CMS Expert Guide to employment termination law and legislation

Global comparison

1. Dismissal of employees

1.1 Reasons for dismissal

An employer may not dismiss an employee without a legally valid cause.

Dismissal may be based on personal grounds (e.g. disciplinary dismissal, dismissal due to professional inadequacy, dismissal due to incapacity) or economic grounds (e.g. economic difficulties, technological changes), or subject to specific conditions, without stating a specific motive.

In order to unilaterally terminate an employment agreement for an indefinite period of time, other than termination during the probationary period or an urgent reason for immediate dismissal, the employer requires a statutory dismissal ground to realise a termination. The employer can appeal to the following (limitative) statutory dismissal grounds under Dutch law:

  1. Economic grounds
  2. Long-term illness or disability
  3. Regularly not being able to perform work due to illness or disability
  4. Underperformance
  5. Culpable acts or omissions
  6. Conscientious objection
  7. Disturbed working relationship
  8. Other grounds than those mentioned above
  9. Cumulated dismissal grounds based on more than two dismissal grounds as mentioned under C – H combined

Depending on the statutory dismissal ground, the Employee Insurance Agency (UWV) or the Court is competent to assess whether the termination is allowed or granted. The employer should request the UWV for permission to terminate the employment agreement in case it appeals to dismissal reasons A or B. The employer should request the Court to terminate the employment agreement in case it appeals to dismissal reasons C to I.

1.2 Form

The employee must be notified of the dismissal in writing.

Depending on the kind of termination, different form requirements apply.

Unilateral termination:

  • Employee Insurance Agency: the employer needs to give notice in writing after approval has been given by the Employee Insurance Agency (UWV) to terminate the employment agreement.
  • Court: if the employer has pursued termination based on legal proceedings, the court will terminate the employment agreement. Meaning that no further notice needs to be given by the employer.
  • Probationary period: there is no formal requirement to give notice during the probationary period in writing. In case the employee asks for the reasons of termination, the employer is however obliged to confirm the reasons in writing. Moreover, it is highly recommend that notice be given in writing in order to create evidence that notice during the probationary period was given in a timely fashion.
  • Summary dismissal: there is no formal requirement to give immediate dismissal in writing. However, when the immediate dismissal is given, the employer needs to directly inform the employee of the urgent cause(s) of immediate dismissal. Therefore, it is common practice – and highly recommended – to give the immediate dismissal in writing in which the urgent cause(s) for immediate dismissal are set out thoroughly. 

Mutual agreement:

  • Settlement agreement: Parties can also agree to terminate the settlement agreement based on mutual consent, which needs to be concluded in writing.

1.3 Notice period

In the event of dismissal, the law provides that an employee is entitled to a notice of a duration which varies depending on his seniority as follows:

  • Length of service of less than six months: no notice period applicable;
  • Length of service between six months and less than two years: one month;
  • Length of service of at least two years: two months.

For any dismissal, the employer may choose whether the employee works during the notice period.

In either case, employee is entitled to receive the same salary, including any benefits.

The statutory-notice period for the employee is one month, regardless of the number of years of employment. The statutory-notice period for the employer depends on the length of service as per the termination date. An applicable collective bargaining agreement may stipulate otherwise, but the statutory-notice period to be observed by the employer is equal to:

  • One month if the employment has lasted five years or less;
  • Two months if the employment has lasted between five and ten years;
  • Three months if the employment has lasted between ten and 15 years;
  • Four months if the employment has lasted for 15 years or longer.

The period of notice may, for the employee, be extended contractually up to a maximum of six months. If the employee’s period of notice is extended, however, the period of notice for the employer may not be less than twice that of the employee.

1.4 Involvement of works council

Works councils do not exist in Monaco. A staff representative (if established) must be properly informed prior to a collective redundancies.

The works council (if any) must be offered the opportunity to advise on any considered decision to terminate a number of employment agreements, which terminations have a significant impact on the organisation.

