Business reorganizations - in the Netherlands

How do you reorganize a business - under Dutch law?

The reorganization or restructuring of a business often entails some, or even numerous redundancies of the current employees. Under Dutch law, the employer must comply with specific obligations in this regard, to ensure protection of the legal rights and interests of their employees.

A collective redundancy in the Netherlands

The reorganization of a business can have substantial impact and economic necessity may dictate the need to dismiss multiple employees. In the event that over 20 employees are made redundant, then it will be categorised as a collective redundancy. In these type of circumstances, the applicable legislation is that of the Collective Redundancy Notification Act (in Dutch: Wet Melding Collectief Ontslag).

With the termination of multiple employment contracts, the employer’s duties will include notifying other relevant third parties. Including:

1. the relevant trade unions, where the employer should also be conferring and actively working with on the issues at hand and a reasonable handling of the redundancy.
2. the Employee Insurance Agency should be notified of the events that are unfolding due to the reorganisation of the business
3. if the business has over 50 employees, then the appointed works council should also be notified.

It is important to highlight, that these redundancies must occur within a 3 month timeframe. Further, if a works council does exist, in certain cases, this could give rise to the applicability of the Works Council Act.

Determining who is made redundant

If an employer in The Netherlands is seeking to dismiss multiple employees for financial and economic reasons, or even to survive its restructuring process, then it must do so whilst abiding by the principle of proportionality or reflection principle (in Dutch: afspiegelingsbeginsel). In essence, the selection of employees is determined by a formula that acts to balance the scales. It targets different groups or categories of employees, for example the age of employees, so the representation of age groups in the company remain more or less the same.

Reinstatement obligation under employment law in the Netherlands

For the employees dismissed, the employer must prove that there are no existing positions in the company they would be suitable for.

What is a Social Plan under employment law in the Netherlands?

The termination of the employment agreement in reorganizations and the compensation package for employees is often handled by way of a social plan. This is developed by a company to embody the mutual consent of both parties in terminating an employment agreement. It outlines the regulations and options available to employees in the event of a company reorganization. For example:

1. re-employment opportunities that can be found inside or outside the company
2. calculation of severance payment
3. notice period and termination date.

A social plan is generally constructed through consultation between the employer and the employee representative body (unions or a works council). It is in most cases a useful method to prevent court proceedings. Legal assistance with drafting the plan is highly recommended.