Employment Law Newsletter

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Erika Fowler
5 years ago
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1 June 2014 Employment Law Newsletter This Employment Law Newsletter of the HVG Employment Law section is to provide you with concise information on recent case law, legislation and current developments in the Dutch employment law arena. Contents: 1. Contracting the chain regulation out of a settlement agreement is not permitted 2. An employee who effectively performs his former duties for more than four weeks, but is not reported fit for work, is entitled to a new (pay) protection period 3. A 403 undertaking from the parent company does not entail a transfer of an employee's preferential claim to back wages. 4. Amendments to Work and Security Act as at 1 July 2014 postponed

2 1. Contracting the chain regulation out of a settlement agreement is not permitted On 2 May 2014, the Subdistrict Court in Utrecht ruled that a settlement agreement in which the parties derogated in advance from the regulation on successive fixed-term employment contracts ("chain regulation") by agreeing that the employment contract would end by operation of law, was subject to annulment because of inconsistency with mandatory law. Facts The facts were as follows. After the employer had gone bankrupt, the receiver terminated the employee's employment contract. Shortly afterwards, two directors acquired (a part of) the assets and continued the operations in a new legal entity. On this occasion, the employee was offered a fixed-term employment contract under which the employee was to perform the same duties as before. In an interim judgment, the Subdistrict Court had ruled that this involved a successive term of employment and that therefore the chain regulation laid down in Section 7:668a(2) of the Dutch Civil Code (Burgerlijk Wetboek) applied as normal, despite the bankruptcy. When concluding the fixed-term employment contract, the employee simultaneously signed a settlement agreement. This settlement agreement provided that the new employer could never be classified as a successive employer to the old employer and that the new fixed-term employment contract offered would end by operation of law on the agreed date. In the proceedings, the employee took the position that he was working on the basis of an open-ended employment contract. Proceedings The Subdistrict Court found first of all that the chain regulation applied. An open-ended employment contract which was terminated in a legally valid manner by the receiver following bankruptcy falls under Section 7:668a(2) of the Dutch Civil Code. This is a statutory provision that can only be contracted out of in a collective agreement. This leaves the question whether the parties could derogate from this statutory provision in a settlement agreement entailing that the employment contract ended after all on the basis of that agreement. According to Section 7:900 of the Dutch Civil Code, a settlement agreement may be concluded to prevent uncertainty or a dispute. Pursuant to Section 7:902 of the Dutch Civil Code, the parties are bound to a settlement agreement if this agreement is inconsistent with mandatory law, as in this case, unless its content and purport are inconsistent with public morals or public order. However, this does not mean that the parties can always contract a provision of mandatory law out of an agreement. After all, that would create inconsistency with public order. The text of Article 7:902 of the Dutch Civil Code refers to the settlement as a means to end uncertainty or a dispute and unlike Section 7:900 of the Dutch Civil Code not about the prevention of uncertainty or a dispute. From this it can be inferred that a settlement agreement that was concluded before a debate arose between the parties must indeed be assessed against mandatory law. When the settlement agreement was concluded, there was no dispute between the parties. The settlement agreement itself does not contain an explanation from which the motives for concluding the settlement agreement can be inferred. The Subdistrict Court found that the agreement in fact entailed that the parties accepted the end of the employment contract in advance, which would not

3 have been the case under mandatory law if this agreement had not existed. If there had been no such inconsistency with mandatory law, there would have been no reason for concluding the settlement agreement. According to the Subdistrict Court, this should not be possible. The Subdistrict Court concluded that the employment contract between the employee and the new (successive) employer had not ended and still existed. Conclusion Based on this ruling, a settlement agreement in which the parties derogate from the chain regulation in advance by agreeing that the employment contract will end by operation of law, is subject to annulment pursuant to mandatory law. Therefore employers are unable to contract the chain regulation out of a settlement agreement. 2. An employee who effectively performs his former duties for more than four weeks, but is not reported fit for work, is entitled to a new (pay) protection period On 22 April 2014, the Court of Appeal in 's-hertogenbosch ruled in manifestly unreasonable dismissal proceedings that a sick employee's employment contract had been terminated by the employer for a false reason, because the employee had been unfit for work for less than two years. The employee was entitled to compensation. Facts The employee (born in 1963) had entered the employer's service on 2 September 2003 in the position of forklift driver. On 5 September 2008, the employee ceased working due to illness. After a year of unfitness for work, the employee resumed his duties in November The company doctor recommended that the employer should not report the employee fit for work, because the employee had not fully recovered and there was a chance that the employee would again drop out in the future. The employee again ceased working due to illness in April 2010 and reported himself fully unfit for work on 26 May Because, in the employer's view, the employee had been unfit for work for more than two years by September 2010, the employer having obtained the permission of the Employment Insurance Agency (UWV) terminated the employment contract with effect from 1 March In these proceedings, the employee took the position that the contract had been terminated for a false, because incorrect, reason. Proceedings A prohibition on termination applies during the first two years of illness. If an employee reports ill again within four weeks of having recovered, this interruption is disregarded and the period of unfitness for work just continues. If the interruption lasts more than four weeks, a new two-year obligation to continue paying wages will start. The parties agree that the employee performed his duties on a full-time basis from November 2009 to the end of April 2010 and on a part-time basis from May This is a period of more than four weeks. From this, the Court of Appeal inferred that a new 104-week period of illness had started on 26 May According to the Court of Appeal, this meant that the employee had not yet been unfit for work for an uninterrupted period of two years at the time when the employment contract ended.

