Financial risks when using foreign workers in the Netherlands

Hiring contractors or temporary employment agencies that employ foreign workers in the Netherlands, can create financial risks of which you should be aware. If foreign workers carry out activities for the benefit of your business, you should comply with legal obligations under the Foreign Nationals Employment Act (Wet arbeid vreemdelingen) (the Act). Non-compliance with the Act can result in significant fines.

The European Union has been very active in implementing regulations in order to prevent exploitation of foreign workers. In this regard, amongst others, the Posting of Workers Directive (96/71/EC) has been implemented and more recently the Enforcement Directive (2014/67/EU), which have a significant influence on Dutch legislation with respect to the protection of (foreign) workers. More obligations and liabilities are created for companies that employ foreign employees and parties that use the services of these companies. The Act has similar objectives and effects. We note that most companies are not aware of their legal obligations under the Act and the related (financial) risks. Therefore, the main obligations and risks are set out below.

“Employer” under the Act

The Act requires that the employer obtains a valid work permit for all foreign workers. Such work permit is not required for employees with a nationality of one of the countries within the European Economic Area (EEA) (with the exception of Croatia) or Switzerland.

The term “employer” under the Act is interpreted very broadly. Therefore, not only the party that entered into an employment contract with the employee has responsibilities. In addition, any other party for whose benefit the services are provided (whether directly or indirectly) can qualify as an employer under the Act. For example, in the construction industry, it is very common for the main client to work with contractors and subcontractors or temporary employment agencies. It is not unusual for there to be a large chain of contracting parties involved in a project. Due to the broad interpretation of the term “employer”, all parties in “the chain” may fall under this definition. The party that enters into the employment contract with the employee has the primary responsibility to make sure that the required permits are in place. In addition, any other party that uses the services of this party, directly or indirectly, needs to ensure that all legal requirements have been met. Consequently, in principle, all parties will be fined separately, if somewhere in the chain foreign workers are performing labour without a valid work permit being in place.

Possible fine in case of breach

Where there is a breach of the requirements of the Act, the Ministry of Social Affairs and Employment can impose a fine of up to EUR 8,000 per employee. The fine can be increased to up to EUR 12,000 per employee if there are any aggravating circumstances, such as: i) a repeated offence within five years; ii) the foreign worker has no right of residence in the Netherlands; iii) the employer has consciously circumvented the law; and/or iv) the offence involved three or more foreign workers. As the fine is calculated per employee, the imposed fines can be significant.

Possible defence

Case law has established that it is very difficult for an “employer” to defend himself once a fine has been imposed. As already mentioned, every “employer” has a responsibility to comply with the Act. It is not possible to contractually exclude this responsibility.

In order to avoid the fine, the “employer” must prove that it did everything within its abilities to avoid any breach of the Act. The fact that the employer had no knowledge of the breach of the Act is no ground for defence. Therefore, a company should not rely on the other contracting parties to comply with the Act. In order to fulfil their own responsibilities as an employer, the parties should make clear contractual arrangements regarding compliance with the Act, before commencement of the work. The contractual arrangements should amongst other things include arrangements in respect of identity checks, monitoring presence and validity checks of the work permits. Furthermore, parties should make efforts to verify that all the requirements under the Act are met, while the work is being performed.

Moreover, we would advise employers to include an indemnity in agreements with other contracting parties against any fine imposed on them for breach of the Act by the other contracting parties or any of their contractors or subcontractors.

Should you have any further questions in respect of the above, please feel free to contact Thomas Timmermans or Saskia de Schutter.

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