The Kingdom of The Netherlands has implemented the (revised) European Transfer of Undertaking Directive (2001/23/EC). On the basis of Articles 7:662-666 of the Dutch Civil Code, the rights and obligations arising from the contracts of employment of the enterprise's employees are transferred to the new owner, but for one year after the date of transfer the old employer remains severally liable for obligations already existing at the time. The above rule applies both to enterprises in the market sector and to non-profit-making organizations. It does not apply to the distribution of an enterprise's assets as a result of the owner's bankruptcy .

The take-over of private and public limited companies through the buying and selling or exchange of shares, which occurs very frequently in the Netherlands, does not fall within the scope of these Civil Code provisions, since in that case there is no change of employer.

What is a transfer of undertaking?

The defenition of a transfer of undertaking is set out in the EU Directive. Article 1(b) states that a transfer has taken place when "there is a transfer of an economic entity which retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary".

Transfer of undertaking is not defined by Dutch labour law. Based on European and national Case Law it can be derived that a transfer of undertaking exists where an economic entity is transferred and retains its identity.

The European Court of Justice has ruled that to determine whether an economic entity retains its identity after a change in ownership, it is necessarily to consider all the facts characterizing the transaction in question, including:

• the type of undertaking or business;
• whether or not the tangible assets of the business, such as buildings and movable property, were transferred;
• the value of its tangible assets at the time of the transfer;
• whether or not the majority of the employees was taken over by the new employer;
• whether or not the customers were transferred;
• the degree of similarity between the activities carried on before or after the transfer period; and
• the period, if any, for which those activities were suspended.

According to the European Court of Justice these factors cannot be considered in isolation – they are simply part of the overall assessment that must be made and cannot therefore be considered in isolation. It is for the national court to make the necessary factual appraisal, in the light of the cirteria for interpretation set out by the European Court of Justice.

Dutch law

Under the Dutch implementation of the directive the transferee, by virtue of law, becomes party to the existing employment relationships with employees of the undertaking subject to the transfer. This means that this transferee will have to respect all conditions of employment existing with the transferor at the time of the transfer.

At the time of a transfer of undertaking, it is not possible to agree upon deviations in employment terms.
The transferee is under an obligation to offer the employees a benefits package identical to the package that the employee had with the transferor. It is not advisable to renegotiate employment terms at the time of the transfer of undertaking, as these alternative terms will be held to be invalid. Hence, alternative terms should be offered at a later occasion, when the transferor has all the possibilities the transferee previously had.

Protection against Dismissal

The transfer of an undertaking, business or part of an undertaking or business does not in itself constitute grounds for dismissal by the transferor or the transferee. However, dismissals may take place for economic, technical or organisational reasons entailing changes in the workforce.

Further information

The consequences of a transfer of undertaking can be complex. Our firm has ample experience in advising and supporting our clients during the process. For further information regarding our services, please contact our contact person of the Labour and Employment Law Practice Group.

In the absence of mutual agreement or just cause the employer may generally not terminate the contract of employment without a permit, to be obtained from the Dutch Dismissal Authority. An alternative is to ask the competent Court to dissolve the employment contract. The Court may order the employer to pay compensation for the redundancy. The standard calculation of redundancy packages as used by the Dutch courts also often forms the basis of voluntary redundancy payment schemes.

When is a redundancy payment due?

There is no legally binding statutory redundancy payment scheme in The Netherlands. The employer must, however, make a redundancy payment if:

• The employer has filed a petition to dissolve the employment contract.
• The Court grants the peitition and orders the employer to pay compensation.
• The employer decides not to withdraw the petition and therefore accepts the award made by the Court on dissolution of the employment contract.

What compensation can be expected?

Statute provides that it is up to the Court to determine the amount of a fair and adequate redundancy payment. The judge will have to weigh all circumstances of the case. In the past this has lead to various approaches by different local courts, which sometimes had negative effects, such as surprise decisions and a tendency by clever lawyers towards forum shopping, for better results. To avoid that and to have better guidance the joint Cantonal Courts of the Netherlands created the so called Cantonal Court Formula as a guideline, which since then is most usually applied to determine the level of compensation an employer must pay to an employee that is laid off. Although this is non-binding quasi legislation, the Cantonal Court Formula is now broadly used by all Courts, and also by employers and employees to negotiate a termination agreement with severance payment.

