No limits on limitation of severance payments – or are appearances deceiving?

On 13 February 2009, a legislative bill was introduced in which the Dutch Cabinet sought to limit the maximum gross amount which the Subdistrict Court could award to an employee in employment termination proceedings to EUR 75,000. This bill had a long history, in part because agreement could not be reached on the precise scope of the limits on the severance payment to be awarded. The bill was recently withdrawn.

Substance of the bill

In brief, the bill provided that, in the event that their employment contracts were terminated, employees earning a gross annual salary above EUR 75,000 could not be awarded a severance payment by the Subdistrict Court which exceeded this annual salary. The biggest objection to this bill was that an employee with a gross annual salary just below EUR 75,000 (say, EUR 73,500 gross) could, based on the Subdistrict Court formula calculation, would actually be awarded with a severance payment which was much higher than EUR 75,000 gross. Hence, a small difference in salary could result in a big difference in a severance payment, thereby giving rise to legal inequality.

Withdrawal of the bill

On 15 February 2013 Mr Asscher, Minister of Social Affairs and Employment, informed the House of Representatives that the bill was being withdrawn. However, this had nothing to do with the continuing lack of consensus on the precise scope of the payment limits.

Connection with the coalition agreement

By withdrawing the bill, the Cabinet sought to anticipate the agreements made in the coalition agreement “Building Bridges [Bruggen slaan]”. The coalition agreement stated that there would no longer be termination proceedings before the Subdistrict Court, except in situations where there was a prohibition against termination. If an employee believes that the dismissal is manifestly unreasonable in his or her case, then he or she may file a claim for compensation for termination of the employment contract. Under the coalition agreement, the maximum amount of compensation which the Subdistrict Court could award in that instance is EUR 75,000 (gross).

Gap in time?

Curiously, no legislative bill has been introduced yet with respect to the agreements set forth in the coalition agreement on reforming the labour market. Such a bill is scheduled to be introduced in the House of Representatives by the end of the second quarter. It remains to be seen whether this timetable will be met, as the coalition agreement includes an invitation to the “social partners” (trade unions and employer organisations) to participate in fleshing out the changes, particularly those concerning the regulations on employment termination. The trade unions have indicated that they are in no rush to do this for the time being.

Relationship to the WNT

At this time, there are no laws stating that the severance payment which the Subdistrict Court can award may be subject to a maximum. The Top Incomes (Standardisation) Act on Salaries in the Public and Semi-Public Sector (“WNT”) took effect on 1 January 2013. Remarkably, the WNT was given retroactive effect to the date on which its bill was introduced, namely, 6 December 2011. The WNT only sets a maximum for the contractual severance payment to be agreed on for an employee falling within the WNT’s scope; this maximum is EUR 75,000 (gross).

Application of maximum severance payments in the case law

In the as yet limited case law regarding termination of an employment contract for an employee falling within the WNT’s scope, it has been held that the WNT does not have any knock-on effect if a Subdistrict Court is considering the termination of the employment contract of an employee falling under the scope of the WNT. The Subdistrict Court therefore is not held to take into account the contractually agreed maximum gross severance payment of EUR 75,000. In one case, a Subdistrict Court ruled, however, that the WNT is a factor which should be considered in determining the payment. The WNT likewise does not extend to employees who, though not employees within the meaning of the WNT, nevertheless are working at a level below this. It is assumed that the salary of the top officials determines the remuneration ceiling. Moreover, the case law has not hitherto anticipated the maximum severance payments under the coalition agreement.

Conclusion

In withdrawing the bill on limiting severance payments, the Cabinet seems to have done away with a bill which was long a sensitive issue and about which agreement could not be reached. Currently, there are no laws or bills limiting the severance payments that courts can award. With the withdrawal of the bill, the Cabinet seems to want to align itself with the plans in the coalition agreement, which is remarkable, given that no specific bills have been introduced yet regarding those plans.