Overview of Employment Contracts in the Netherlands
An employment contract is an obvious choice as it is the most used form of employment in the Netherlands. However, businesses have a growing need for flexible forms of employment. On the other hand, businesses consider it important to retain good staff. Which forms of employment contracts are available in the Netherlands? And what are their pros and cons?
Different types of employment in the Netherlands
If you start or conduct business in the Netherlands it is important to consider what types of employment you can choose from. You need to consider what is most essential for your business. Is flexibility important? Or is retention of good staff key?
Depending on the needs of your business model you can choose from the following forms of employment:
- employment agreement for an indefinite period of time (permanent contract)
- employment agreement for a fixed term (temporary contract)
- on-call employment agreements (flexible hours)
- temporary agency work
- self-employed workers
This article will help you choose the type of employment to fit the needs of your company and business model.
Dutch employment law allows several types of flexible employment. The extent of their flexibility varies and each type has its pros and cons.
Fixed-term employment contracts
A fixed-term employment agreement allows businesses to hire employees with a relatively low risk, since it ends automatically at the end of the term agreed upon. The downside of the fixed-term employment contract is that it can only be renewed to a limited extent.
In the Netherlands, a total of three successive fixed-term employment agreements can be agreed upon. They will end by operation of law after the end of each term, if their total duration is shorter than 24 months. This means an employer could offer three consecutive employment contracts of 8 months each, or two consecutive employment contracts of 12 months each, or any other combination that does not exceed a total of three contracts and a total duration of 24 months.
If the consecutive employment agreements are interrupted by intervals of more than 6 months, a new chain begins and again, three fixed-term agreements with a total duration of a maximum of 24 months can be agreed upon.
If more than three consecutive fixed-term employment agreements are entered into, or their total duration is more than 24 months, the last employment agreement is converted into a permanent employment agreement.
In the Netherlands, it is also possible to enter into a fixed-term employment contract for the duration of a project and therefore without an exact, predetermined end date. In that event, the project needs to be sufficiently and precisely described. This is a good solution for projects, for which the exact duration is not easily determined. However, the end of the employment contract needs to be clear and independent of the will and acts of the parties. If this is not the case, the contract shall be deemed to be entered into for an indefinite period of time.
An employment agreement for a fixed period of time may only be terminated prematurely by giving notice if this is explicitly agreed upon in the employment contract and if the employer obtained a dismissal permit from the Dutch Labor Authority (UWV). If not, the employment agreement can only be terminated by the court or by the mutual consent of both parties. In practice it is often difficult for employers to terminate a fixed-term employment contract prematurely. Therefore, it could be advisable not to agree upon an early termination option in the employment contract, since this also binds the employee to the company for the term of the contract.
Even though a fixed-term employment agreement ends by operation of law, the employer needs to inform/notify the employee in writing at least a month prior to the end date, whether the employment agreement will be prolonged and if so, under what conditions. If this obligation is not complied with, the employee can claim an equivalent of one month’s salary from the employer.
In case the employment agreement lasted two years or longer on the termination date, the employee could also be entitled to the so-called transitional (severance) payment (see below).
On-call employment contracts
In the Netherlands, it is also possible to enter into the so-called on-call employment contract. This option can be especially considered when the volume of work is uncertain or irregular. In case of the on-call employment contract, the parties enter into an employment agreement without an exact agreement on the number of working hours and the exact time when the work is to be performed. It is possible to agree on a “zero hours” contract or a contract with a minimum working hours guarantee (e.g., 16–32 hours). In any case, the risk exists that such contract will be converted in a contract with a guaranteed minimum number of hours per week equal to the average of the last three months of employment.
Parties may agree in writing that during the first six months of employment no wages will be paid out in the event that no work is available. However, after this six-month period, the employer is obliged to pay wages, even if work is still not available.
Temporary agency work/payrolling
Temporary agency work and payrolling mitigate the employer’s risks connected to employment and allow more flexibility than employment agreements for a fixed term. In case of temporary agency work, the employee (temporary agency worker) is employed by the temporary work agency and is assigned to the host company. In case of payrolling, the setup is similar, the only difference is that the payroll company does not bring the employees and the host company together (allocation), in the way that a temporary agency does. The employee works under supervision and instruction of the host company, i.e., the temporary work agency’s or payrolling company’s client.
