Recent Developments in Dutch Labour Law
There have been some interesting developments in Dutch labour law lately. Two recent changes in Dutch legislation are certainly worth elaborating on given the impact on daily practice. The first concerns the increase of the state pension age and the second concerns the new legislation on holidays which entered into force on 1 January 2012.
Increase of the state pension age
As in many other countries, the Dutch state pension age (AOW-leeftijd) is being increased. This was decided because life expectancy after 65 has increased significantly. Legislation has not been brought in line with these plans yet. The draft bill has passed the Lower Chamber of Parliament and is now pending in the Upper Chamber. It must be considered that if the state pension age will be higher, this affects the so-called "second and third pillar of the Dutch pension system, i.e. the pension promised by the employer and private savings respectively.
If the draft bill will be passed, which is expected during the summer, the state pension age will increase in 2020 from 65 to 66. It seems inevitable that in 2025 the pension age will be further increased to 67. The Minister of Social Affairs and Employment expects that the pension age will even be raised further to 68 in 2035. So far, the situation in The Netherlands does not seem to differ from that in surrounding countries, where it was also decided to increase the state pension age.
The fiscal limits applicable to the pension accrual in the second pillar will be amended in line with the increase of the state pension age. This may be an incentive for employers to amend their pension schemes accordingly. If they fail to timely implement the changes, this could result in an excess of the tax scope. As a result the entire pension entitlements accrued will be taxed directly at the cost of the employer.
The social partners also came up with a new type of pension entitlement: “defined ambition" entitlement (zachte rechten). The difference with the existing pension entitlements is that this new form of pension entitlement depends on one's life expectancy and on the investment returns of the pension operator. These new pension entitlements offer less guarantees than the existing pension entitlements.
Pension operators will bear the administrative burden of having to work with two different types of pension entitlements. Currently the government is considering proposing a bill that allows pension funds and social partners to convert existing pension entitlements into the new defined ambition entitlements. In case this conversion will indeed be enabled by Dutch government, social partners and/or pension funds may consider switching but do not have to. It is not yet clear who (social partners and/or the pension fund) eventually is entitled to decide to this conversion.
Currently there is quite some resistance against the proposed conversion to defined ambition entitlements. Several interest groups have argued that the conversion of existing pension entitlements is in breach of one's "right of ownership". The Dutch Pension Decency Foundation (Stichting PensioenFatsoen) has already indicated that if Dutch government should implement the conversion proposal, it will start legal proceedings, even before the European Court of Justice. We will find out in the next months whether or not Dutch government proceeds with the conversion plans. If so, we may have a new lawyer's paradise.
The amendment of Dutch holiday legislation as of 1 January 2012
As of 1 January 2012 Dutch legislation on holidays is amended. Under Dutch law employees working full-time are entitled to at least 20 holidays each year: called statutory holidays. Most employers, however, grant their employees more holidays than the statutory minimum, for example 24 or 25 days on an annual basis. The “extra” days above the statutory minimum are called non-statutory holidays. Employees may be entitled to such non-statutory holidays pursuant to a sector wide or company collective labour agreement or an individual labour contract. Generally the employee can decide when holidays are taken, sometimes after acquiring the consent of the employer in this respect. Statutory and non-statutory holidays which have not been taken by an employee, will be compensated at termination of the employment, unless these days have lapsed by law. Under the former legislation, holidays lapsed automatically after 5 years after the end of the calendar year in which these were built up.
The amendments to the Dutch holiday legislation were made pursuant to a judgment rendered by the European Court of Justice (ECJ) in a German case on the interpretation of EU Directive 2003/88/EU on working hours. The ECJ ruled that it follows from the Directive that employees on sick leave build up holidays in the same way as regular employees. The Dutch Act implementing the Directive stipulated that employees on sick leave only build up holidays over the last 6 months of sickness. The Dutch Act therefore was found in violation of the ECJ judgment. This was later confirmed by some local Dutch courts. As a result of this, the Dutch government amended the existing legislation on holidays so to bring it in line with the Directive.
Under the amended holiday legislation, employees who are sick will (as of 1 January 2012) build up the same number of holidays as employees who are not sick. For employers this means that they will have to grant sick employees holidays over the entire period of sickness. This will lead to additional expenses for employers employing employees who are (long term) sick. This comes on top of the existing obligation to pay sick employees at least 70% of the salary (up to a certain statutory maximum amount) during the first 2 years of sickness. In order to compensate the employers for this amendment, the Dutch government implemented another amendment.
As a result of the amendments as of 1 January 2012, holidays will lapse after 6 months after the end of the calendar year in which they were built up. Holidays built up in 2012 will therefore expire on 1 July 2013. The employee will no longer be entitled to these holidays, nor be able to be compensated for them. The expiry period of 6 months applies to statutory holidays built up by employees who are sick as well as by those who are not sick. The expiry period of 6 months does not apply (i) for holidays built up prior to 1 January 2012; (ii) for non- statutory holidays; and (iii) in cases where the employee “was not reasonably able to take holidays”. In these 3 situations holidays will lapse after 5 years. Whether an employee was not reasonably able to take holidays should be assessed on the basis of all circumstances of the case. This can for instance be due to a high workload. It is not clear yet how this will all work out in practice. It may well be that the employee will ask the employer for a written statement confirming that he was not able to use a certain number of holidays. The employer and the employee may make arrangements deviating from this rule to the employee’s benefit in the labour contract, for instance by agreeing a longer expiry period.
The amendments are warmly welcomed. Under the former holiday legislation, building up holidays over a period of 5 years had in many cases become a huge financial burden for employers. Under the new legislation employees will not be able to build up such a large number of holidays as they used to be able to.
Els de Wind is a partner in labour and employment attorney with the Amsterdam based law firm Van Doorne N.V. She specialises in labour and employment law generally, with a focus onrestructurings and M&A, outsourcing, transfer of undertaking, workers' participation, employee data privacy and European and international employment law. Ms De Wind just stepped down as Chair of the European Employment Lawyers Association and is currently Co-Chair of the IBA’s Labour and Employment Relations Committee. She has numerous publications and book contributions in her name. Ms De Wind is recommended by Chambers, Legal 500, Global Counsel Handbook Labour and Employment Benefits, European Legal Experts, The Legal Media Group Guide to the World’s Leading Labour and Employment Lawyers and Who’s Who Legal Management Labour & Employment.
Els de Wind can be contacted on +31 (0)20 6789 242 or alternatively by emailing firstname.lastname@example.org.