Covid-19 Working Time Reduction Facility

This blog is drafted on the basis of the available information on 16 March 2020.

The coronavirus (covid-19) is increasingly expanding and continues to spread, affecting human lives, business and our societies. Given our Prime Minister’s press conference of this evening it is expected that covid-19 will continue to impact us for a prolonged period of time.

 

With this blog Team Sagiure provides you with a generic overview of the measures that employers with subsidiaries in The Netherlands can take if they (temporarily) have less work for their employees as a result of covid-19. As this is a generic memo, it will not always cover all relevant aspects of your business. We are available to discuss your company specific circumstances and to address any queries you may have in this respect.

 

1. Facilities under Netherlands Law

1.1 In extraordinary circumstances of a (presumably) temporary nature, such as the outbreak of the coronavirus, Dutch law provides for the reduced working time facility (“werktijdverkorting”), enabling employers to claim (a capped) compensation for the hours that their employees were unable to work due to a decline in work/business volume. Under this facility employees are not dismissed. Their working hours are temporarily reduced and the government pays the employer a compensation.

1.2 Alternatively, if a company is experiencing structural (thus not temporary) business losses due to covid-19, it can opt for partial/part-time dismissal or an (ordinary) Reduction In Force (RiF). Implementation of a partial/part-time dismissal or RiF is achieved by means of mutual consent (settlement agreement) or by means of a forced dismissal through the governmental agency UWV.

1.3 PLEASE NOTE that certain collective labor agreements may apply which could include a prescribed process for a reduction in working time or collective lay-offs (either partial or RiF).

1.4 PLEASE NOTE if there is a works council in your company they may have a right of advice with regards to a working time reduction, a RiF and an important (collective) partial / part-time dismissal. The consultation process must be observed in a timely manner prior to implementing these measures.

 

2. OPTION I: Reduction in Working Time Facility (werktijdverkorting)

2.1 STEP 1: Applying for a working time reduction permit

2.1.1 Employers who are able to demonstrate that their business operations are declining by at least 20% due to the coronavirus can apply for a special permit from the Ministry of Social Affairs and Employment (SZW). The 20% decrease must relate to a temporary period of at least 2 and a maximum of 24 calendar weeks.

2.1.2 The permit allows employers to implement a reduction of a pre-specified number of working hours. To apply for this facility, an online form must be filled out via the following link on the website of the Ministry of Social Affairs and Employment:

 

https://www.uitvoeringarbeidsvoorwaardenwetgeving.nl/mozard/!suite09.scherm1089?mWfrs=11446&mNch=czxxb0cqw9

 

The form is only available in Dutch.

2.1.3 Once granted, the permit is valid for a maximum period of 6 weeks. It is not possible to increase the number of hours during the term of the permit. If an increase in the number of decreased hours is necessary, this must be indicated and substantiated when applying for an extension of the permit.

2.1.4 According to UWV the facility requires that during the term of the permit the employer continues to pay the full contractual salary. The employer can choose to let the employees work less than the number of hours for which the permit was granted.

2.1.5 If the company’s business situation improves within 6 weeks, the employees must resume their (full) contractual working hours. If the business volume does not improve within 6 weeks and is expected to remain the same or deteriorate further, the employer can request an extension of the permit via an appendix to the application form. This can be done three times. The working time reduction facility can thus last for a maximum period of 24 weeks in total.

2.1.6 The employer can apply for a working time reduction for all staff, certain individuals or groups of employees.

 

2.2 STEP 2: Notify UWV of receipt of permit

2.2.1 Once the employer has received the permit from the Netherlands Ministry of Social Affairs and Employment (step 1 above), the employer must notify the governmental agency UWV hereof via the available online form on the UWV website, again, this form is only available in Dutch.


2.3 STEP 3: Apply for Compensation

2.3.1 Within a week after the expiration date of the permit the employer must request UWV to pay the compensation related to the pre-specified number of hours for which the permit was granted (or less). This is also done via an online form on the UWV website. The working time reduction permit only applies to employees who are on the employer’s payroll with a fixed number of hours per week. It thus does not apply to on-call workers and agency workers.

2.3.2 The employer applies for the temporary unemployment benefits (i.e. the compensation) on behalf of his employees within one week after the end of each (extended) permit period. Therefore in the seventh week after the employer received the (extension of the) permit as referred to under Step 1. The request is co-signed by the employees who grant UWV permission to pay the compensation to the employer. Pursuant to the latest information we received from UWV it can take approximately 6 weeks before UWV will pay the compensation. The amount of the compensation is equal to 75% of the gross maximum daily wage in the first two months and 70% thereafter calculated over the wages of the reduced working hours. As per 1 January 2020 the maximum daily wage is fixed at Euro 219,28 gross per day. This amount is indexed twice a year in January and July.