1.5 Involvement of a union

No involvement for dismissals.

Under Dutch law, an employer is obligated to notify unions and the Employee Insurance Agency (UWV) and discuss the consequences of any reorganisation with the trade unions, when more than 20 employees are being dismissed within a three-month period.

The employer can also be obligated to involve or inform the unions under other circumstances based on the collective bargaining agreement (if applicable).

1.6 Approval of state authorities necessary

Mandatory for employees with legal protection because of their private life or their mandate.

This protection applies to staff representatives, union delegates, pregnant women, employees taking maternity leave, paternity leave, adoption leave or family support leave, members of the Labour Court, harassment referents.

The relevant Labour Authority has to be informed of projected collective redundancies prior to their dismissal, and grant prior approval.

Not applicable.

1.7 Collective redundancies

The implementation of collective redundancies is mainly regulated by law and the National Collective Bargaining Agreement, which imposes some procedural steps prior to implementing any such decision.

Three main issues must be considered regarding the preparation and implementation of a collective social plan:

  • Drafting an information document containing all essential elements

regarding the decision to restructure, its motivation, its implementation and the measures taken by the employer to minimise any adverse impacts on employees;

  • Circulating the information to staff representatives, discussing it with them and collecting their comments and choices about measures taken to implement the restructuring (i.e., the measures adopted to minimise the number of dismissals); and
  • Implementing the restructuring plan, by obtaining the required authorisations as the case may be, notifying employees of their terminations and paying termination indemnities.

If more than 20 employees are being dismissed within a three-month period, the employer must notify the Employee Insurance Agency (UWV), the unions and the works council (if any) and discuss the consequences of any reorganisation with the trade unions.

For the purpose of determining whether this threshold of 20 employees in three months has been reached, employment agreement terminated by mutual consent also counts towards the total. 

Generally, if more than 20 employees are involved, the employer offers a social plan, which may be negotiated with trade unions (if applicable) or the works council. Unless a collective bargaining agreement stipulates differently, there is no statutory obligation to offer a social plan although it is very common to do so.

The works council (if any) must be offered the opportunity to advise on any mass redundancy being contemplated. 

1.8 Summary dismissals

Dismissal without notice is only possible in case of gross misconduct. In such a case, the employee receives no dismissal indemnity or notice period indemnity. The employee is still entitled to unemployment insurance benefits.

An employer can terminate an employment agreement (definite and indefinite) with immediate effect for an ‘urgent’ cause, such as theft, fraud, or other very serious misconduct. One of the formalities to strictly take into account is that notice must be given very shortly after the employer has become aware of relevant findings and (ideally) after the employee has been confronted with these findings. In case of an urgent cause, there is no requirement for a mutual agreement, or court action or procedure at the Employee Insurance Agency (UWV). 

Case law shows that in the event of an urgent cause, the employer can also decide to confront the employee with the findings and then give the employee a conditional immediate dismissal. When the employer opts for this possibility, the employee is offered a settlement agreement that can be accepted within a couple of days. If the employee fails to do so in a timely fashion, then the employment agreement ends based on urgent cause. The benefit of this procedure is that it allows the employer to know usually within a week whether the matter can be closed by means of a final settlement instead of being confronted with lengthy and costly procedures initiated by the employee.

1.9 Consequences if requirements are not met

Should the employer dismiss an employee on personal or economic grounds without a valid cause, the employer would have to pay a dismissal indemnity.

In addition, the employee could claim damages for injuries suffered due to his / her wrongful dismissal.

A wrongful dismissal – meaning that the statutory reason cannot be sufficiently substantiated or other requirements have not been met such as the redeployment obligation – can lead to the restoration of the employment contract or to additional compensation (i.e. "fair compensation").

In case of collective redundancies, if trade unions are not consulted and the employer proceeds with the termination of the employment agreements based on a consensual agreement that determines the legal relationship between both parties, these agreements are subject to annulment. This may have far-reaching consequences, since redundancy pay will have to be paid back in the event of annulment and the employment agreement will have remained valid throughout.

