The Balanced Labour Market Act: Key points for employers

Written on 14 Feb 2020

This insight relates to the recently introduced Balanced Labour Market Act (WAB). The WAB has entered into force on 1 January 2020 and aims to reduce the differences between temporary and permanent employment agreements. Measures include easing dismissal rights and making payrolling more expensive.

The six most important changes are summarized below.

1.  Cumulation ground for dismissal

In addition to the existing grounds for dismissal, a new ground for dismissal is introduced: the so-called cumulation ground. Until the introduction of the WAB, unilateral dismissal was only possible if one of the eight statutory grounds for dismissal was fully met. The cumulation ground gives the courts the option to combine several grounds for dismissal. To give an example: an employee may not be performing well, but has not yet started an improvement plan, while there is also a somewhat disturbed working relationship.

The cumulation ground cannot be used for dismissals for commercial reasons or for long-term occupational disability. Also, one of the statutory grounds (serious conscientious objections) cannot be included in the cumulation.

If the court dissolves the employment agreement based on the cumulation ground, the court may award the employee an extra termination fee on top of the statutory transition fee (and possibly the fair compensation) up to a maximum of 50% of the transition fee. This extra termination fee is intended to compensate for the lack of one fully-fledged ground for dismissal.

Furthermore the cumulation ground does not set aside the other requirements for dissolvement such as efforts to re-deploy the worker within a reasonable term.

2.  Transition Fee

As per the introduction of the WAB, employees will be entitled to the statutory transition fee (insofar all conditions are met) from the first day of their employment (including a probationary period if applicable). Before the WAB entered into force, the transition fee was only due after at least 24 months of employment. In return for employees being entitled to a transition fee sooner, the amount of the fee is lowered due to a new calculation method. Under the WAB, each employee will accumulate 1/3 gross monthly salary per year worked (or a pro rata parte thereof). The higher fee for employees of 50 years and older with more than 10 years of employment has lapsed with the introduction of the WAB.

Starting from 1 April 2020, employers can apply for compensation for transition fees that have been paid to employees whose employment is terminated due to long-term occupational disability, if all conditions are met. Compensation of the transition fee is also possible under certain circumstances if jobs are lost as a result of company closure due to illness, retirement, or death of the employer.

The WAB calculation must be applied to all employment agreements that end after 1 January 2020 unless one of the following situations occur:

  • The employment agreement was terminated prior to 1 January 2020;
  • The employee has consented in writing to the termination of the employment agreement prior to 1 January 2020 and not revoked their consent;
  • The application for dissolution has been submitted to the court prior to 1 January 2020;
  • The application for a dismissal permit to the UWV was submitted prior to 1 January
    2020.

3.  Employer’s Contributions to the Unemployment Insurance Act

Under the WAB, the Unemployment Insurance Act (WW) contributions for the employers will be lower in the case of an employee with an employment agreement for an indefinite term rather than a temporary employment agreement or on-call agreement.

The employer should be able to demonstrate in writing that the employee has an indefinite term employment agreement in order to be eligible for the lower WW contribution.

If the employer cannot demonstrate prior to or on 1 April 2020 an indefinite term agreement in writing, then with retrospective effect the higher WW contribution will apply as per 1 January 2020.

The conditions to be eligible for the lower premium are:

  • Written proof/addendum/agreement stating an indefinite term agreement as per ultimately 31 December 2019 being in place
  • The written proof is signed by both employer and employee (or in case of a digital system, has actively been approved)
  • Written proof that the agreement is not an on call agreement

An extension or conversion letter (from fixed term to indefinite term) is insufficient to serve as the written proof mentioned above.

The high contribution is five percentage points higher than the low contribution (7.94% versus 2.94%).

Although the new regime entered into force on 1 January 2020, employers have until 1 April 2020 to include a written employment agreement or addendum (both signed by both parties) in the payroll records to meet the requirements for the low contribution. This only applies to employment agreements of employees who joined the company of the employer before 1 January 2020.

