How to do business in The Netherlands – How to hire

How to hire staff
If, as a start up, you would like to hire staff for your company, there are a few ways in which that can be achieved, depending on the type of work you need the employees to do, the need for fixed or flexible hours and different types of (fiscal) responsibilities that you as an employer may have.

Employment agreements in general
Once a company (such as a limited liability company) has been established in the Netherlands, it is possible to start employing staff and prospective employees can start applying for job openings.

During the selection process, employers are prohibited from enquiring about a candidate’s medical condition or any other non work-related issues, such as political opinion, sexual orientation, pregnancy or even previous convictions. Such enquiries are only allowed if awareness of such information is essential for the performance of the job (e.g. healthcare or education sector). However, in certain situations it is possible to request that the candidate provides a certificate of good conduct (a so-called “verklaring omtrent gedrag“).

Once the employer has selected the best qualified candidate, negotiations can start. If an agreement is reached with regard to the essentials of the employment agreement such as salary, working hours and the duration of employment, then the employment agreement can be formalized in writing. Beware though, an oral agreement can be legally binding as well. Nevertheless, from an evidential point of view, it makes sense to conclude an employment agreement in writing.

Salary
In the Netherlands, all employees – including foreign nationals – that have not yet reached the state pensionable age, are entitled to the Dutch minimum wage. Of course, an employer is always allowed to pay more salary than minimum wage. Paying less, however, is not allowed.

The minimum wage limits are modified twice a year (on January 1st and July 1st) and are based on a country wide average of all salary developments in the prevailing collective bargaining agreements.

The employment agreement itself has to stipulate salary payment terms. Usually payment takes place on a monthly or weekly basis. The employer has to pay the employee’s salary within that period of time. If the employer somehow fails to pay wages on time, the employee is entitled to bring action against the employer in order to recover unpaid wages (as well as legal interest).

In addition to the salary mentioned above, the employee is also entitled to holiday allowance. By law the minimum holiday allowance is 8% of the employee’s gross monthly salary. Holiday allowance accrues during the year and is usually paid in the month of May. If the employment agreement commences or is terminated during the holiday allowance year (June-May), holiday allowance will have to be paid proportionate to time.

Other essential elements 
In some cases the nature of the employment relationship is unclear, due to the fact that it is either incorrectly labelled or it is not recorded in writing at all. Therefore, it is important to know which elements are relevant in determining whether a relationship is can be defined as an employment agreement. These essential elements – that also make the rules and regulations governing employment agreements applicable – are:

  • Work: This is the most rational element of all. One party works a certain number of hours. The other party pays for the work. Work in this sense is a personal duty: only the employee is allowed to do the actual work, because the agreement has been entered by reason of its strictly personal nature (intuitu personae).
  • Certain period of time: the work has to be performed during a certain period of time. The period of time requirement can already be met with a duration of one hour.
  • Authority: The employer has to have the authority over the employee to issue instructions.

Collective Bargaining Agreements
Collective Bargaining Agreements (CBA’s) play a big part in Dutch employment law. In some cases, it is only possible to derogate from the legal restrictions by means of a CBA. There are two types of CBA’s: sectoral CBA’s and company CBA’s. Sectoral CBA’s are concluded between employers’ organization(s) and trade union(s). The scope of these CBA’s is very broad in a way that complete sectors of industry can be bound by them. The scope of company CBA’s is much smaller and limited to the employees of the company that concluded the CBA with the trade union(s).

In general, the employer is obliged to enforce the CBA if the employer is a member of the employer’s organization that concluded the CBA and if the CBA applies to the employer’s type of business (sectoral) or if the employer is individually bound (company). If the employer is bound by the CBA, the CBA has to be applied to all individual employment agreements, whether the individual employees are a member of the contracting trade unions or not.

In the cases where the employer is a non-affiliated party, the CBA can only apply in two other situations: 1) The CBA is applicable if it is incorporated explicitly in the employment agreement or 2) if the Minister of Social Affairs and Employment has declared the CBA generally binding. In case of the latter, the employer is obliged to apply the CBA even if none of the parties is affiliated and even if they both do not wish to apply it. The generally binding order from the minister applies until the CBA expires or for a maximum period of two years.

Holidays and time off 
Dutch employment law specifies the accrual of holidays. A distinction can be made between statutory holidays and extra legal holidays.

