in which the employment contract is terminated. Finally, the value of the current assets at the end of the financial year prior to the financial year in which the employment contract is terminated must be lower than the debts with a remaining duration that does not exceed one year.

The statutory transitional payment will not be owed if the employee is younger than 18 and the average working hours did not exceed 12 hours per week. The transitional payment will also not be owed if the employee’s employment contract ends because of reaching the pensionable age or another age at which the employee is entitled to a pension. Furthermore, transitional payment will not be owed if the employment is terminated or not continued as a result of a grave culpable act or omission on the part of the employee. In the latter case, the cantonal court may as yet allocate the transitional payment in part or in whole if not awarding it would be unacceptable according to the criteria of reasonableness and fairness.

Transition arrangement for temporary employees
There is a transition arrangement for temporary employees, such as seasonal workers in the hospitality and recreation industries. The transition arrangement was agreed upon to prevent employers from not re-employing temporary employees and hiring other temporary employees instead in order to circumvent the transition payment. Due to the transitional arrangement, only work history from 1 July 2012 with an interruption of less than six months will be taken into account when calculating the transition payment for temporary workers. Temporary employment contracts from before 1 July 2012 will only be taken into account if there has been an interval of no more than three months.

Additional decisions and regulations
On 11 May 2015 four additional orders and decrees became definitive. These orders and degrees have further developed a number of provisions from the Work and Security Act. The ‘Decision on transitional rules on transition payment’ stipulates what will apply in the event of accumulation of payments and provisions that are included in collective or individual agreements between employers and employees. This concerns agreements that were made before 1 July 2015 from which employees may derive rights after 1 July 2015. The ‘Decision on conditions for deducting costs from transitional payments stipulates the conditions under which costs that were made for the benefit of the employee during the employment can be deducted from the transitional payment. A distinction is made between transition costs, such as costs for retraining and outplacement, and employability costs (costs that increase an employee’s employability outside the employer’s company). The two other orders concern rules regarding reasonable grounds for dismissal, relocation, selection for redundancy, dismissal of payroll employees, transitional payment for small employers and the UWV dismissal procedure.

Transitional law
For the time being, we assume that the old legislation will apply to dismissal applications submitted to the UWV or cantonal court before 1 July 2015, and no transition payment will be owed. However, we must draw your attention to the fact that opinions among employment lawyers are divided on this point. It is therefore possible that transition payment will be owed in the case of notice of termination or termination of employment contracts on or after 1 July 2015, even if the proceedings were started before 1 July 2015.

Changes as from 1 January 2016

Unemployment Insurance Act

There are important changes to the structure of the WW (Unemployment Insurance Act). The legislator is attempting to work towards an ‘activating WW’. As from 1 January 2016, the maximum duration of the publicly financed part of the WW will be gradually reduced by one month per quarter until 1 April 2019, when a maximum of 24 months has eventually been reached. It is possible that in a Collective Labour Agreement agreements will be made concerning extending the WW by a maximum of 14 months, so that its duration will be equal to that of the current maximum for WW benefits (38 months).

Employment history will accumulate more slowly under the WWZ (Work and Security Act). To accrue WW, 1 month per year for the first 10 years of employment history will be accrued, and 1/2 a month a year for the years after that, whereby the minimum of 3 months WW will be maintained. Employment history that has been accrued up to and during 2016 will be observed. The amount of WW will remain unchanged.

Finally, the definition of the concept of suitable work will be sharpened. This means that after six months, all work will be considered as suitable work. It is important to note that the change to the definition of suitable work will be implemented as from 1 July 2015.

If you would like to know more, you can call one of our lawyers who will give you a brief update on this subject (Tel: 020 – 344 61 00).

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All lawyers at our firm specialise in employment law. We have extensive experience in providing employment law advice and resolving employment conflicts.

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