The Dutch Senate approved new legislation this week which extends the duration of fixed-term contracts to 36 months. The new law, called the ‘Labour Market in Balance Act’, will take effect from 1 January 2020.

The new legislation is a reversal of the Dutch Work and Security Act, which made significant changes to Dutch dismissal law.

The Labour Market in Balance Act aims to reduce the gap in legal protection and monetary differences between fixed- and indefinite-term employed employees.

Under current law, the maximum duration of successive fixed-term employment contracts is three consecutive fixed-term employment contracts within 24 months. The Labour Market in Balance Act extends the period of time to 36 months. Consequently, after 36 months or the fourth fixed-term employment contract, the contract is converted into an indefinite employment contract. This is a reversal of the reform in the Work and Security Act.

“This is significant because by reinstating a 36-month duration for fixed term contracts this law reverses the Work and Security Act which reduced the length of such contracts to 24 months in 2015,” Fiona Coombe, LLB, CCWP, Director of Legal and Regulatory Research, Staffing Industry Analysts, said. “It is a move that runs counter to other European countries such as Germany, Italy and Poland which have all reduced the length of fixed term and temporary contracts in recent years.”

The Labour Market in Balance Act also includes additional termination grounds, as well as changes in transition allowances, on-call employment contracts, unemployment insurance contributions and pension plans.

According to Lexology, the Labour Market in Balance Act introduces an additional ground for dismissal, also known as the ‘cumulation’, or i-ground, which enables employers to combine different grounds for dismissal, for example, unsatisfactory performance (d-ground) and a damaged working relationship (g-ground).  Currently, the Dutch Civil Code provides eight statutory reasonable grounds for dismissal. In order for a court to terminate an employment agreement, one of the eight grounds has to be fulfilled.

The Labour Market in Balance Act also changes the transition allowance in two ways. First, employees will be entitled to a transition allowance from their first day of employment, including the trial period. Currently, employees are only entitled to the transition allowance after two years of employment. Second, the transition allowance is retrenched. The calculation method changes into one-third of a monthly gross salary for each full year of service and pro rata for each month or day of service, regardless of the age or years of service of the employee.

Furthermore, under the Act, employers must provide on-call employees at least four days advance notice, and must pay on-call employees if work is cancelled within those four days.

Meanwhile, unemployment insurance contributions are no longer differentiated according to sector. Instead, unemployment insurance contributions for employees on a permanent employment agreement will be lower than contributions for employees on a fixed-term contract.

Under the Act, payroll employees will be entitled to the same primary and secondary employment conditions as those applicable to the client’s employees. The new legislation on payroll employees will become applicable on 1 January 2021 and is not applicable to temporary workers and seconded employees.