  • Statutory holidays are the minimum number of holidays/days off that en employee is entitled to. The law provides that in general the employee is entitled to four times the weekly working hours. A full-time (40 hours a week) employee is therefore entitled to a minimum of 20 statutory holidays/days off a year. Statutory holidays lapse if they are not taken within six months after the year in which they were accrued, unless the employee was not reasonably able to take them.
  • Extra legal holidays can be provided in either a CBA or individual employment agreement. These days will lapse if they are not taken within 5 years after the year in which they were accrued.

In general, holiday/vacation is fixed in accordance with the employee’s wishes. Only in case of legitimate business interest is an employer allowed to prevent the employee from taking vacation during that specific period. In that case, within two weeks after the employee made his request for time off, the employer will have to inform the employee in writing of his reasons for refusing to allow the employee the requested time off. If the employer fails to do so, the period is fixed in accordance with the employee’s wishes.

Employees on sick leave accrue the same number of holidays/days off as regular employees.

Public holidays
In addition to holidays and days off described above, there are several statutory public holidays in the Netherlands to which employees are entitled. Many CBA’s stipulate that employees are entitled to a day off on those days and/or – in some cases –are entitled to extra pay if they are required to work on those days. The public holidays are:

  • New Year’s Day (January 1st);
  • Easter Sunday;
  • Easter Monday;
  • King’s Day (April 27th);
  • Ascension Day;
  • Pentecost Sunday;
  • Pentecost Monday;
  • Christmas day (December 25th);
  • Boxing day (December 26th).

Other public holidays can be:

  • Liberation Day (May 5th);
  • Good Friday;
  • New Year’s Eve (December 31st).

These last three days are not official public holidays. However, most (semi-) governmental organizations, schools and banks honor these days with a day or a few hours off. Liberation Day is a public holiday every five years. In the private sector CBA’s can classify these days as mandatory days/hours off work.

Employment agreements: special clauses
Below are some of the most frequently used contractual clauses. This is not an exhaustive list.

Probationary period clause 

Probationary period clause can only be included in employment agreements for a fixed term of more than six months or in indefinite employment agreements. If a probationary period clause has been included in an employment agreement, during the probationary period, both the employer and the employee are entitled to terminate the employment agreement without notice. A probationary period must concluded in writing and is equal in duration for both parties to the employment agreement.

In the case of an indefinite employment contract or in the case of an employment agreement fixed for a period of two or more years, the maximum trial period is two months. In all other cases, the maximum probationary period is one month.

If a fixed term employment agreement is extended, the employer is not allowed to include another (new) probationary period clause, if the employee involved will be carrying out more or less the same work that the employee previously did (be it for the same or another department. A probationary period clause is null and void if it does not meet the above basic requirements.

Non compete clause 
The general rule regarding non compete clauses is that they are only allowed in indefinite contracts. Including non compete clauses in fixed term contract is not forbidden but the employer has to state in the written employment contract and be able to prove that it has legitimate business interests in including the non compete clause. Knowledge of certain business sensitive information on the part of the employee is insufficient reason.

Non-compete clauses are only effective if a certain scope of (competitive) activities is included as well as a certain geographical area and a certain period of time. A non-compete clause must concluded in writing an the employee must at least be 18 years old at the time of signature. Non-compete clauses cannot have an unlimited extent. They must be limited to what is reasonably necessary for the protection of the employer’s business interests. Limitations with regard to territory and the nature of activities depend on the branch in which the employer operates and the position of the employee within the business. Usually a penalty clause is linked to the non-compete clause. If the employee violates the non-compete, the employer can claim the stipulated penalty as well as damages. Enforcement of a non-compete clause can be limited or denied by a court.

Non solicitation clause
A non-solicitation clause stipulates that the employee is not allowed to solicit his employer’s customers or employees during or after his employment. This clause must be concluded in writing and in a language the employee understands. There are no other formalities related to the non-solicitation.

Confidentiality or non disclosure clause 
A confidentiality clause stipulates that the employee is not allowed to disclose any confidential information relating to the employer’s business during or after employment. The clause must be concluded in writing and in a language the employee understands. Confidentiality clauses can be enforced in a court of law by the employer and damages can be claimed. A penalty clause is usually agreed upon (this is in addition the possible damages that the employees can still claim).

