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Employee stock option rights and termination

Have you been granted employee stock options, and are you now facing termination of your employment? Discover 5 key points to consider that will help you understand your rights regarding your stock options.

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Redeployment after a termination

In the Netherlands, employers must make an effort to reassign employees before they terminate them. But if you work for a large, multinational corporation, is your employer obligated to find a position for you anywhere in the world?

 Dismissal

An employer must have reasonable grounds to dismiss an employee. Those grounds can including  reprehensible behaviour, poor performance or economic reasons. However, employers also have an obligation to redeploy staff prior to dismissing them. This means that the employer must make efforts to redeploy the employee within the company before proceeding to dismissal.

Legal obligation

The question then arises as to whether this obligation to redeploy is limited to the particular company where the employee is working or whether it applies to the entire corporate group to which the company belongs. Dutch case law is currently divided on this question.

Recently, a district court judge ruled on the obligation of redeployment. That ruling said that redeployment within an entire corporation is only obligatory when the group is defined as an economic entity with a central management presiding over the various subdivisions.

Other opinions

However, other district courts have reached different judgments. They have ruled that efforts must be made to redeploy within the group as a whole. An employer who declines to do this may be heavily penalised. A district judge in Rotterdam decided that €90,000 was just compensation for an employee when it was found that the employer had not even considered redeployment within the corporate family.

What to do?

Our advice to employers is therefore to consider redeployment very seriously and to show that they have looked at options across the corporate group. Otherwise the risk is too high that a district judge will penalise the dismissal by imposing a high level of just compensation.

If you are an employee who is facing a dismissal or if you are an employer who must dismiss an employee, you can contact our specialised lawyers to assist you.

Bonuses in severance pay

Are you an employee whose contract is being terminated and are you offered transitional severance pay? Then you might wonder how the amount of severance pay is calculated. An issue that has recently been brought into question is whether or not bonuses are included when calculating transitional severance pay.

Bonuses included in calculation?

Everybody used to think that bonuses are included in the calculation of transitional severance pay. However, recent ruling in both the district court and courts of appeal has not supported this point of view. So, how is the transitional severance pay calculated?

The amount of transitional severance pay is outlined in Dutch employment law. The Decree on Incomes outlines severance pay, as well as other employment issues, including notice periods. The Decree on Incomes, however, extrapolates further on issues including salary components and working time. It also provides a summary of all salary components.

Salary components

Per this ruling, salary components include:

  1. The basic monthly wage
  2. The holiday supplement
  3. Any agreed fixed salary components from the previous 12 months. These may include overtime or shift pay
  4. Any agreed variable salary components from the previous 36 months. These may include bonuses, distribution of profits or end-of-year payments

Bonuses fall into the fourth category, the “agreed variable salary components”. These are only counted as part of a severance allowance if they have been agreed upon. They must also be dependent on the employee’s performance, the company’s results or a combination of the two.

For example, this means that a discretionary bonus does not count for the purposes of transitional severance pay. If an employee is simply given a bonus every year, this bonus is not subject to an agreement. It is not dependent on the employee’s performance or the company’s results. The employer decides unilaterally whether to award the bonus and at what level.

Contact

If you have further questions regarding a severance package or any other employment issues, please contact one of our specialised lawyers.

Update article: December 2017

The proportionality principle in Dutch employment law

Dutch employment law strongly protects employees against dismissal. However, there are times when a termination is unavoidable. When a company reaches a point of economic deficiency where it is no longer possible to retain the same amount of employees, terminations will occur. There are a number of regulations covering the ways an employee can be terminated, one of which being the proportionality principle.

The proportionality principle

If dismissal is due to economic reasons, an employer must apply the proportionality principle in deciding which employees come into consideration for dismissal. Proportionality is applied within each category of interchangeable positions within a specified age group of employees. The age groups range from 15-24 years, 25-34 years, 35-44 years, 45-54 years and finally 55 and over.

The proposed reduction in staff must be spread equally across all age groups. Within each age group the principle of ‘last in, first out’ applies. This means that the first employees to go are those who have been employed for the shortest time.

Interchangeability

Interchangeable positions are positions in which employees perform more or less the same role. The positions must be comparable in terms of content, required experience, skills and capabilities, as well as duration. More importantly, the positions must be on an equal level and equally remunerated. These factors must be assessed in relation to each other.

The basis for determining the content of the role includes the following: the job description, supplemented where necessary with areas of attention (for generally defined roles), more detailed requirements for the position and general organisational arrangements (for specific jobs).

Case law

A recent judgement by the highest judicial body found that this definition is not always sufficient when determining if a position is interchangeable. The Supreme Court upheld the judgement of the Court of Appeal in Den Bosch which defined ‘an interchangeable role’. The case concerned the dismissal of a  head chef. Shortly after his dismissal he heard that his former employer had appointed a new head chef. The new head chef was a former colleague who had been a chef. The head chef objected and claimed that the proportionality principle had not been properly applied.

The appeal court disagreed. “The question of which jobs fall into the category of interchangeable positions that includes the position of head chef is determined in this case by the positions (and corresponding wage scale) that staff at Tante Louise [the restaurant] hold as defined in their contracts of employment and the duties that Tante Louise could expect of them on this basis, rather than the duties that Tante Louise made them carry out in practice,” the appeal court ruled.

The chef was reappointed as head chef. Although he had no longer been working as a head chef but as a chef, this did not mean that his role could no longer be regarded as interchangeable. He was hired as a head chef and could assume the role of head chef.

Conclusion

Interchangeability is a complex matter, as are all employee dismissals. If you have any questions about reorganisation, the proportionality principle or interchangeability, please do not hesitate to contact one of our employment law specialists.

