Employment aspects of company liquidation in the Netherlands

9 key steps

If you decide to terminate the activities of your company in The Netherlands, you may be confronted with employment aspects of the termination as well. Which are the requirements that you must satisfy in order to achieve termination of the company without loose ends? Using this plan, you will quickly find out the main obligations to be fulfilled at the termination of your business. This road map is only a guideline. It is possible that you have other obligations. You can contact us to discuss your specific situation. For smaller companies several of the below indicated steps can be skipped and the process can be sped up.

1. Determine whether there will be a collective dismissal. A first step is to determine whether the company liquidation will oblige you to dismiss more than 20 employees at once, within a 3 month span. If that is the case, it is a matter of collective redundancies. In this respect it makes no difference whether this concerns compulsory dismissal or dismissal with mutual approval. Once it is established that there is a situation of collective redundancies, you have several (additional) obligations. You must 1.) report the intention to the trade unions and the Employment authorities (UWV) and you must 2.) consult with the trade unions to see whether the collective redundancies can be avoided or reduced. Also you discuss with the trade unions how you can alleviate the consequences of the collective redundancies, for example with a social plan. If you do not comply with the duty to report, this can lead to the annulment of the dismissals. As this step can take some time, it is necessary to consider this step well in advance.

2. Consult the works council. If your company has a Works Council, this body will have to be consulted before taking an important step like the closing of your business. The consultation must take place before the decision is actually taken. The Works Council must be consulted at such time that their advise can be of influence on the decision.

3. Consider to establish a social plan. You can establish collective arrangements and provisions for the departing personnel in a social plan. Although a social plan is not required by law, it can be advisable to have one. Dismissal procedures may be easier if you can show that you have made arrangements to alleviate the consequences of the dismissals that will be the result of the company liquidation. You usually conclude a social plan with the trade unions. You can also establish a social plan in consultation with the works council. Or you can decide to draw up a social plan yourself. For employees to be dismissed, the social plan includes aspects such as: severance pay; participation in the pension scheme; remission of study costs; a pay supplement; training.

4. Determine which dismissal route to take. Unilateral termination of an open-ended contract of employment (without the employee’s consent), is not possible without either a dismissal permit from the employment authorities (UWV) or a dismissal granted by the Cantonal court. In case of company termination, most employers chose the route of the dismissal permit from the UWV. Termination of the companies’ activities can be a valid reason for termination of the employment contracts. In principle an employer is free to determine how he wishes to conduct his business. However, the UWV will assess whether the decision to terminate the company is a reasonable decision, also taking into account the consequences of such a decision for the personnel of the company. Therefore an employer must show in UWV proceedings that there exists a valid reason for the decision to close the company and that alternatives have been considered as well. In some situations the UWV will suspect that the business activities will in fact be transferred to another company. If that is the case, it may be a matter of Transfer of Undertaking, in which case specific rules for employee protection apply. To avoid discussions about this, that will delay the obtaining of the dismissal permits, it is advisable to supply the UWV with all information to establish that the closing of the company is no disguised transfer of undertaking. Also several other questions can be avoided by supplying the required information at the start of the proceedings.

5. Determine the desired closing date of the company. At this stage you can consider the time required to terminate the activities, but also the time needed for the termination of licenses, telephone numbers and subscriptions, and the termination of contracts, such as office space. Ideally all obligations and the end of the activities end simultaneously. In practice, this is not always easy to realize. If you are able to show that long term obligations (such as office space rent) have been terminated, it is easier to convince the UWV that your company is actually being closed.

6. Inform the employees. Simultaneous with the submitting of the request for a dismissal permit, the employees must be informed about the business closing. If there is a social plan, this plan can be presented to the employees during this meeting. If the economical situation of the company allows some financial space, termination contracts may be offered to the employees. The employment contracts may be terminated by mutual consent in stead of with a dismissal permit. This can have the advantage that there is no risk of subsequent “manifestly unreasonable dismissal”-proceedings initiated by the employees.

7. Dismiss the employees with observance of the notice period. Once the dismissal permits have been obtained, you must use the permits within 8 weeks to terminate the employment contracts. You must terminate the contract in writing. You must observe the contractual notice period, but if the notice period is more than one month, you may deduct one month because you followed the UWV proceedings. The employment will usually end at the last day of a month.

8. Draft the final accounts. At the termination of the employment the pro rata holiday allowance and any accrued but unused holidays must be paid out. Also the employer is obliged to pay the normal salary until the end date of the employment.

9. Inform the tax authorities that you no longer employ personnel. If you no longer employ employees in The Netherlands and do not pay salary, nor expect to resume doing so within a 12 month period, you must inform the tax authorities within one month after the last declaration period. Your declaration obligation for future periods will be withdrawn. The tax authorities will also inform you when the requirement to pay the obligatory social security and national insurance contributions for the employees ends. Please note that you have the obligation to keep the tax and personnel administration for at least 5 years after the termination.

Note: Our firm can assist you at any stage of the above described process. The sooner we initiate our assistance, the more we can assist you to take the best strategic decisions. The lawyers of our firm can also assist you in other parts of the liquidation process; for example with unsubscribing from the Trade Register, termination of licenses, telephone numbers and subscriptions, and the termination of contracts, such as leases for office space.