The Dutch Cantonal Court Formula

The Cantonal Court Formula fixes the redundancy payment at a number of months salary. The exact severance payment is determined by multiplying three factors: A, B and C, where:

• The A-factor is the adjusted number of years of service of the employee. The years of service up to age 35 will count as 0.5, the years of service between 35 and 45 years of age will count as 1, the years of service between ages 45 and 55 will count as 1.5 and the years of service above age 55 will count as 2.
• The B-factor is the corrected monthly gross salary, which includes fixed components like holiday allowance.
• The C-factor is a correction factor that is usually 1.0 (neutral dissolution), but may be fixed at a higher or lower level by the Court in order to come to a fair and adequate severance payment. Behaviour of employer and eployee, the job market position of the employee and the financial position of the employer may all play a role, which makes the C-factor the least certain factor of the formula.

What if I need to down size my company?

As no statutory provisions exist regarding the calculation of redundancy payments in case of dismissals, it is up to the parties involved to negotiate a redundancy scheme. This can be done at an individual level in case of small companies and incidental dismissals. Dependent on the circumstances this can be arranged within weeks, especially where a fair and balanced offer is made to the employees involved. If the company is in serious financial trouble, it may be advisable to obtain a permit to dismiss the employees involved, rather than following dissolution proceedings in court. We can advise you on the best course of action in your individual circumstances

Collective dismissals

Redundancy schemes should be negotiated with trade unions where required by the applicable rules and regulations, usually in case of collective dismissals. The Cantonal Court Formula often serves as a basis for negotiations, but results can vary significantly as other factors like the available budget play a role too. In case of collective dismissals the parties usually negotiate a “Social Plan” containing a redundancy scheme. A social plan specifies the agreed redundancy regulations that should be followed in case of dismissals and procedures that will assist redundant employees in finding new jobs.

Further information

It is advisable to consult us before taking any major decision with regard to terminating employment contracts for Dutch employees. For further information regarding Dutch Employment Law, please contact our contact person of the Labour and Employment Law Practice Group.

Which law applies to an employment contract with an expatriate? Easily asked, not easily answered. It may be the law of the Netherlands. It may be another law, such as the law of the head office of the employer. It may be a combination of legal systems. The answer depends on the what has been agreed and on the manner in which the parties have executed the agreement. With the mere passing of time the results of this analysis may change. The Dutch rules of Private International Law should be applied to the particular situation and that can sometimes lead to some surprising results. This makes the conclusion of contracts between employers and expats more complicated than ordinary contracts of employment, and the same goes for the resolution of disputes. If confronted with a dispute, we suggest that you hire a competent lawyer at an early stage. Together with you he can identify the court that will be competent to hear the matter and it can be established wich law is applicable to the employment contract.

Severence payment

Under the rules of Dutch employment law, employees are relatively well protected. Expats should realize that they cannot claim the benefit of all legal safeguards that have been put in place for Dutch residents. As a rule of thumb expats should realise that the possibility exists that their employment contracts can be terminated in accordance with the terms agreed in the contract, without the need to ask for a permit or to pay anything more by way of redundancy compensation than exactly that what has been agreed between the parties. It is therefore essential to establish if your employer has an expat policy in place. If not in place, it is recommended to negotiate the terms of termination and relocation, such as arrangements for severance payment, housing, moving costs, etcetera when negotiating the original employment contract.

When an expat is dismissed, he or she may, depending on the circumstances of the dismissal, be entitled to compensation, even if this has not been specifically agreed in the contract. If brought before a Dutch court, the judge will have to decide whether or not the expat qualifies for compensation. First it must be established which law applies to the contract and what the exact consequences of that law are. Under Dutch law, the judge will look at whether there is 'apparent unreasonable dismissal'.

