Assistant Professor, Public Law, Faculty of Law, Maastricht University
15th February 2021
1. A right to wages in case of no work?
The general rule on wages in case the employee does not (fully) carry out his tasks is laid down in art. 7:628 BW (this is the Dutch Civil code. The first number refers to the book the provision can be found, the second is the number of the provision in that book). This provision provides that the employer is liable to pay wages, even if the employee does not work, unless the reason why the employee could not do the work must in all reasonableness be deemed to come within the employee’s sphere of risk (please note that there is a separate provision, art. 7:629 BW which deals with payment of wages in case of sickness, the most regularly occurring employee risk). Case law has spelt out the respective spheres of risk in more detail. A first rule of thumb is that “normal, foreseeable risks” are for the person who can influence them best or who profits (in Dutch: beïnvloedings- en profijtbeginsel, A.R. Houweling, e.a, Arbeidsrechtelijke Themata I, Boom juridische uitgevers Den Haag, 2020, p. 292). This also means that an employer should make reasonable provision for times in which business is slack. Generally speaking, problems regarding lack of materials, insufficient contracts or clients and the like are for the employer to bear.
However, in case of exceptional circumstances, these general rules don’t work, because neither employer nor employee could have foreseen this and / or taken precautionary measures. This is one of the main issues that is discussed in case law and literature. The Oost-Brabant county court, for example brazenly decided that Covid-related risks are for the employer to bear, because the risks do not fall within the sphere of risk of the employee (ECLI:NL:RBOBR:2020:2838). However, Covid is a worldwide health crisis which employers cannot solve by themselves. Therefore, this assumption may at least debatable (J.M. van Slooten, https://www.navigator.nl/document/idpasse830357a6fde4478b60c81e7107a3ee1/ondernemingsrecht-de-now-1-0-een-loonsubsidieregeling-met-enkele-strategische-aspecten?ctx=WKNL_CSL_104).
2. Emergency measures pre-Covid
Until 17 March 2020, if a sector or an enterprise suffered grave difficulties for reasons beyond the employer’s control, an employer could ask permission for short-time (Regeling Werktijdverkorting, WTV). The employer could ask for this regime if the situation could not be described as a normal business risk and there was a reduction of available work of at least 20% for a substantial amount of time (for a full overview see W.A. Zondag, Werktijdverkorting, Gouda Quint 2001 and A.M. Helstone, https://www.recht.nl/vakliteratuur/arbeidsrecht/artikel/485120/van-wtv-naar-now-van-werktijdverkorting-naar-loonkostensubsidie/). The permission then allowed for a partial suspension of the employment contract. The employee would get unemployment benefits (art. 47 Unemployment Benefits act, WW: 75% of the – maximalised – daily wages for the first two months, then 70%) for the part that was suspended while the employer would top this up to the normal income and also pay wages for the other part of the contract. The employer would thus be relieved of a substantial amount of the wage costs, offering a better chance for survival of the business while the employee would usually get an income equal to the wages (unless someone earned more than this maxed-out daily wage). However, this system was not without faults. One major problem was that there was no clear rule on how to deal with employees who had not yet qualified for unemployment benefits (in Dutch law, in order to be able to claim unemployment benefits, the employee in question must show that during the last 36 week he worked at least 26 weeks: art. 17(1) WW). Another main issue was that employees were “eating into” their unemployment benefits which in the Netherlands are limited in time. Therefore, if employees were made redundant after a (prolonged) period of short time work, this could mean that they were no longer eligible for unemployment benefits and would have to fall back on social assistance.
3. Noodfonds Overbrugging Werkgelegenheid
When Covid became an issue in the Netherlands, it quickly became clear that this would need a new approach. After all, an intelligent lockdown, compulsory closure of non-essential businesses, travel restrictions and the like affect all sectors and employers can only do so much to prevent the spreading of the disease (B.H. ter Haar, https://illej.unibo.it/article/view/10779/10688).
The first Noodfonds, NOW 1, came into force on 17 March 2020 (Stcrt 2020/19874). Its aim was to keep as many people as possible in (their) employment. Therefore, the regulation followed a two-pronged approach: on the one hand, the employer’s financial burden had to be lightened, on the other hand, the employees’ income must be protected. The system worked as follows: the employer pays 100% of the wages, but is eligible for a compensation for these costs of up to 90%, depending on the reduction of revenue. The wage costs are also taken into account in this calculation. This means that an employer who discontinues fixed-term contracts or who proceeds to terminate contracts will get less compensation.
The employer is obliged to refrain from redundancies for economic grounds while getting the subsidies. If the employer asks permission for dismissals on economic grounds, this will lead to a “fine” in the form of a reduction of the compensation. Dismissals also influence the calculation set out above, as the wage sum will be lower.
It soon became clear that NOW-1 contained some serious shortcomings. One rule which seriously limited employers’ preparedness to actually request compensation was the prohibition of dismissals on economic grounds. Employers wanted to keep the flexibility and therefore did not request compensation. This in turn led to a greater risk of bankruptcy and irrevocable loss of employment. Another issue was the fact that only dismissals on economic grounds were prohibited, while an agreement to terminate the contract for the same reason remained perfectly possible. As this kind of termination is the most common one in the Netherlands, this was a serious shortcoming.
