19 Jul The Balanced Labour Market Act
The Wet arbeidsmarkt in balans (Balanced Labour Market Act) was adopted on 28 May and will enter into force on 1 January 2020. The rapid pace of the enactment is remarkable, particularly since the Wet werk en zekerheid (Work and Security Act) has not yet even been properly evaluated since its introduction in 2015. But advocates and opponents appear to agree that the gap between “permanent” and “flexible” is too extreme in the Netherlands. The Balanced Labour Market Act therefore aims to reduce the income uncertainty of flexible workers and furthermore to stimulate “permanent” jobs. In outline, the aims is to achieve that objective by means of the following six statutory measures:
- A premium differentiation will be introduced for employee insurance between “flexible” and “permanent”. “Flexible” will be 5% more expensive than “permanent” – a significant difference in cost.
- Every employee will be entitled to the transition payment from the first day of work, even in the event of termination during the probationary period.
- The dismissal law governing permanent contracts will be relaxed: an employer may once again combine two incomplete grounds for dismissal.
- The maximum term for the succession of (three) fixed-term employment contracts will be extended from 24 months to 36 months (as in the past, before the introduction of the Work and Security Act).
- On-call workers will be better protected, for instance by the obligation for the employer when the on-call contract has lasted one year to offer them (in writing) an employment contract for the average number of hours worked in the preceding year.
- The legal position of payroll employees will be better regulated by the introduction of statutory payrolling regulations.
The 5% premium differentiation is the most striking measure. The employer will pay 5% higher premiums for employee insurance (under the Unemployment Insurance Act, the Invalidity Insurance Act and the Work and Income (Capacity for Work) Act) for fixed-term contracts (referred to below as “flexible contracts”). The new unemployment insurance premium for open-ended employment contracts with a specifically stated number of working hours (therefore not on-call (zero-hour) contracts!) will be 2.78%. The premium for flexible contracts and on-call contracts will be 7.78%.
The cost increase for flexible contracts will be even higher when the Balanced Labour Market Act is introduced, due to the right to a transition payment from the start of the employment contract (that transition payment is currently due only after a period of two years).
The cost increase is balanced out by more lenient dismissal rules for open-ended contracts. Under the Work and Security Act, an employer must have at least one fully-fledged ground for dismissal in order to dismiss an employee; combining two incomplete dismissal grounds was therefore not permitted. Such combination of grounds was permitted, however, before the Work and Security Act entered into force, for instance in cases based partly on poor performance and partly on a seriously damaged working relationship. The Balanced Labour Market Act allows the termination of an employment contract in court on the basis of a combination of two or more personal grounds for dismissal. By way of compensation the court may then award extra compensation, in addition to the transition payment and possibly fair compensation. That extra compensation may amount to a maximum of one half of the transition payment.
The preventive dismissal assessment (the obligation to file a request for termination before an employee is dismissed) makes the termination of open-ended contracts a costly affair. In many cases termination requires the engagement of lawyers. Moreover, the procedure is likely to take approximately three months (a court cannot terminate a contract retroactively). In sum, a trial consisting of a flexible contract is still advisable.
A closer look at the most relevant changes introduced by the Balanced Labour Market Act shows that in any event the premium differentiation, the relaxed dismissal law and the transition payment will act as incentives to opt for “permanent” after “flexible”. The ‘ketenbepaling’ (provisions on the succession of fixed-term contracts), on the other hand, stimulates flexible work; but compared with the cost increase, that benefit will be negligible for employers that have many flexible workers. In light of the cost increase resulting from the introduction of the Balanced Labour Market Act, it is a legitimate question for employers that have many flexible workers whether the maximum period of two year should be reduced.
It is therefore advisable to make a cost estimate based on your workforce in order to draw up a succession of contracts policy. That will differ from one organisation to the next and will therefore require custom-made work.
Please contact Michiel van Haelst for more information or any advice on this subject.
This article was published in the Newsletter Vestius of July 2019