4.  Sequence System of Temporary employment agreements

3 x 2 x 6 becomes 3 x 3 x 6 (amount of agreements x total duration in years x interruption period in months)

The sequence system with regard to the maximum of temporary employment agreements is extended. Rather than having a maximum of three temporary employment agreements in a period of two years, from1 January 2020 this will be a period of three years.

The rules that the sequence is only interrupted after a period of more than six months, as well as that the maximum of temporary employment agreements is three, will remain unchanged. The period of six months can be limited via an applicable collective labour agreement. This is only possible in the case of recurrent temporary work that can be done for nine months per year as a maximum (for example, the cultural sector or seasonal labour).

The sequence system also applies (as previously) if there are successive employers: employment agreements with different employers, who – in respect of the work performed – must reasonably be deemed to be each other’s successors, will count in the sequence.

The high contribution has been fixed provisionally at 7.94 %, while the low contribution is expected to be 2.94%.

The low contribution will only apply if the parties have agreed on a written employment agreement. This means that when a written fixed-term employment agreement changes into an employment agreement for an indefinite period by operation of law, without having been adjusted to the new situation in writing, the employer will have to start paying the higher WW benefits contribution.

5.  Payroll

Companies engaging in ‘payrolling’ are obliged to offer the same salary and benefits – except for pensions – to the payroll employees assigned by them as employees who are directly employed by the company have. Deviations from this rule to the disadvantage of the employee are not permitted.

A statutory definition of the payroll agreement is included under the WAB.. A payroll agreement is defined as a secondment agreement in which the agreement for services between the employer and the third party was not concluded for the purpose of bringing together supply and demand on the labour market, and in which the party assigning the worker can only assign the worker to another party with the permission of the third party. However, special provisions of secondment agreement do not apply. As a result, for payroll employees, as well as for the employees directly employed by the client, the sequence system will be applicable at once. In addition, it will no longer be possible to include a secondment clause, or to invoke the longer exclusion from the obligation to continue paying wages.

Under the WAB, payroll employees are entitled to a so-called ‘adequate pension scheme’. However, this statutory requirement is postponed until 1 January 2021.

Temporary employment agreements entered into with payroll employees prior to the entry into force of the WAB will be subject to transitional law with regard to the sequence system. Until the temporary agreement expires, the rules for temporary agreements that applied before the entry into force of the WAB will continue to apply. The new rules will apply to payroll agreements that commence after 1 January 2020.

6.  On-call agreement

A statutory definition of the payroll agreement is included under the WAB. An on-call agreement is defined as an employment agreement in which the scope of work is not determined as a specific number of hours per period of a maximum of one month, or a maximum of one year if the entitlement to wages is evenly spread over that year.

Under an on-call agreement, the employer has to contact the on-call worker in writing or electronically at least four days in advance unless an applicable collective labour agreement provides for a shorter term (remaining at least 24 hours). If the employer does not do this on time, the on-call worker is not obliged to obey the request.

If the employer does call the employee on time, but withdraws that call (partially or as a whole) within those four days, the on-call worker remains entitled to the wages over the period for which they were called. A verbal withdrawal is insufficient.

In a collective labour agreement, this term of four days can be shortened to one day.

The employer will be obliged to offer an employment agreement after one year for the number of hours the on-call worker has worked on average in the preceding year. The employee has one month to accept. By absence of the offer the on call worker will be entitled to wages as if the offer was received and accepted.

An on-call agreement does not exist if, in addition to the fixed scope of work, there are also standby, on-call duty or on-site standby shifts, provided that these shifts are remunerated or compensated by free time.

Transitional Law

Employees who have been working for more than twelve months on the basis of an on-call agreement on 1 January 2020, must, within one month (i.e. before 1 February 2020), receive an offer from their employer that is equal to the average scope of work in 2019.

A shorter notice period applies in case of a zero-hours agreement. In that case the employee has the same notice period as the call period of the employer.