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Terminating an employee is not a pleasant experience. As an employer, the last thing you want on your hands is a disgruntled worker who has been terminated unfairly. As much as you want to avoid this situation, though, you need to plan for the worst-case scenario. That starts with understanding the rights and obligations of both parties involved.

If you’ve read our guide on leave entitlements in the Netherlands, you know Dutch labor laws are friendly to employees. Accordingly, the Dutch termination process begins long before the news is broken to the employee. In this guide, we outline what you should know before considering termination and the type of termination that is appropriate for each use case.

Legal reasons to terminate a Dutch employee

In the Netherlands, there are six ways to terminate an employee: 

  • Summary dismissal 
  • Dissolution of the employment contract by court ruling
  • Dismissal-based permission from the Public Employment Service (PES)
  • Termination by mutual consent 
  • Dismissal during the probationary period 
  • Expiration of a definite employment contract 

Summary dismissal in the Netherlands

An employer is within their right to terminate an employee’s contract immediately in the case of gross negligence in the performance of duties, theft, damage of property, or physical violence. These are classified as “urgent reasons” and allow employers to take swift action.

If an employee violates clearly communicated company regulations, such behavior can result in summary dismissal. The employer must still communicate the reason for dismissal in writing to the employee. 

It is not uncommon for an employee to contest this type of dismissal in the subdistrict court. Forward-thinking HR teams point to the importance of “clearly communicated company regulations” in such cases. There is some subjectivity in this classification, but you can reduce uncertainty with well-documented processes. 

Dissolution of the employment contract by court ruling

In some situations, the employer can ask the cantonal court to dissolve the employment agreement on reasonable grounds. The court can rule in favor of a dismissal based on the following: 

  • Underperformance

There are strict rules that apply when dismissing an employee because of underperformance. For one, the employer must document in detail the steps that have been taken to guide the employee towards improved performance. An employee’s illness cannot be used as a justifiable reason for underperformance. It is advisable to document performance evaluations and give the employee sufficient time to improve their performance. If it is also not possible to move the employee to another role within the company, then the court may grant approval for dismissal based on underperformance. 

  • Culpable acts or omissions

What constitutes non-permissible conduct needs to be communicated to the employee before it can be used as a valid reason for dismissal. A handy way to do this is to have clear guidelines outlined in the company’s handbook. 

  • Disrupted employment relationship

When there’s a strong difference in opinion, a clash of personalities, or a specific incident that puts a permanent strain on the working relationship, this can result in a fair termination. The first course of action is to seek a resolution through mediation. If the issue cannot be resolved, a disrupted relationship can be a valid ground for dismissal. 

  • Frequent absence due to sickness

If an employee’s ongoing absence from work due to an illness is heavily impacting the company, the court can rule in favor of dismissal. The employer will be expected to demonstrate that operations are impacted because it’s impossible for the employer to have the employee’s workload covered..

  • Conscientious reasons

When an employee refuses to work for conscientious reasons, the two parties must first attempt to arrive at a solution together. If resolution proves impossible and the employee’s absence harms the company’s operations, the employer can apply for dismissal.

Dismissal-based permission from PES

Terminating an employee in the Netherlands sometimes requires permission from the Public Employment Service (PES), also known as “Uitvoeringsinstituut Werknemersverzekeringen” in Dutch, or “UWV.” These are the termination cases that require permission:

  • Business reasons

When the company has suffered major financial losses, a decrease in work, organizational downsizing, or technological changes, the employer has to apply for a dismissal permit from PES first before giving notice to an employee. Finalizing this process typically takes around six weeks. Time spent obtaining a dismissal permit can be deducted from the applicable notice period. 

  • Collective redundancy in the Netherlands

If an employer needs to dismiss at least 20 employees within 3 months due to economic reasons, the event qualifies as a collective redundancy. To go through with this process, the employer must report the case to PES and any relevant trade unions representing affected employees.

  • Long-term incapacity due to illness

According to Dutch law, an employer is expected to continue paying an employee during their period of illness for up to two years. This usually amounts to at least 70% of the employee’s salary. The employer is obliged to put measures in place to reintegrate the employee and facilitate their return to work. These reintegration measures must be clearly documented in case termination is eventually needed. If the employee is still unable to carry out their duties after two years (and is not likely to recover within 26 weeks), the employer is allowed to request permission from PES to terminate the employee’s contract.

  • Termination by mutual consent

It is possible to terminate a Dutch employment contract amicably through mutual consent. Both parties must agree to enter into a settlement agreement in writing for the termination to be valid, and the employee’s consent must be explicit and clear. 

With a settlement agreement in place, it is not compulsory to observe the notice period or rules regarding severance payments. If both parties decide to include a severance payment, this must be stated in the agreement. There is also a two-week reflection period, during which the employee is allowed to dissolve the settlement agreement. 

  • Probationary dismissal in the probationary period

There are no conditions for termination during the probationary period in the Netherlands. The employee or employer is at liberty to terminate the contract without adhering to the standard notice period. The employee has a right to be informed of the reason for dismissal.

  • Expiry of an employment contract for a definite period of time

It is not compulsory to renew a definite contract under Dutch employment law. If the employer has no plans to renew an employee’s definite contract, the employee must be informed, even though the end of the contract signifies a termination. If the company wishes to terminate a definite contract before the end date, it can only do so if conditions were previously agreed upon in writing. In such cases, the notice period is one month.

Probation periods in the Netherlands

The probation period in the Netherlands is typically used as a trial period. This allows both parties to terminate the contract without notice or reason. It is possible to exclude a probation period clause in the contract, although it is not advisable. Removing the probation period makes dismissal more difficult by progressing the employee to full status immediately.