Update article: December 2017

 

Changes in Dutch employment law

Starting January 2015 a new Dutch employment law will be the source of many changes. This new law will have a large effect on employment contracts. 

Changes in employment law

  • Obligation of notification of termination. One month before the termination of a definite contract of 6 months or longer, an employer must notify the employee whether the employment agreement will be extended. If the employer does not notify the employee, he has the right to claim salary during the period in which the employer is too late. He can claim up to a maximum of one month’s salary. This obligation enters into force on January 1st 2015;
  •  Prohibition of a trial period in fixed term contracts of 6 months or less. This prohibition will be applicable to contracts that will commence after January 1st 2015;
  • Prohibition of a non-competition clause in fixed term contracts (unless the contract specifies the necessity of such a clause in light of severe company interests). Applicable to all contracts that are entered into after January 1st 2015;
  •  The current stipulation, “no labour, no salary”: an employee is not entitled to salary when not performing activities, will change. From now on it will be “no labour, still salary, unless the non-performance is seen as at the risk of the employee”. This change will secure a deviation of the burden of proof in favour of the employee. It is still possible to exclude applicability of this clause for the first 6 months of the contract. However, the exclusion can no longer be extended indefinitely by collective labour agreement.

The current regulation stipulates that an organisation can hire an employee on the basis of fixed term contracts three times and/or for a maximum period of 3 years. Also, the chain is cancelled when there is a minimum period of 3 months and one day between following contracts. As of July 2015 this will be changed. Now, an employment agreement for an indefinite period is established when:

  • a maximum of three contracts is exceeded;
  • the maximum time frame of 2 years is exceeded;
  • and in both of the abovementioned situations there is a period of no more than 6 months and 1 day in between two following contracts.

To sum up: the amount of temporary contracts remains the same. However, the period that those contracts comprise, cannot be more than 2 years. Furthermore, the employer will need a “time-out” of at least 6 months and 1 day to cancel the chain. For example, as of July 1st 2015 it is possible to get a fixed contract of 6 months wich is then extended with another 6 months, to end with a contract of 1 year. A chain of consecutive 1-year-contracts will however result in an agreement for an indefinite period after 2 contracts (i.e. after 2 years).

Termination of employment agreement 

There are various routes for termination of employment agreements, depending on the cause of termination. Termination based on extensive incapability ór economic reasons, must be executed through UWV. Termination based on “personal” reasons, like malfunctioning, disturbed relationship, must be addressed by the Cantonal Judge. Please note this change will leave the possibility of an amicable settlement unaffected.

Also, as of 2015, the employer does not need consent of UWV or the Cantonal Judge in order to terminate the employment agreement once the employee has reached the AOW eligible age.

Irrespective of the termination-route (UWV of Cantonal Judge) the employer will have to pay a “transition compensation” (transitievergoeding). This compensation replaces the severance payment (ontslagvergoeding) and is calculated differently.

The transition compensation is calculated as follows: for every year of service less than 10 years, the employee receives 1/3 of his monthly salary. For every year of service that exceeds 10 years, half of his monthly salary is granted. In 2017, in total a maximum of € 77.000,- applies, unless the employee’s yearly salary exceeds that amount (in which case this higher amount counts as maximum).

The transition compensation is not due in case of severe fault of the employee, for example in case of termination due to an urgent cause. Temporary employees are also eligible for the transition compensation, as soon as the temporary employment relation reaches a period of two years (without renewal/extension of the contract).

  • In case of severe culpability of the employer, a Judge may grant the employee an additional “reasonable” compensation;
  • Given the above, the sub-district Judge formula no longer apply in procedures that are entered into after July 1st 2015. In negotiations on amicable terminations, the transition and possible additional compensation will be leading;
  •  The procedure of “manifestly unreasonable dismissal” no longer exists;
  • In case of amicable termination (mutual consent, settlement agreement), a reconsideration period of 14 days will be introduced on behalf of the employee. Within those 14 days, the employee may withdraw his consent, which leads to continuation of the employment agreement or reopens negotiations. The employer is obliged to inform the employee about that possibility;
  • Obligation to provide education. This stipulation will especially be of importance in cases concerning malfunctioning. The present practice already requires the employer to provide a malfunctioning employee with sufficient tools to improve, but our expectation is that the legal stipulation will be applied more strictly in those circumstances;
  • All termination decisions (Cantonal Judge, as well as UWV) can be appealed in front of the Court of Appeal and the Supreme Court.
  • The Extraordinary Labour Relations Decree 1945 (BBA 1945), is extinguished.

Observation of new regulations

Finally, we would like to make some observations regarding these new and expected changes. Employees can ask for golden parachutes when they negotiate their employment terms. Especially employees who have high salaries and who do not want to be “punished” by only being paid the transition compensation, will want to agree upon a severance upfront.

We expect further complications with regard to the fact that there will be only one route which an employer must take when wanting to terminate an employment agreement. As most cases are not clear cut in the sense that they are either requested because of economic reasons or extensive incapability (which would mean the UWV-route) or personal reasons (meaning the route of the cantonal judge).

Employers will want to prevent having to go to court. Employees can use this to negotiate a higher compensation. We expect that most employers will not want to deviate from the transition compensation calculation, especially because a judge will only grant an additional compensation in case of severe culpability of the employer.

Of course we will keep you informed of developments, such as on transitional law and the relationship between the changes and ongoing collective agreements.

 

Contact

If you have any questions or would like more information, please do not hesitate to contact us.

This article was updated November 2017.