termination of employment in The Netherlands: laws & severance policies

Legal Grounds for Termination of Employment in the Netherlands

An employer in the Netherlands has the authority to terminate an employment agreement with a valid reason, as specified in both the employment agreement and any collective agreement in place with the employee. However, unilateral termination without involving the Employee Insurance Agency (UWV) is not permissible, particularly in cases related to economic reasons or long-term disabilities. According to Dutch law, valid reasons for termination include:

• Redundancy due to economic reasons, such as company bankruptcy, restructuring, or reorganization.
• Employee underperformance or incompetence.
• Long-term illness or disability preventing the employee from performing their duties.
• Misconduct or inappropriate behavior by the employee.
• A disrupted working relationship that cannot be restored.
• Frequent absenteeism that adversely affects business operations.
• Refusal to fulfill contractual duties based on conscientious or religious objections
• Detention or imprisonment of the employee.
• Other circumstances that render the continuation of employment unreasonable.

Employment Laws and Severance Policies in the Netherlands

Notice Period in the Netherlands

In the Netherlands, when termination occurs through mutual agreement, securing the employee's consent involves following notice periods. These notice periods are based on the employee's length of service. The statutory notice periods for employers are as follows:

Employers must provide written notice, and the notice period typically commences at the start of the calendar month. In cases of gross misconduct, immediate dismissal without notice is permissible.

Severance Pay in the Netherlands

Employees are entitled to a transition payment upon termination when the employer initiates the dismissal, and the employee is not blameworthy.

The transition payment amounts to one-third of the gross monthly salary per year of service, with a maximum of €94,000 gross or one year's salary if the employee's annual salary exceeds this amount.

Probation Period in the Netherlands

In the Netherlands, probationary periods are common but not required. They are determined by collective agreements and individual contracts.

The maximum probationary periods allowed under Dutch employment law are:

• Indefinite contracts: up to 2 months.
• Fixed-term contracts of less than 2 years: up to 1 month.
• Fixed-term contracts of 2 years or more: up to 2 months.

Probation periods must be agreed upon in writing. Certain conditions can render a probation period null and void, such as when it's not agreed upon in writing or when applied to temporary contracts of six months or less.

Process for Ending Employment in the Netherlands

• Assessment: Determine if there is a valid legal ground for termination.
• Consultation: Engage in discussions with the employee to explore possible solutions.
• Notification: Provide the appropriate notice period as stipulated by law or contract.
• Approval: Obtain permission from the Employee Insurance Agency (UWV) or the subdistrict court, depending on the reason for termination.
• Finalization: Settle all outstanding payments, including transition compensation if applicable.

Employee Rights During Termination in the Netherlands

Unfair Dismissal Protections

Unfair dismissal occurs when an employer terminates an employee without a valid legal reason or without following the proper procedures. Employees have the right to challenge such dismissals in court and may be entitled to compensation or reinstatement.

Grievance Procedures

Grievance procedures provide a structured approach for employees to raise concerns or disputes regarding their employment. These procedures are crucial for resolving workplace issues amicably and ensuring fair treatment.

Final Pay and Benefits

Upon termination, employers are responsible for settling final pay, including wages, bonuses, and compensation for unused vacation days. The transition payment, if applicable, must be paid within one month of the end of employment.

What Termination Documentation Is Required by Law?

Employers are legally obligated to provide the following documents upon termination:

• A written termination letter outlining the reasons for dismissal.
• Final payslips detailing all payments made upon termination.
• Relevant tax documents, such as the annual income statement.

These documents should be provided promptly to ensure compliance with legal requirements.

How to Stay Compliant as An Employer in the Netherlands

Expanding your workforce across international borders is an exciting step, but it can be a logistical nightmare to hire and pay employees in different countries. And if you need to terminate employment, it’s critical to adhere to local compliance laws. That’s the advantage of using a trusted Employer of Record like Playroll. They can:‍

• ‍Handle international compliance: Different countries each have their own federal and local laws governing employee rights. An EOR helps ensure that you are compliant with the unique set of laws for any country in which your company operates. 
• ‍Run payroll for your global team: An EOR will act as your payroll provider, paying your employees on your behalf in the local currency. The company will also have in-depth knowledge of local tax codes, regulatory practices, and everything else that goes into managing global payroll.
• ‍Scale your team anywhere: Legally hire and swiftly onboard new hires in 180+ regions without the need for entity set-up by leveraging Playroll's infrastructure, so you can freely explore new markets and focus on growth.