4 The employer's argument that the company doctor had recommended not to report the employee fit for work was brushed aside. The employer should not have relied on this recommendation. In this context, the Court of Appeal found that the company doctor had proceeded from an incorrect interpretation of the term 'unfitness for work'. The fact that the employee was not (completely) healthy from a medical perspective did not mean that he could not perform his duties in full. What matters is that the illness did not prevent the employee (any more) from performing the agreed duties. The Court of Appeal concluded that the termination of the employment contract with the employee had been based on a false, because incorrect, reason, and was manifestly unreasonable. The employee was awarded compensation. In calculating this compensation, the Court of Appeal proceeded from the two-year period of unfitness for work after May Since the employment contract ended with effect from 1 March 2011, the compensation was related to the reduction in income during the remaining 15 months. Conclusion This ruling confirms that employers should not rely exclusively on a recommendation from the company doctor. Employers remain responsible for their (sick) employees and must ensure that the correct reintegration steps are taken. In addition, this ruling shows that in determining whether an employee has been unfit for work for two years, consideration is given to the actual duties performed by the employee. The circumstance that an employee was not reported fit for work is irrelevant. 3. A 403 undertaking from the parent company does not entail a transfer of an employee's preferential claim to back wages It often happens that, within a group of companies, the parent company has issued a joint and several liability undertaking under Section 2:403 of the Dutch Civil Code ( 403 undertaking ). This makes the parent company jointly and severally liable for the debts arising from the legal entity's juristic acts. Obligations arising from an employment contract (such as wages) with a subsidiary fall within the scope of a 403 undertaking. The question put to the Dutch Supreme Court was whether, in the event that the subsidiary went bankrupt, the employee's preferential claim to back wages against the subsidiary's estate in bankruptcy was also a preferential claim against the bankrupt parent company as a result of the 403 undertaking. Pursuant to Section 3:288(e) of the Dutch Civil Code, an employee's claim will have preferential status if his employer goes bankrupt. This means that this claim will be at the front of the queue when the company is wound up. This claim therefore takes precedence over claims of ordinary creditors. In the event of bankruptcy, this status can make the difference between a payout and no payout of the claim. This is because a preferential claim has a much better chance of being paid out in a bankruptcy compared with an ordinary creditor's claim. The case at issue involved such a preferential claim of an employee against her bankrupt employer. The bankrupt employer's parent company had issued a 403 undertaking. The parent company itself

5 also went bankrupt just over three months later. The employee argued that under the 403 undertaking she also had a preferential claim in the parent company's bankruptcy. The receivers recognized the employee's claim but contested the invoked benefit under Section 3:288(e) of the Dutch Civil Code. The employee subsequently instigated so-called claim validation proceedings and claimed recognition of her preferential claim in the parent company's bankruptcy. The District Court and, on appeal in cassation, the Supreme Court dismissed the employee's claim. The Supreme Court found that the benefit under Section 3:288(e) of the Dutch Civil Code related only to an employee's claims against his (formal) employer arising from the employment contract. There was no evidence that this benefit should extend to the claim against the parent company pursuant to a 403 undertaking. The above means that an employee's preferential claim against the bankrupt employer has no preferential status towards the bankrupt parent company on account of the 403 undertaking. It must be borne in mind, however, that based on a 403 undertaking from the parent company the latter may be liable for claims arising from the employment contracts of employees of a subsidiary. This also appears from the fact that in the case discussed the receivers recognized the employee's claim but disputed only the preferential status of this claim. 4. Amendments to Work and Security Act as at 1 July 2014 postponed When the Work and Security Act (Wet Werk en Zekerheid, WWZ) was discussed in the Upper House, it was decided to postpone the amendments to the WWZ that were to take effect on 1 July 2014 to 1 January This involves the amendments concerning: the entitlement to wages and the authority to exclude this entitlement; the probationary period (no probationary period in a fixed-term employment contract for six months or less); the non-competition clause (a non-competition clause cannot be agreed any more in a fixedterm employment contract, unless such a clause is necessary due to substantial business and service interests); the notification period (in cases of a fixed-term employment contract covering at least six months, the employer must notify the employee in writing, one month before the contract ends by operation of law, whether or not the contract will be continued). These amendments will therefore take effect on 1 January We will discuss these amendments and the associated transitional provisions in more detail nearer the time.

6 HVG Attorneys at Law Civil Law Notaries Contact: Amsterdam, Utrecht Suzanne Bos T: +31 (0) E: The Hague Nicky ten Bokum T: +31 (0) E: About HVG Holland Van Gijzen Advocaten en Notarissen LLP (HVG) is a leading Dutch law firm with an outstanding reputation with regard to providing legal services. Our attorneys at law and civil law notaries are active in all areas of law which are relevant to entrepreneurs and their businesses. With offices in Amsterdam, The Hague, Eindhoven, Rotterdam, Utrecht, Brussels and legal desks in London and New York, we are able to provide you with fitting answers to all your legal questions. In the Netherlands, HVG has a strategic alliance with Ernst & Young Belastingadviseurs LLP. Rotterdam Joost van Ladesteijn T: +31 (0) E: joost.van.ladesteijn@hvglaw.nl Eindhoven Fraukje Panis T: +31 (0) E: fraukje.panis@hvglaw.nl Holland Van Gijzen Advocaten en Notarissen LLP is a limited liability partnership incorporated under the laws of England and Wales with registered number OC and is registered in the Netherlands with the Chamber of Commerce Rotterdam number HVG Disclaimer This publication has been drawn up with the greatest possible care. HVG is not liable for any inaccuracies and/or incompleteness of the information provided in this publication, nor can any rights be derived from its contents. 6

Employment Law Newsletter

June 2015 Employment Law Newsletter This Employment Law Newsletter of the HVG Employment Law section is to provide you with concise information on recent case law, legislation and current developments