It is not usual that disputes are fought over in open court. Usually parties negotiate the terms under which the contract will be terminated and reach an amicable settlement. However, it is not advisable to sign a termination agreement until you have sought legal advice from an employment lawyer. There is no obligation on the part of the employer to factor in the cost of a lawyer in your redundancy package, but it is very often granted as part of the settlement if so requested by you. We can assist you here and help you to maximise the compensation package.

Unemployment insurance benefit (WW)

After dismissal an expat may be entitled to unemployment benefit in the Netherlands (WW). If an expat is covered under the WW-benefit scheme, the authorities will first verify whether or not the expat has become unemployed as a result of his own doing: 'culpably unemployed'. In such a case, the expat may forfeit his rights to any unemployment benefit. This is the case when the expat has voluntarily resigned for no good reason or where he has been fired with immediate effect, for instance in case of serious misbehaviour or in case of fraud or theft.

Further information

It is advisable to consult us before taking any major decision with regard to signing a contract, dismissal or changing employers. For further information regarding Dutch Employment Law, please contact our contact person of the Labour and Employment Law Practice Group.

Arbitration has become a widespread and preferred method of resolving disputes in many industries, such as the maritime, securities and construction industries. Less formal than court proceedings, arbitration is supposed to be quicker and more cost effective. Another useful advantage of arbitration is the better enforceability of arbitration awards internationally. Whatever the reason, parties nowadays tend to agree on arbitration on a wide scale.

New York Convention on Arbitration

The Netherlands is a party to the New York Convention on arbitration and arbitration awards. As a consequence the Dutch Courts are bound to recognize an agreement in writing in which the parties undertake to submit to arbitration should any disputes arise between them. At the request of one of the parties the Court will refer the parties to arbitration in a matter in respect of which the parties have made an arbitration agreement, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

The Convention provides that each Contracting State shall recognize arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. Arbitral awards rendered in other Contracting States are recognised and enforceable in The Netherlands and vice versa. The convention has been implemented in Dutch legislation, more specifically in the 1986 Arbitration Act (Section 1020-1076 of the Dutch Code of Civil Procedure).

Ad hoc and Institutional Arbitration

As in other jurisdictions the parties may opt for ad hoc arbitration or institutional arbitration. There are various arbitration institutes in The Netherlands to opt for, but ad hoc arbitration remains a good and legally sound alternative.

Properly structured, ad hoc arbitration should be less expensive than institutional arbitration and, thus, better suit smaller claims and less affluent parties. Ad hoc arbitration places more of a burden on the arbitrators to organize and administer the arbitration in an effective manner. A distinct disadvantage of the ad hoc approach is that its effectiveness may be dependent upon the willingness of the parties to cooperate and the talents of the appointed arbitrators to keep the arbitration process going.

An institutional arbitration is one in which a specialized institution with a permanent character intervenes and assumes the functions of aiding and administering the arbitral process, as provided by the rules of that institution. Often, the contract between the parties will contain an arbitration clause which will designate an institution as the arbitration administrator. If the institutional administrative charges, which may be substantial, are not a factor, the institutional approach is generally preferred.

The Netherlands Arbitration Institute

The Netherlands Arbitration Institute was established as a non-profit foundation in 1949. Its Governing Board consists of representatives from the business community and the legal profession, as well as members of the judiciary, all of whom have extensive experience in the fields of arbitration, binding advice and mediation. The Governing Board also includes representatives from the Dutch Central Chamber of Commerce in The Hague, the Dutch Organisation of the International Chamber of Commerce and the Dutch Association for Industry and Trade, and Accountancy. The secretariat is located in Rotterdam.

The NAI administers arbitration pursuant to the 2001 NAI Arbitration Rules. Binding advice proceedings are also administered pursuant to the same Rules, while mediation is administered pursuant to the 2009 NAI Mediation Rules.