The maximum probationary period allowed under Dutch employment law depends on the contract length:

  • Indefinite contracts have a probation period of two months.
  • Definite contracts of less than two years have a maximum probation period of one month.
  • Definite contracts of two years or more have a maximum probation period of two months.

It is possible for the probation period to be considered null and void. This can happen in the following scenarios:

  • When the probation period is not agreed upon in writing
  • On a temporary contract of six months or less
  • When the employee’s contract is switched from a temporary one to a permanent one
  • When the contract is extended without any changes to the employee’s work responsibilities

Termination notice period in the Netherlands

A notice period applies when an employee wants to resign from their position or when the company wishes to dismiss an employee for a justifiable reason. The notice period is mandatory and typically indicated in the employment contract. If the employment agreement does not include notice period requirements, the statutory minimum of one month goes into effect. The notice period applies to both employees with permanent contracts and, in some cases, to those with definite (fixed-term) contracts. 

There are a few scenarios in which termination of an employee in the Netherlands does not require notice: 

  • The employee is still on probation
  • Dismissal is due to gross misconduct
  • The employee resigns immediately (also known as summary resignation) 

Notice periods for employees in the Netherlands

An employee currently on probation has the right to terminate their contract (by resigning) without a notice period. The notice period that applies in the case of permanent contracts depends on the duration of the employee’s contract or previously agreed upon notice period with the company. Typically, the notice period for an employee is one month and always starts on the first of the month.

If a longer notice period has been agreed upon, the employer’s notice period must be twice as long as the employee’s. For example, if the employee’s notice period is four months, then the employer’s notice period would be eight months.

Notice periods for employers in the Netherlands

Under Dutch labor laws, an employer is required to give notice when terminating an employee’s contract. The amount of notice required depends on how long the employee has been with the company. 

  • If employed for less than five years, the notice period is one month.
  • If employed between five to 10 years, the notice period is two months.
  • If employed between 10 to 15 years, the notice period is three months.
  • If employed for 15 years or more, the notice period is four months

HR teams must adhere to the notice period rules. Failure to do so can result in extra compensation for the employee. For example, if an employee with a notice period of one month is informed on the 18th of August that they will be terminated on the 1st of September, the company would be in violation. In this case, the employee would need to be allowed to continue work until the 30th of September, which is when the one-month notice period would end. 

Giving notice to employees on definite contracts

Definite contracts have a clear end date, but when a contract is valid for six months or more, the employer is obligated to inform the employee at least one month in advance if their contract will not be renewed. If an employer fails to give notice on time, the employee is entitled to compensation calculated based on their contract and how late the employer was in giving notice. 

It is also possible for a definite contract to be later deemed as “indefinite” under the scrutiny of Dutch employment law. When a definite contract has a maximum gap of three months between contracts or if the sum total of the employee’s definite contracts amounts to three years, a definite contract could be considered indefinite. In these cases, the termination process is the same as with an indefinite contract. 

When are employees entitled to transitional pay in the Netherlands?

Employees who are dismissed are sometimes legally entitled to what the Dutch call “transition pay,” which is different from severance pay. Transitional pay compensates an employee for their loss of employment while they transition to new employment. 

An employee must have worked for a company for at least two years to be eligible for transition pay. Dutch transition pay is different from severance pay under Netherlands employment law in that severance pay is given in the event of a mutually agreed dismissal. An employee is entitled to transition pay in the following cases:

  • A fixed-term contract has been terminated.
  • The employment contract has been rescinded by the court at the employer’s request.
  • The employee has terminated their contract due to gross misconduct by the employer (in serious culpable acts or negligence, the court may grant additional transition pay known as “fair compensation”).
  • The employer has been permitted by PES to give the employee a notice of termination.

An employer is exempt from paying transition pay in the following cases: 

  • The employee’s contract was terminated by mutual consent of both the employer and employee.
  • The employee was dismissed because they acted with serious culpability or gross negligence.
  • The dismissed employee is under 18 years of age and worked part-time for 12 hours a week on average.
  • The company has declared bankruptcy.
  • The employee has reached retirement age.
  • The employee’s temporary contract is renewed before the old one expires.

How is Transition Pay in the Netherlands Calculated?

The amount of transition pay an employee is entitled to is based on their age, years of service, and gross monthly salary. When an employee is dismissed, they are entitled to 1/3 of their monthly salary for each year of service, up to €84,000. If the employee earns more than €84,000 per year, then the transition pay limit is equal to their annual salary. 

For example, an employee who earns €5000 per month and has worked at the company for five years would be entitled to a severance payment of €8333.33. This is calculated by multiplying five (the number of years worked) by 1/3 and then multiplying the result by the gross monthly salary of €5000. 

In the Netherlands, tax authorities view transition payments as income and tax them as such. If the employee decides to spend their transition pay on professional education, they do not have to pay taxes on that income. When processing an employee’s transition payment, the company should also include outstanding holiday pay, profit distributions, and annual bonuses.

Let Remote help manage your employees in the Netherlands

We agree that terminations are never easy, but setting clear expectations and following the law to the letter can make things easier for both sides. It’s important you know what the process entails before you need to terminate an employee so your company is adequately protected. 

The great thing about working with an EOR like Remote is that we not only handle the process of onboarding and payroll, but we also manage terminations through our locally-owned Dutch entity, guaranteeing your terminations always follow the rules. Our team of HR and employment law experts in the Netherlands takes on the responsibility of handling this complicated process by working closely with PES to make sure all the paperwork is processed with accuracy and any outstanding payments are paid out to the employee to maintain compliance at all times.

Want to learn more? Check out our Netherlands Country Explorer for additional information on Dutch employment.