2.3.3 UWV will compensate the unemployment benefits afterwards and only for the hours that the employee did not work during the period that the employer had a valid permit as stipulated under Step 1. Under this reduced working time facility the employees remain fully employed.


2.4 NEW INSIGHTS: Unworkable Wheather Regulation

2.4.1 Referring to paragraph 2.1.4, UWV takes an incorrect approach to a government released regulation that was introduced to cover situations relating to: “Unworkable Weather” (Regeling onwerkbaar weer; the “Regulation”). This title is misleading. This Regulation aims to cover cases of extraordinary natural conditions, such as abundant rainfall and frost. Other extraordinary, non-natural circumstances are also discussed in the Regulation. In that case, the article 5 of the Regulation applies. This stipulates that the employer is exempt from the obligation to continue to pay salaries if permission to reduce working hours is obtained.

2.4.2 The Regulations implies that as from the moment that the request for the reduction in working time facility is granted by means of issuance of the permit, the employer has no obligation to continue paying the salary over the hours for which the permit was granted. If the employers follows the Regulation’s approach, strictly speaking the employee is left without an income for those reduced hours until UWV has granted the compensation.

2.4.3 Even though the Regulation permits ceasing the salary payments, in our view it is contrary to good employership and the nature of Dutch employment law. If the employer nonetheless intends to use the Regulation, we recommend that when the decision is made to apply for the working time reduction facility, the employer already informs the impacted employees that upon receipt of the permit it is intended to cease salary payments (or reduce the salary to a certain amount). The employee should also be requested to give their upfront consent to payment of the compensation to the employer as mentioned under paragraph 2.3.2 (then the employer pays the equivalent of the compensation as an advance payment and sets it off against the compensation once received from UWV).

2.4.4 We recommend that during the validity of the permit the employer pays the employees at least the equivalent of the unemployment benefit that UWV will compensate under the reduction in working time facility. The employer should in any case consider if there are any viable possibilities to pay the entire 100% of the salaries including the hours that the employees did not work during that period if the compensation offered by UWV already covers a substantial part of the required cut in costs. This way the employees are not left with no pay at all as per the date of the issued permit. In this regard it is pivotal to obtain the employees’ permission (as indicated on the UWV form) to pay the compensation directly to the employer as mentioned under 2.3.3. If the employee refuses to give his permission, UWV will pay the compensation to the employee, and the employer should withhold that amount from the remainder of the salary or (as per the Regulation) refrain from salary payment (again only with regards to the number or reduced working hours as per the issued permit).

2.4.5 Now that the Regulation results in the situation that the employer does not have to continue to pay the salaries related to the reduced working hours, employees fully fall back on the unemployment benefit for the reduced part of their working hours impacted by the permit. The Regulation does not make an exception for employees who have not built up sufficient unemployment benefits. Which means that theoretically, they have no income at all over the part of the reduced hours. Employees with high salaries (i.e. anything above the 75% or 70% of the maximum daily wage) are also not compensated for the difference between their higher salary and the unemployment benefit related compensation that they are entitled to for the reduction in working time.

2.4.6 The (ethical) question for employers will be whether they want to use the facility that is offered under the Regulation to cut employees’ salaries to the unemployment benefit minimum or even zero. Not every employer will have the financial funds to continue paying salaries in full. In a normal situation, such employer would proceed with a RiF or go out of business.

2.4.7 What we see in practice since employers started applying for the reduction in working time facility in relation to covid-19 in the Netherlands, is that generally employers have continued to pay salary in full. We need to bear in mind that the Regulation was also not written with covid-19, or a pandemic in general, in mind. Furthermore the consequence of the Regulation seems an error in the law-making process as it is completely contrary to the fundamentals of labor laws in the Netherlands. We therefore expect that the mechanics of the Regulation will be changed/corrected and in any case we expect that it will be challenged to the full extent possible. We believe that the fact that the government has also been giving information contrary to the Regulation and in line with the normal circumstances of the reduction in working time facility, supports our expectation in this regard.

2.4.8 While covid-19 is expanding the government and law-makers are trying to keep up pace with an unprecedented situation. This also means that taking the letter of the Regulation as a means to stop salary altogether can lead to claims afterwards. Those claims can be based on failure to observe good employership against the employer or class actions against the government for implementing illegitimate law. As this is an unprecedented situation we cannot rule out that the employees’ claims based on good employership may have merit or be deemed justified.

2.4.9 Please note that if your company has a works council and/or is subject to a collective bargaining agreement you most likely will also have to deal with trade unions. We do expect that these employee bodies will push-back if the company would indeed propose/decide to stop salary payment in full in accordance with the Regulation.