Special rules apply in case of termination of the employment contracts of temporary agency and/or payrolling employees. Furthermore, in many cases the collective labor agreement for temporary work (ABU) applies to agencies and payroll companies. This collective labor agreement regulates many aspects of secondment and posting in the Netherlands.
The agency workers must be paid in accordance with the applicable collective labor agreement or, in the absence thereof, they will receive the same pay as employees doing the same work and are employed directly by the host company. The host company has a joint and several liability for the correct payment of wages to the temporary agency worker by the agency. Therefore, it is important to work with trustworthy temporary work agencies.
A seemingly attractive alternative to different forms of employment agreements is hiring self-employed workers. Working with self-employed workers offers more flexibility, since the self-employed workers do not enjoy dismissal protection, and the minimum terms and conditions of employment (e.g., payment during illness and vacation) do not apply to them.
In some situations, an agreement with a self-employed worker may, however, be deemed an employment agreement regardless of how it is described by the parties. In practice, there is a fine line between the employment agreement and self-employed work. In order to qualify the employment relationship, all facts and circumstances need to be considered, but especially whether the company has the authority to supervise the work.
Dutch case law explains that it is also important to understand which kind of contract parties meant to agree upon and how the parties executed it in practice. If the agreement between the parties can be qualified as an employment agreement, it will be governed by Dutch employment law and any provisions of the agreement which are not in line with its mandatory provisions of labor law shall be null and void, or voidable.
For Dutch wage tax and social security purposes, the Dutch tax authorities may also take the position that a self-employed worker is in fact an employee. In that case the employer can be ordered to pay wage taxes, social security premiums, interest, and fines.
It is therefore important for companies not to take the decision to hire a self-employed worker lightly and always consider the risk of deemed employment.
Definition of an employment contract under Dutch law
An employment relationship qualifies as an employment agreement if at least the following three conditions are fulfilled:
- The employee personally carries out work.
- The employee receives pay for the work performed.
- The employer can give the employee directions and instructions (authority relationship).
In case of a dispute, the court will look at all of the circumstances in order to assess whether an employment agreement exists. When no specific agreements were made (in writing) regarding the employment relationship, the parties will be deemed to have entered into an employment agreement for an indefinite period of time.
Under an employment agreement the employee is entitled to certain minimum conditions, including the minimum wage, holiday allowance, and the minimum amount of days of paid annual leave. The employer is obliged to comply with the mandatory provisions with regards to maximum working times and minimum rest periods, health and safety at work, equal treatment, continued payment of wages in case of illness, etc. Moreover, the employee may also be entitled to additional rights based on an applicable (universally binding) collective labor agreement or under a mandatory industry-wide pension scheme.
Under employment agreements, the employees enjoy extensive dismissal protection.
Permanent employment contract
If an employer and employee agree upon an employment contract for an indefinite term (also called an open-end contract or permanent contract), this contract can only end
- by giving notice during the probation period;
- by giving notice after being granted a dismissal permit from the Dutch Labor Authority (UWV) in case of valid business reasons or after two years of illness;
- by termination by the court in case of personal reasons, like underperformance, damaged working relationship, loss of immigration permit;
- by dismissal with immediate effect due to urgent reasons (i.e., gross misconduct);
- by mutual agreement (settlement);
- by the employee reaching the pensionable age;
- by the employee’s death.
> For more information about the employment terms and conditions in Dutch employment contracts, please read the article: Employing staff in the Netherlands.
When the employment agreement is terminated – after two years – at the initiative of the employer, the employee is entitled to the so-called transitional payment, unless the employee acted in a seriously culpable manner. This payment is based on the income of the employee and the length of employment. The basic rule is that the employee is entitled to one month’s salary per three years of service (and pro rata). For employees employed for more than 10 years and/or older employees (50+) special transition rules apply.
In case of seriously culpable behavior of the employer and/or in case a social plan applies, the employee could be entitled to an additional severance which depends on the circumstances of the case.
Laying down agreements
When choosing types of employment in the Netherlands it is important to take the risks and advantages of each type into account and draft a proper contract. Should you have any questions, please do not hesitate to contact us.
Sanne van Ruitenbeek & Agnieszka Mucko, Pallas Advocaten