Transport And Maritime Arbitration Rotterdam-Amsterdam TAMARA

The Dutch Legal Community realised that there was a need for quality arbitration in Maritime and International Trade Issues. The foundation "Stichting Transport and Maritime Arbitration Rotterdam-Amsterdam (TAMARA)" for arbitration in transport cases was established in 1988 by Dutch maritime lawyers and interest groups in the fields of shipping, transport and international commerce. Over the past years, the TAMARA foundation has become a well-established arbitration board, in particular in Dutch maritime circles, and is a well known alternative for settling disputes by means of arbitration.

Disputes that are commonly handled by the TAMARA foundation are disputes relating to shipbuilding (yachts, freighters, drilling platforms), financing and insurance, chartering, cargo claims, stevedore and agency services, physical distribution and ship broker’s services, as well as relating to other modes of transport.

Arbitration via the TAMARA foundation has increasingly become an alternative for traditional court procedures and for the London arbitration. Arbitration via the TAMARA foundation offers settlement of disputes at least the same standard as a traditional court procedure or the London arbitration, but within a significantly shorter period of time and at considerably lower cost. In order to enhance these goals, the TAMARA rules were revised in 2008. They provide a tight, modern procedure, enhancing speed and efficiency.

Other Arbitration Institutions

The two Arbitration Institutions discussed above, are just two of the many Arbitration Institutions in The Netherlands. Our lawyers assist our clients before a huge number of other Arbitration Institutions, amongst which the Arbitration Board for the Building Industry in the Netherlands, that traditionally arbitrates a majority of the building conflicts in The Netherlands. Another industry where a lot of disputes are resolved through arbitration is the Health Care Industry. The Dutch Forwarders Association FENEX also avails over its own Arbitration Institution, not unlike a lot of other sector specific associations.

Further information

Arbitration in The Netherlands is a reliable option to resolve conflicts. Kernkamp Advocaten assists clients from all over the world. The firm offers services that are reliable, efficient and professional, and tailored to meet the needs of our clients.

Should you be looking for representation in arbitration proceedings in the Netherlands, or you query the validity of an arbitration clause, our firm of experienced professionals can provide you with an excellent and cost effective service. For further information, please feel free to contact our Arbitration contact person. Your questions are always welcome.

Civil law country

The Kingdom of The Netherlands has a civil law, as opposed to a common-law, system and the procedure before the Dutch Courts is essentially carried out by the parties filing, through their lawyers, written submissions. Verbal hearings do take place, but play a relatively minor role in civil litigation. All cases are decided by professional judges. It is not possible to ask for a jury trial.

Court of first instance

The lower Court of first instance is the Cantonal Court, that basically deals with small claims, disputes regarding leases of residential and business premises and employment cases. The higher Court of first instance is the District Court, where parties need to be represented by a Dutch registered lawye. There are 19 District Courts in the Netherlands.

Appeal

Appeals against decisions of the Courts of first instance are heard by one of five Courts of Appeal and further appeals (solely on points of law) are dealt with by the Netherlands Supreme Court in The Hague.

Initiation of proceedings

Dependent on the nature of the case, proceedings are initiated by issuing a writ of summons (which is done by a balilff) or by filing an application. In the summons procedure the case is pending from the date of the summons. The writ must be served at the office of the clerk of the court by the claimant by the last day on which the office is open prior to the cause list date indicated in the summons procedure. The clerk of the court enters the case to the cause list of a single chamber.

In an application procedure the case is pending from the moment when the application is lodged with the office of the clerk of the Court.

Recovery of legal fees

Each party initially bears its own costs. In ordinary civil cases, the losing party must bear the legal costs as fixed by the court, which is in most cases substantially lower than the actual legal costs.

Contingency Fees

Contingency Fee arrangements are forbidden. However, balanced success fees are possible.

Further information

If you have any questions regarding litigation in The Netherlands, you are welcome to contact our litigation contact person.

Our employment lawyers advise clients on all aspects of employment law. They deal with cases that are of an entirely employment law nature, as well as employment-related issues forming part of larger transactions. The lawyers of our law firm work on contentious as well as non-contentious issues.

