How does a reorganization work in the Netherlands?

Why do companies reorganize?

When companies experience financial challenges, it can be important to take action. One of the options a company has is to reduce costs. A company’s workforce is often one of the largest expenditures. That is why companies tend to look at reorganization as a mean to overcome financial troubles.

In the Netherlands there are certain procedures and rules that companies wanting to reorganize need to follow.

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First step of reorganizing: temporary contracts

The first step that a company considering a reorganization is required to take is to simply not renew contracts for temporary employees and agency workers. A company is always free in its choice to prolong an employment contract or not – there is no special procedure to be followed for this. In case of a reorganization a company is required to look at reducing temporary staff before looking at terminating permanent employees.

Keep in mind that employees with a temporary contract have a right to a transition fee from the first day they started working.

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Letting go of permanent employees

The next step would be to look at terminating the contracts of permanent employees.

In the Dutch legal system, a permanent employment contract can be terminated with permission of the Netherlands Employees Agency (UWV) or through court proceedings.

In case of a reorganization the UWV procedures is in fact the only way. Companies are obliged by law to report an intended mass dismissal to the UWV. The UWV will give permission for the termination of the permanent contracts if certain conditions are met, such as:

• A founded reason for the mass dismissal (a forced reorganization due to fall back of turnover of the business can suffice).
• In selecting contract that are to be terminated, the company must uphold a so called ‘afspiegelingsbeginsel’ – the principle that the employees that are to be let go are a good reflection of the overall work force in terms of age, years of employment etc. A company cannot simply resort to cherry picking.
• A company must proof that is has thoroughly looked at the possibility of relocating employees in different parts of the company

This procedure is however very time consuming and expensive. This is way 9 out of 10 employers choose to offer their employees a termination proposal. Want to know more about this way of letting permanent employees go? Read about it here!