Penalty clause 

The employer has been given the possibility to add a penalty clause to the employment agreement. A penalty clause is the incentive for employees to refrain from violating non-compete, non-solicitation and confidentiality clauses. A penalty clause does not preclude the right to claim full compensation for damages instead. Nevertheless, the penalty clause has to meet quite a few legal requirements in order to be valid.

  • The penalty clause has to be concluded in writing.
  • It has to be clearly provided which provisions have to have been violated for the penalty to be forfeited.
  • Every penalty must be set to a specific amount and expressed in the same currency as in which the wages are determined.
  • Over a period of one week, the employer may not charge the employee penalties amounting to a higher total sum than the employee’s wages for half a day. No separate penalty may be set to a higher amount than the employee’s wages for half a day.
  • The employment agreement has to stipulate precisely for which cause the received penalty will be used. A penalty may not have the result that the employer (or the person to whom he has granted the right to impose a penalty) obtains a personal advantage from of it.

Derogation is possible with regard to the rules of the amount of the penalty and to what cause the penalty will be used, except for the case where the employee works on a minimum wage basis. No derogation is possible then.

Study costs clause 
Study costs clauses stipulate that the employee has to pay back (a part of) the costs incurred by the employer for the benefit of the employee’s education. An employer is obliged to reimburse expenses if the employee is obliged to attend certain courses.

The employer takes a certain risk if it is willing to pay for a full study. After all, some of those expenses are not covered if the employee leaves employment soon after passing his or her final exam or if he or she quits the training course prematurely. The employer can include a study costs clause in the employment agreement (or adjoin an exhibit to it). Case law states that the employer can recover study costs from the employee if the clause stipulates the repayment term, the amount that has to be repaid and parties have to agree upon a graduated scale (the longer the employee remains in service, the less he has to repay).

Employment agreements: custom design

Taking all the abovementioned into account, there are many ways to give the employment agreement more substance. It all depends on what you want as an employer and to what extent the employee can agree with your terms and conditions. All individual agreements are basically custom designed. Therefore, it is recommendable to get legal advise, especially if you are about to employ new staff members. Please don’t hesitate to contact one of the employment law specialists of our international desk for more information and advice.

On-call agreement 
The on-call agreement is a specific type of employment agreement.  All employment law rules apply in a similar manner to the on-call agreement as they do to the regular employment agreement. The only difference between a regular employment agreement and an on-call agreement is that the number of working hours is flexible (min-max hours) or not fixed at all (zero hours contract).

The on-call agreement can be quite convenient for employers that deal with peaks and lows in their production processes. Employers should be aware though: If an employee works on a zero hours basis but actually works for much more hours on a permanent base, by operation of law, that amount of working hours can become the new basic amount of working hours (or the new minimum). If the employee works for the maximum number of hours, in the case of a min-max construction, the same applies and by operation of law the employee can become entitled to that maximum (since the maximum has become the stipulated number of working hours).

Temporary workers agreement 
The temporary workers agreement differs from the temporary employment agreement. In some cases, it can be compared to payrolling. It is a three-party agreement between the actual employer (hirer), the formal employer (the temp agency) and the employee. The temporary workers are employed through the employment agency. The agency has the  responsibilities of an employer, while the employee is working for the actual employer. The temporary worker has less protection against dismissal.

Contract for services 
Instead of hiring new staff by means of an employment agreement, it is also possible to hire a contractor. The contractor offers services. The contractor differs from the employee in many ways. For instance: the contractor is independent from its clients and usually works for more than one client. The relationship of authority – which is a crucial element for employment agreements – is missing. Wages are paid by an hourly rate and the services of the contractor are subject to VAT. Moreover, the contract for services can be terminated at all times by the client without applying any rules regarding dismissal.

Contractor agreement 
Not to be mistaken by the contract for services, the contractor agreement can be quite similar to it. The main difference is the fact that the contractor offers to create work of a tangible nature contrary to offering services.

In conclusion 
There are many ways to hire personnel and there are numerous provisions that employers have to comply with. Furthermore, there are a lot of different types of agreements and most of them can be customized to the individual needs of the employer and employee. As explained before, it is recommendable to get legal advice from experts.

If you have any questions regarding hiring staff or employment law in general, make sure to contact one of our International Desk employment law specialists.

 

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