Upcoming wave of reorganizations due to looming recession: What to be aware of when considering in a restructuring dismissal?

The looming recession and rising interest rates are causing significant unrest in the Netherlands, particularly in the job market. A looming recession is inherently linked to impending waves of reorganizations. Especially in the Tech sector, the recession is currently having a profound impact (Financieel Dagblad, November 15^th, 2022, “Nederlandse Tech sector zet zich schrap voor naderende ontslagen”). Companies like Amazon, Twitter, and Meta are forced to downsize their workforce. This is particularly noteworthy since these companies hired a significant number of new employees during the COVID-19 crisis. However, the Tech sector is not the only industry expecting necessary downsizing; other sectors are also anticipating employee layoffs due to the impending recession.

Which employees is the employer parting ways with?

An employer cannot arbitrarily decide to downsize the workforce due to a deteriorating financial situation. The employer is bound by several legal rules and is not allowed to independently determine which employees will be dismissed. A restructuring involves dismissing employees based on business and economic circumstances, often rooted in a worsening financial situation during times of crisis. If an employer decides that it is necessary to part ways with some employees due to business and economic circumstances, it must first let go of external employees (temporary workers, freelancers, and other leased personnel). Following this, the employer must let go of employees who have reached the retirement age for the old-age pension (AOW) and then to employees with an on-call contract. If this still does not result in sufficient downsizing of the workforce, the employer must let go of employees with fixed-term employment contracts that expire within 26 weeks. These employment contracts may not be extended.

Reflection principle in restructuring

If the employer has already parted ways with all the aforementioned groups of employees and this is still insufficient considering the business and economic circumstances, the employer may potentially part ways with employees with indefinite-term employment contracts. The employer cannot freely choose employees whose employment contracts will be terminated. Based on the so-called reflection principle (“afspiegelingsbeginsel”), the employer must determine which employees per job category are eligible for dismissal. The reflection principle is a calculation method developed by the Employee Insurance Agency (UWV), determining which employees should be proposed for dismissal based on age categories and employment start dates.

Application for dismissal at UWV

Once it has been established which employees are eligible for dismissal, the employer must submit a dismissal application for these employees to the UWV. The UWV will then assess whether there are such business and economic circumstances that the employer cannot be expected to continue the employment contracts with the respective employees. The employer must demonstrate that there are valid (business and economic) reasons for restructuring and that the employees cannot perform tasks elsewhere within the company. The UWV only grants the dismissal permit if it deems that all legal requirements have been met. After receiving a dismissal permit from the UWV, the employer can terminate the employment contracts with the respective employees, taking into account the notice period.

Termination of the employment contract by mutual consent?

Of course, it is also possible to engage in negotiations with employees (prior to the UWV procedure) to see if the employment contract can be terminated by mutual agreement. This may potentially avoid a procedure at the UWV.

Works Council and involved trade unions in restructuring

In addition to the above, it is important to consider the role of employee representation. If a Works Council is established within the company, it must be consulted for advice on the intended restructuring.

If it is a collective dismissal – meaning the termination of twenty or more employees within the same area within three months – discussions must also take place with the involved trade unions. Agreements can potentially be reached with the unions regarding the upcoming dismissals and the compensation that the affected employees will receive in that context.

The above represents only a brief overview of several crucial aspects involved in dismissals due to business and economic circumstances. However, there are numerous important factors to consider in a restructuring dismissal, and it is advisable to carefully navigate through all the steps. Therefore, seeking legal advice before initiating a restructuring process is recommended.

The lawyers at Blenheim regularly assist employers and employees in restructuring processes. We provide tailored advice and guidance in the process from preparation of the procedure to the dismissal itself.

Do you have questions about dismissal and restructuring? Contact our labor law team for assistance.