Many international companies may have a branch or legal entity in the Netherlands. If such a company decides to close down its Dutch business, it needs to take actions regarding its assets, its (contractual) obligations , and its employees. If there is no possibility of finding suitable alternative employment for employees within the group, the employees may be offered a settlement agreement, including a severance package. If any of these employees are absent from work due to sickness, reaching an amicable settlement may prove more difficult.
Settle or obtain a permit?
In most cases, employees with a fixed term contract remain employed until the expiry of the fixed term. To prevent a fine being due, it is important for the employer to notify these employees at least one month prior to the termination date (aanzegverplichting), These contracts terminate by operation of law, but a statutory transitional payment (transitievergoeding) is due after an employment term of at least 24 months.
For indefinite term employees, dismissals based on business economic grounds can be effected either by entering into a settlement agreement, or by giving notice having first received a permit from a Dutch governmental body, the UWV. To avoid the lengthy and uncertain UWV-process, an amicable settlement is in most cases the preferred route. If – for whatever reason – it is not possible to agree a settlement, a dismissal permit will have to be obtained which requires substantiated proof of the business closure.
Prohibition on giving notice of termination – legal entity vs branch
Employees absent from work due to sickness are protected by law from dismissal. A prohibition on giving notice of termination applies for a maximum period of 104 weeks or – if shorter – at least until the end of the employment term. Such a ban on termination does not apply if the employee only reported sick after a permit request has been filed at the UWV.
In accordance with Article 7:670a paragraph 2 sub d of the Dutch Civil Code, the prohibition on giving notice of termination during sickness also does not apply if the undertaking ceases all its activities. As a result of this rule, it is relevant whether the company has established a branch or a legal entity in the Netherlands. The UWV has to be convinced that the undertaking (i.e. the formal employer) has ceased its activities. This will be less likely where the business is a branch, and the formal employing entity abroad may remain unaffected and continue its business. Where this occurs, the sick employee will remain protected/on the payroll and the obligation to seek alternative employment shall continue to apply. We don’t believe that this difference (i.e. branch vs entity) was expressly contemplated by the Dutch legislator. The court case referred to below may help in such a scenario.
Court case –other potential dismissal route
On 28 February 2017, the Dutch Subdistrict Court granted an employer’s request for dismissal of a sick employee. The employer in this case had not entirely closed its business: the store the remained open on weekends to sell remaining stock. The UWV had therefore refused to issue the dismissal permit as the employer had not ceased all its activities. The employer subsequently went to court with a request to terminate the employment agreement based on the so called ‘h-ground’, which is a catch-all provision and applies if the employer cannot reasonably be expected to continue the employment relationship.
Dutch law provides for an exception regarding the prohibition on giving notice of termination during sickness, if the dismissal is not related to the sickness of the employee; or there are circumstances by which the employment agreement should end for the benefit of the employee. In this case the dismissal was granted because continuing the employment agreement – without work for her to be done – would impede employee’s recovery.
When considering closing down a business in the Netherlands, bear in mind that sick employees could form an obstacle to winding down the business.