As it became clear that Covid was not a one-season issue, the government issued a second decree on 22 June 2020, named NOW-2 (Stcrt 2020/34308). It addresses some of the shortcomings of NOW-1, but also shows a shift in policy priorities. NOW-2 focusses less on keeping people in their original jobs and more on allowing businesses to adapt. The maximum subsidy for employers is still 90% in case of 100% loss of revenue, but the fine in case of dismissals on economic grounds is discontinued. There is still a financial consequence, however. As under NOW-1, if the employer dismisses employees or discontinues temporary employment contracts, the wage sum will be lower, which will influence the calculation of the compensation to be received. Furthermore, compensation will be lowered by 5% if the employer proceeds with a collective redundancy to which the trade unions have not agreed.
The justification for these changes is that businesses need to be able to restructure in order to avoid bankruptcy, now that the economic outlook has changed. The Government wishes to encourage enterprises to apply for the subsidy and avoid bankruptcy instead of having them avoid NOW-2 because dismissals might still be necessary (Kamerstukken II, 2019/20, 35420 nr. 2, p. 8). Consequently, dismissals are “decriminalised”.
The other aspect where the policy shift towards accepting a rise in unemployment and survival of most businesses by creating a well-trained, flexible workforce can be seen is the introduction of an obligation of best efforts to train and retrain employees (P.A. Hogewind-Wolters & S.F.H. Jellinghaus, https://www.advocatie.nl/content/uploads/SDU_TAP052020_270545_now.pdf) In order to make this happen the Dutch government put € 50 Million into a funds for training activities, personal advice and the like (Crisispakket NL leert door: https://www.rijksoverheid.nl/onderwerpen/coronavirus-financiele-regelingen/overzicht-financiele-regelingen/now/now-nl-leert-door). Finally, businesses which receive more than € 100.000 in subsidies must hand in an audit. These businesses are also forbidden to pay the board of directors or policy-making management dividends or bonusses over 2020. It is therefore no longer possible to finance bonusses and dividends from taxpayers’ money.
Since October 2020, NOW-2 has been followed by NOW-3 (Stcrt 2020/52209). This most recent decree, which aims to regulate the situation until July 2021, shows the continuation of the policy changes that NOW-2 started. However, NOW-3 also bears witness to the realisation that – while the overall situation in the Netherlands relating to government debt and unemployment figures is still pretty rosy when compared to other countries – funds are not limitless and need to be distributed more carefully. In the first place, to remain eligible for subsidies and compensation, a business must show a loss of 20% of revenues now, but from January 2021 onwards, this will need to be at least 30% loss of revenue. The compensation offered to the employer is lower and will be lower still in 2021. Instead of a maximum of 90% compensation in case of total loss of revenue, the maximum percentages are 80% (October-December), 70% (January-March 20201) and 60% (April – June 2021). This shows the realisation that not all businesses will be able to survive and not all can be saved. Fines in case of economic dismissal are not reintroduced and the fines surrounding collective redundancies from NOW-2 are also skipped. While dismissals seem to be accepted as part of economic necessities, the ideas on lifelong learning and retraining are retained. The employer is still obliged to offer training, employees can get personalised career advice and the like. The available funds have been raised to € 67 million. Right now the situation therefore is that employers who deal with a substantial decline in revenue are still eligible for compensation, but not as generously as until October 2020. On the other hand, dismissals are possible to a greater degree.
4. Wage sacrifices as means to reduce labour costs
Another way for employers to minimise wage costs could be to modify wages. Dutch law offers two possible legal bases for this, art. 7:613 BW and art. 7:611 BW respectively. The first one regulates the unilateral modification clause and is only applicable if a written modification clause exists. In that case, the employer must show overriding business interests which must reasonably prevail over the employees’ interests of retaining the original contract. The second one is a codification of reasonableness. Case law by the Dutch Supreme Court declares that a good employee must react in a positive way to employer’s requests for reasonable adaptations of the contract in case of a change in circumstances (HR 26 juni 1998, JAR 1998/199 (Taxi Hofman), HR 11 juli 2008, JAR 2008/204, Stoof/Mammoet). Case law from the Credit crisis is pretty unanimous on this issue: generally speaking a request for wage sacrifices is not a reasonable request as this concerns a primary employment condition (ECLI:NL:RBAMS:2015:899, V&D; ECLI:NL:GHARL:2016:891, SNS real) Recent case law seems to be in line with this. The Amsterdam county court decided that a unilateral reduction of wages by 50% is way too much, considering that the employee has no other means to make ends meet. Therefore, however much the employer needs a reduction in cost, a unilateral reduction of primary wages by half is not a legal option (ECLI:NL:RBAMS:2020:2734, JAR 2020/149). In a different case, the county court Oost-Brabant also stated that Covid and the temporary closure of the business is no reason to just accept the employer’s argument that he is no longer liable to pay wages (ECLI:NL:RBOBR:2020:2838, JAR 2020/156, met noot J.M. van Slooten). So far, therefore, judges tend to uphold employees’ rights to wages.
5. Concluding remarks
In November 2020, the picture in the Netherlands is still a rather positive one if compared to the situation in other countries. The decrees try to strike a balance between employers’ needs and employees’ needs. In the meantime, the development of the decrees over time show some necessary adaptations, like the acceptance that not all dismissals will be preventable as neither will be bankruptcies. However, if employees have a right to retraining, they might be able to find a new job quickly. The measures therefore fit into the bigger picture of creating a workforce that is flexible in the sense that they are able to adapt quickly to new sets of requirements in new jobs. Finally, it is good to realise that so far, judges have upheld employee claims to wages and are not (easily) willing to accept demands for (unilateral) wage cuts of up to 50%. It seems that Dutch employment law so far manages to hold firm in the crisis. Obviously that does not mean that changes are not welcome or that the system is infallible, but as a whole, it turns out to be remarkably robust so far.