The services of the Labour and Employment Law Practice Group include:

• employment agreements and general employment conditions
• collective and individual employment law disputes
• application of Collective Labour Agreements (CLA’s)
• flexible employment relations
• reorganisations, mergers, acquisitions and restructuring
• non compete issues
• collective dismissal/mass layoff, social plans, strikes
• right of participation/co-determination for employees
• assistance in drafting of compensation packages, both collective and individual
• assistance in drafting personnel guides and codes of conduct
• obligations for the employer during illness of the employee
• all matters relating to leaves of absence
• impatriation and expatriation of employees
• equity based compensation e.g. share purchase arrangements
• particularities of employment contracts of expats

Further information

For additional information please feel free to contact our Labour and Emplyment Practice Group contact person. Your comments and questions are always welcome.

Related:

• Transfer of Undertakings
• Redundancy payments in the Netherlands
• Expats and Dutch Employment Law
• Arbitration in The Netherlands
• Litigation in The Netherlands

Non competition clauses are wide spread. Employers often insist on inclusion of a non competition clause in contracts of employment to defend market share. Employees tend to sign non competition clauses reluctantly as they need a job. A conflict is born when the employee wishes to leave the company to work for a competitor or to start his own business.

The solution of the conflict differs from jurisdiction to jurisdiction. The Dutch legislator has created rules and regulations regarding the validity and enforceability of non competition clauses. Rules are further laid down in extensive case law. This article tries to give you a short outline of Dutch Law on non competition clauses between the employer and the employee.

Non-competition clause

So what does a non-competition clause look like? For example like this:

Without prior written consent of the Employer the Employee shall be prohibited from entering the employ of or from working in any manner, either directly or indirectly, for any business that manufactures, sells or trades in the same or similar products as the Employer in the provinces North Holland, in South Holland and Utrecht, or from doing the same or similar work for his own account, for a period of nine months after termination of the employment contract. A penalty of EUR 1,000 shall be forfeited by the Employee to the Employer for each violation of this provision or each day that the employee acts in violation of this provision.

The employer can have a genuine interest in preventing an employee from involvement in a directly competing business after the termination of his employment contract. This is especially the case when the employee has special knowledge of operating charges, profit margins, or client structures of his former employer’s company. The employee may have built up a special relationship with the company’s customers. The employer sometimes has a reasonable fear that the employee will exercise his skills, knowledge or customer relations to the benefit of his main competitor.

The employee on the other hand has an interest in freely choosing his employer. Another employer may offer better employment conditions, or career possibilities. A valid non-competition clause may prevent him from making his preferred choice. The Dutch legislator has tried to strike a balance between both viewpoints with its legislation.

Art. 7:653 of the Dutch Civil Code addresses the relationship between the interests of the employer and the employee. The result thereof is that not all non competition clauses are valid. Morever certain valid clauses may not be aways enforceable.
validity

If confronted with a non-competition clause (either as an employer or employee) the first question to answer is whether the clause is valid or not. A non-competition clause is only valid if it meets the following requirements:

1. It must be concluded in writing, and
2. It has to be agreed with an employee who has reached the age of majority.

Secondly, the non-competition clause may have become ineffective after the conclusion thereof. This could be the case if the employee’s job description has undergone a significant change since the employer and employee entered into the employment contract. The non-competition clause may have become more burdensome for the employee as a result of the extension of his activities within the company. If no new non-competition clause has been concluded, the old clause becomes ineffective.

After a change of ownership of the company the non-competition clause will under certain circumstances pass to the acquirer by operation of law. But it is also possible that the companies non-competition clauses will have to be renewed.

As not all rules are laid down in statute law, these exemptions may be surprisingly bad news for employers from abroad, who are not aware of all the particulaties of Dutch Labor Law (You are in good company; a lot of Dutch employers are unaware of all rules relating to non-competition clauses). If one has a subsidiairy in The Netherlands and if it is important for the interests of your firm to conclude non competition clauses with key personnel, one should always seek professional advise before hiring of a new employee, and also before giving such an employee a promotion or other tasks.
legal action

Under Dutch Law, a court can wholly or partially annul the non-competition clause on the grounds that – in relation to the interests of the employer – the employee is unfairly prejudiced by the clause. The court can restrict the period of time for which the clause remains effective or the geographical extent of the clause. The court can also attach certain conditions to the effectiveness of the clause, such as the obligation for the employer to pay a certain amount of compensation for each month that the clause remains in function.

