Do I sign or not? Termination offers explained to internationals

Valegis Advocaten is a law firm based in Amsterdam and The Hague and is the counsel for entrepreneurs and companies with international interests. Reinier Wolters explains termination law in the Netherlands.

What is your initial response when you have been offered a termination agreement by your employer? Do you feel that there is always a new opportunity ahead or are you devastated and fearful of the gap in your carefully planned career as well as losing your expat benefits?

After the first shock, what do you do? Ask friends and relatives for advice? You may have heard that Dutch employment law offers a great deal of termination protection. Does this apply to you as well? Shouldn’t you be offered a better package? What about your residency rights and the 30% ruling? Can you negotiate?

In our experience I can tell you, there is no general advice in these cases. What to do, in the event that you receive a termination offer, is very specific to the circumstances and reasons for the termination offer as well as your personal goals. Having a better understanding of Dutch employment law and the ramifications of a termination will help you.

Dutch contract types

Let’s start with your contract. Are you employed on a "local contract", a direct employment relation with a Dutch-based employer, or have you been sent by a foreign employer to temporarily work in the Netherlands at your "host employer"?   

Workers sent by foreign employers do typically enjoy a certain minimum of employment conditions offered in the Netherlands, but their employment contracts are not governed by Dutch law. The end of such a post does not imply end of employment, though it may. Local contracts governed by Dutch law are often a bit more straightforward when it comes to determining your legal position.

Dutch employment law permits fixed term contracts of any duration. However, the maximum number of consecutive contracts with the same employer is limited to three with a total duration of two years. Only interruptions of six months can start a new "chain" of contracts.

The legal consequence of offering a fourth consecutive contract or exceeding the two-year maximum duration through extension is that the last contract is regarded as a permanent contract, "by operation of law".

Termination grounds

It is usually not problematic when a fixed term contract reaches the agreed end date. Premature terminations of fixed term contracts and terminations of permanent contracts however, can cause a lot of stir.

Termination protection of employees basically means that an employer who wishes to terminate a contract will have to follow specific regulations and processes to do so. Grounds for termination are laid out by law and the respective grounds applicable must be "complete" to form sufficient reason for a termination.

Company economic grounds (e.g. restructuring, financial) and long term inability to work dictate a process of obtaining permission from the employment authority (UWV) before notice can be served. Other grounds such as performance issues, a distorted employment relationship or a culpable act (not an urgent cause) demand a process through court. Settlements outside these procedures are legally allowed and often preferred.

If all cases were well-substantiated then you would think that the outcome should be predictable. In practice however, this is often not the case and this forms an incentive for both employer and employee to try and reach an amicable settlement.

There are many advantages to settling outside of court. You can reach an agreement on topics other than the just the termination date and statutory transition payment; for instance, communication, release of restrictive covenants, gardening leave, and a full and final discharge of one another. For employers, settlements offer the opportunity to reach a termination if the legal grounds are not necessarily full-grown.

The consequences of termination

If your job is supporting your residence permit, which is the case for highly skilled migrants (kennismigranten) or other workers with different employment-based permits, you must take into account the consequences termination of your employment will have for your residency rights.

Most permits allow a so-called "search period" of three months to look for new job opportunities which can again support your permit. The immigration services (IND) will assess if you are eligible for this and begin counting this period from the official termination date of your contract. Taking this into account, you may want to consider negotiating a later end date of your employment agreement rather than a higher severance package.

Benefits

Internationals sent by a foreign employer, who decide to stay in the Netherlands rather than repatriate, should check their social security position.

Have you been paying for Dutch social security or were you exempt due to the applicability of a social security agreement? If the latter applies you should not expect any benefits from the UWV, making the financial challenge greater. Those on a local contract with a short employment history (less than 26 weeks in the prior 36 weeks) may also fall short on benefits.

30% ruling

And what about the so-called 30% ruling? You may have heard that you can transfer the ruling to your new employer after being made redundant, but did you know that there is a transfer period of only three months between jobs, which starts from the moment you stop working?

This puts exemption from the obligation to work or "gardening leave" as part of a termination package in another perspective, as the option to bring the 30% ruling over to your next job quickly disappears.

Get advice before you sign a contract

In a nutshell, contract terminations through settlements require tailoring, especially for internationals. Although I started with stating that general advice cannot be given, I think one recommendation can be given to all: consider getting advice before you sign.

Did you sign in a rush? Do take note of the fact that legally you have a two weeks’ reconsideration period to nullify the agreement. If this is not offered in the agreement itself, the reconsideration period is three weeks.

For more information, or if you require employment or immigration counsel, please contact Valegis Advocaten.

Their team of experts in the fields of corporate immigration law, employment law, corporate law and property law is dedicated to making your business work.