Employment contracts in The Netherlands

As an employer considering or already doing business in the Netherlands, hiring staff is one of your top priorities. Therefore you need to know about Dutch employment law. You may for example think that sending someone from head office means you do not have to worry about a new employment contract. Unfortunately you could be mistaken.
This article gives a short overview of some of the subjects that you need to keep in mind when employing people (whether ex-patriate or local) in the Netherlands and drafting employment contracts.

Applicable law

If an employee is sent to The Netherlands temporarily, then there may be no need to conclude a new employment agreement. Once an employee is deemed to be (semi) permanently based in The Netherlands then you need to realise that Dutch law will be at least partly applicable to the employment contract.

The Netherlands is party to the EU convention on the law applicable to contractual obligations.
This Convention is also applicable to international labour law. The convention states that an employee, regardless of the law governing the employment contract, is entitled to the protection afforded by the compulsory regulations that would apply if no applicable law had been chosen. So an employee working in The Netherlands can claim extra protection from Dutch law if the law applicable to his employment contract offers less protection and the employee has sufficient grounds to claim that his normal place of employment (and domicile) is the Netherlands. The more an employee is connected to the Netherlands, the sooner a court will rule that Dutch law is (also) applicable.

Minimum requirements for an employment contract

Dutch law does not require a formal written employment contract. An employment contract is deemed to have been concluded as soon as:

  • There is a relationship of authority whereby the employer can give instructions to the employee;
  • The employee is obliged to personally carry out the employment agreed upon;
  • The employee is receives a wage.

So, even if a contract has not been signed, but there is verbal agreement, then an employment contract has come into being.

It is, however, highly unadvisable to not conclude a written agreement as certain clauses are only valid under Dutch law when agreed on paper, such as non-competition clauses (see below).

Pursuant to article 7:655 of the Dutch Civil Code, the employer will nonetheless need to inform the employee in writing of the following within one month of commencement of the employment agreement:

  • name and residence of parties;
  • place where the work is to be carried out;
  • position of the employee and a job description;
  • date upon which the employment commenced;
  • if the employment contract is for a fixed period of time, the time period;
  • holiday entitlements and the method of calculating leave;
  • salary and the payment arrangements;
  • the customary number of working hours per day or per week;
  • the employee’s pension rights (if applicable);
  • whether a collective labour agreement is applicable;
  • the notice period for termination.

The above essentially entails all aspects of an employment agreement, so the law in practice encourages the drafting of an actual employment contract.

Fixed term or permanent contracts

It is possible to conclude either a fixed term or permanent (indefinite) contract.

A fixed term contract ends at the end of the period specified in the contract without notice. Currently a maximum of three concurring fixed term contracts is permitted by law, which may in total not exceed a 24 month period. As soon as a fourth fixed term contract is concluded or the contract exceeds 24 months, this contact is by law converted into a permanent employment contract.

As of 2015 a timely notice period has been introduced obliging the employer to announce to the employee one month before expiry of the contract that the employer will not be extending their temporary contract. If the employer does not make his intentions clear at least one month before the contract expires, a legal penalty of a maximum of one month’s salary will be owed to the employee.

Probation

Dutch law allows for a probationary period of a maximum of two months for permanent contracts. For fixed term contracts much stricter rules are in place and a maximum of one months’ probation is permissible. A probation period can only be concluded for contracts of over six months in duration.

During the probationary period, the employer may terminate the contract without notice. Termination may, however, not be discriminatory.

Probation periods must be concluded in writing. A verbal agreement on probation is null and void. If the probation period is not in line with the law, then any probation clause is deemed null and void ab initio. This means that no probationary period is applicable.

Non-competition clauses

Any non-compete clause must be concluded in writing and must be re-affirmed every time the employee changes his function or is promoted to ensure the clause is still valid.

Non-competition clauses must contain specific restrictions as to the geographical area the clause is valid for, the duration of the clause and in some cases the functions the employee is prohibited from exercising. There are also stricter rules for concluding a non-competition clause in termporary contracts. The employer must state exact cause and business interests for limiting the employees movements after a relatively short period of service in the employment contract.

The non-competition clause must be limited to what is reasonably necessary to protect the employer’s business interests. If the clause is not specific enough or too stringent, the courts may set the clause aside. Clauses that restrict the employee for longer than a year often need to be backed up by specific business interests.

A well drafted non-competition clause can be enforced in court by the employer and can also result in actions against a new employer for continuing to employ the employee in the wake of a non-competition clause.

Often employment contracts contain pre agreed penalties for breaching non-competition and secrecy clauses. These must be in proportion to the breach and can be mitigated by the courts.

Holidays and holiday pay

A full-time employee is entitled to a minimum of 20 days paid holiday per year excluding public holidays, such as Christmas, Easter and Kings day. If only the minimum amount of holidays are granted, then the employer may not direct the employee when to take holidays. Many employers in the Netherlands grant 25 days a year.

Employees are entitled to a holiday allowance, usually paid in May of each year. In general, holiday pay equals 8 % of the annual salary. If the annual salary does not exceed three times the annual equivalent of the minimum wage, then 8 % holiday pay is mandatory. If an employee’s salary exceeds three times the minimum wage, parties can agree in writing that the employee is not entitled to a separate holiday pay or is entitled to a lower percentage.

Notice period

Dutch law provides for the following statutory notice periods for the employer:

  • fewer than five years of service: one month;
  • more than five but fewer than ten years of service: two months;
  • ten or more years of service but fewer than 15 years of service: three months;
  • 15 of more years of service: four months.

The notice period for the employee is one month. It is possible to conclude a longer notice period for the employee, but to be valid the employer must then observe a notice period that is twice as long, i.e. to agree a notice period of two months, the employer must observe a notice period of four months, regardless of how long the employee has been employed by the company. A collective labour agreement can, if applicable, also contain different rules regarding the notice period.

How can Bowmer & Nuiten help you?

Our employment and labour law specialists can help you draft new employment contracts and review whether current agreements are relevant to the employment situation in the Netherlands. We also regularly advise and litigate in matters regarding termination of employment contracts and non-competition clauses.
For more information or advice, please feel free to contact Jaap Wijnja.

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