It is not usual that employees engage proceedings to annul a non-competition clause. Proceedings may take a long time and the decision is subject to appeal. It is more common that the employee just leaves to try his luck. The ex-employer should then act swiftly. There are interesting possibilities, but with the passing of time, these will become less and less effective. What happes during the first few months is of paramount importance to you and your ex-employee. Seek legal action directly.

An employer confronted with a violation of the non-competition clause can take legal action against the former employee, and it happens frequently. He can decide to ask the Court for an injunction. He can also initiate proceedings to collect any forfeited penalties or damages sustained. In some cases it is also possible to take steps against the new employer, especially if the new employer profits from the breach of contract. Provisional measures can be very effective for an employer seeking relief against a former employee in competing business.
As you will realise it is not possible to address the non-competition clause in detail here. Due to the complexity of the system it is wise to seek professional assistance prior to any measure envisaged.
What we can do for you

Kernkamp Advocaten can assist you with the following services:

• advice on drafting of non-competition clauses
• advice on validitiy of exisiting non-competition clauses
• litigation on violiation of non-competition clauses

Further information

For further information regarding non competition clauses in The Netherlands, please contact our contact person.

Hiring and Firing in The Netherlands

Who hires persons to work in The Netherlands will sooner or later get to know the relatively complex system of Dutch Labour Law. The rules are laid down in statutory regulations, like in the Dutch Civil Code, and in extensive case law. Hiring is relatively easy. Firing may be complex and in certain cases impossible or expensive.

Hiring

The regulations of Dutch Labor Law do not require the employer to provide a written contract of employment. However, it is good to realise that the absence of a written contract usually is advantageous for the employee. By not concluding a written contract before commencement of the contract, the employer misses the chance to stipulate important clauses. For certain clauses, like a non-competition clause, the written consent of the employee is a formal requirement.

The contract of employment may be concluded in the Dutch language, or another language. The use of contracts in other languages is not formally forbidden. This does not mean that one should not take into account that Dutch law is applicable. It is good to realise that Dutch Employment Law has many particularities. In our daily practice we are frequently confronted with companies using the same contract model in various countries. This seems to be an easy and fair solution, but this is not often the case. There is a high risk that some of the clauses used will be disregarded by the Court. It is very important to conclude a contract that is specifically designed for use within The Netherlands. This is not expensive or difficult and may help a lot.

Under certain restrictions one is free to conclude contracts of employment for a fixed or for an indefinite term. Fixed term contracts may be renewed under certain conditions. One cannot continue to renew such contracts over and over again. The law provides for a system where fixed term contracts become indefinite term agreements afer further renewal.

Firing

In The Netherlands it is not always easy to dismiss employees. The use of a mix of fixed and indefinite term contracts and the hiring of employees via temp agencies is therefore a good way to avail over a flexible work force. This will enable the employer to up size and down size the company in an effective manner.

The dismissal of employees with a contract for an indefinite term is generally not impossible, but this will most always cost time, effort and money. In the absence of mutual agreement or cause the employer may generally not terminate the contract of employment without a permit, to be obtained from the Dismissal Authority. This will take several months and it is not always predictable whether one will obtain the required permit or not. Another option is to ask the Court to dissolve the employment contract. In general, these proceedings are less time consuming. The Court may award compensation to the employee. This is dependent on various factors, like the circumstances of the case, the length of the contract of employment and the age of the employee. For more details see the explanation of the Dutch Cantonal Court Formula in our article on Redundancy Payments in The Netherlands.

Please note, that it is generally impossible to fire an employee during pregnancy or during sick leave.

Further information

It is not possible to address in detail all the issues of dismissal under Dutch Labor Law. Due to the complexity of the system it is wise to seek professional assistance prior to taking any measure.

For further information regarding Dutch Employment Law, please contact our contact person of the Labour and Employment Law Practice Group.