3. OPTION II: Reduction in Force and Partial / Part-time Dismissal

3.1 Reduction in Force

3.1.1 If there is a further decline or no improvement of the business is feasible in the near future (within 24 weeks), job eliminations become necessary. UWV is exclusively authorized to process requests for permission to terminate the employment contracts with redundant employees due to an ETO (economical, technical or organizational) ground.

3.1.2 UWV requires specific documentation depending on the ground for dismissal put forward by the employer. Please note that throughout any procedure employer and employee remain free to reach extra-judicial termination of the employment agreement by means of a settlement agreement. If a settlement agreement with a redundant employee is reached during the UWV procedure the formal request for termination at UWV can be withdrawn at any given time.

3.1.3 Job eliminations due to an ETO-reason can be based on one or more of the following grounds:

3.1.4 Bad or deteriorating financial position of the company

 

  1. Decrease in work (load, projects, orders etc)
  2. Organizational changes/restructuring
  3. Technological changes
  4. Termination of entire or part of the enterprise
  5. Relocation (to another city or country)
  6. Withdrawal of state aid (non-profit)

 

Please note that a termination of the employment agreement will only be granted in case of ‘permanent’ layoffs or in case of an inevitable collective partial/part-time dismissal. Permanent is usually considered to be for a period of 6 months or longer. If the company creates the same position again within a period of 26 weeks from the termination date, the employee can claim reinstatement into his own position.

3.1.5 In order to determine the redundant employees the employer must apply the formal selection criteria. Based on age categories and years of service the redundant employees are identified.

3.1.6 Once the redundant employee has been identified and before a request for dismissal has been submitted to UWV, the employer has the obligation to investigate redeployment options in another suitable position. A suitable position is a position that corresponds with the education, experience and the capacities of the redundant employee concerned.


3.2 Partial / Part-time Dismissal

3.2.1 The employer also has the option of requesting UWV permission for part-time dismissal instead of a RiF. For this request too, the reason for dismissal must be justified and the selection criteria must be applied. The employer must prove/substantiate that part-time dismissal is necessary and determines the number of hours that must be reduced. Applying a collective partial dismissal is only permissible if it is proven inevitable. We refer to Annex 1 which is a flow-chart of the process for a partial dismissal.


3.3 UWV Procedure

3.3.1 After submission of the application forms, the employee has 14 days to submit his defense to UWV. UWV assesses whether the proposed termination is reasonable, taking into account the possibilities and interests of the employer and the employee, and other interests, more specifically interests related to the Dutch labor market. In all situations it is up to the employer to convince UWV that a termination of the employment is warranted under the circumstances. Most UWV procedures take approximately four to five weeks.

3.3.2 Once the UWV-permit has been issued, notice of termination may be given with due observance of the agreed/applicable notice period minus the duration of the UWV-procedures (starting from the day that the employer submits its request at UWV). The employer must always observe at minimum one months’ notice. Notice must be given within 4 weeks from the date that the permit was granted by UWV.


3.4 Transition Fee

3.4.1 Upon termination of the employment contract the redundant employee is entitled to the statutory Transition Fee. The amount of the transition fee depends on the employees’ years of service and remuneration. In general the calculation of the Transition Fee is using the following formula: 1/3 gross monthly salary per year of service. The transition fee is accrued on a pro rata basis.

3.4.2 In case of partial / part-time dismissal a partial statutory Transition Fee is due in the event of a permanent and substantial decrease in hours (at least 20% of the contractual hours). The Transition Fee is calculated in proportion to the hours for which the dismissal permit has been granted.


3.5 Court Proceedings, Appeal and Cassation

3.5.1 A downside of the UWV procedure versus reaching an amicable solution by means of a settlement contract is that each party can lodge an appeal against the UWV’s decision. The appeal must be lodged within two months as from the actual termination date of the employment agreement upon notice.

3.5.2 If UWV has issued a permit to dismiss, the employee can initiate legal proceedings to claim:

  • reinstatement; or
  • a reasonable severance due to serious act or omissions which are attributable to the employer (ernstig verwijtbaar handelen of nalaten). Note that this severance can be substantial.

3.5.3 If UWV refused to grant the requested dismissal permit, the employer can initiate court proceedings requesting rescission of the employment contract.

3.5.4 The verdict of the court is open to appeal and cassation. Evidently this can be a lengthy and very expensive process for both parties.

 

This blog is drafted on the basis of the available information on 16 March 2020. We are monitoring the development on a daily basis. Please do not hesitate to contact us if you have any queries or wish to discuss your company specific circumstances.

Our team is available to assist you. You can reach us on team@sagiure.com or via telephone:

General office line : +31 20 760 4 371

Mobile Patrick Rojer : +31 6133 23 674

Mobile Madeleine Molster : +31 6868 11 664

Mobile Rachida el Johari : +31 6868 11 665

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