1.10 Severance pay

Dismissal indemnity is payable unless the dismissal is for gross misconduct. The amount payable is mainly set by the collective bargaining agreement, but must not be less than the French legal dismissal indemnity (since 27 September 2017: 25% of the monthly gross salary until ten years of seniority and one third of the monthly salary as of the tenth‘s year). A higher indemnity is payable in case of dismissal without a stated motive. Indemnity is also payable for unused accrued paid holidays and for the notice period if the employer chooses to release the employee from performing it.

When the employment agreement is terminated via the Employee Insurance Agency (UWV) or the court, a mandatory severance payment (i.e. transition payment) is due. The amount of the transition payment depends on the seniority of the employee and is equal to:

  • One-third of the monthly salary for each calendar year.

In 2020, the maximum transition payment is EUR 83,000 gross and for employees who earn more than EUR 83,000 gross a year, the transition payment is maximised at one annual gross salary.

In the situation where an employment agreement is terminated on the basis of the cumulated dismissal ground, the sub-district court can grant, in addition to the transition payment, a severance of up to half of the transition payment.

The employee is entitled to additional (reasonable) compensation if the employer has acted in a seriously culpable way. In that case, the remuneration is not subject to a maximum amount and is determined by the court. Case law shows an increase in the amounts awarded to employees.

If the agreed or statutory notice period is not observed, the termination of the employment agreement is deemed ‘irregular’. An irregular termination does not affect the validity of the termination itself, but it entitles the other party to claim statutory damages or compensation for the damages actually incurred.

1.11 Non-competition clauses

Non-competition clauses are enforceable in Monaco provided they are appropriately restricted.

A non-competition clause must comply with five cumulative conditions:

  • it must be essential to protect the employer’s legitimate interests;
  • it must be limited to a specific time period;
  • it must be limited to a geographical area;
  • it must take the characteristics of the employee’s job into account; and
  • most importantly, it must provide for a financial counterpart.

Independent consideration is required for a non-competition clause.

A non-competition clause may be inserted into the employment contract, but it will only be valid if it was set out in writing with an adult employee. If a non-competition clause is inserted into a definite term employment agreement, the compelling reasons that such a clause is necessary must be specified in writing in the employment agreement.

1.12 Miscellaneous

Not applicable.

Dutch employment law prohibits giving notice to certain categories of employees, such as pregnant women, members and former members of a works council and employees who are absent due to illness (at least during the first two years).

In cases where the illness commences after the employer files his application for dismissal to the UWV, the employer will still be allowed to give a notice of dismissal to the employee.

The rules for special protection do not apply to cases of termination of employment by the court. However, the court will assess whether the request for termination involves a prohibition to terminate and will refuse the termination if the reason for termination directly results from a prohibition to terminate.

If a collective bargaining agreement (CBA) applies, the employment conditions will be governed by the CBA. The CBA may also provide for an alternative dismissal route in case of redundancy, but that is uncommon.

2. Dismissal of managing directors

2.1 Reasons for dismissal

A company may generally revoke the appointment of the managing director without cause, unless stated otherwise in the by-laws of the company or the resolution of appointment. This is particularly the case for limited companies (‘SA‘). However, a just cause is legally required in limited liability companies (‘SARL’) when revoking a managing director who is also a shareholder of the company. In any event, revocation must follow mandatory steps to be declared valid.

In the Netherlands, the statutory director who is appointed by the shareholder of a private or public limited company has a special legal status. The statutory director has a dual position: a corporate position and an employment agreement with the company. The statutory director does not enjoy the same dismissal protection as regular employees.

In all circumstances, the employer must ensure that there are one or more reasonable grounds based on which the employment agreement would end. Usually, lack of trust is presented as the main reasonable ground for termination. The possible (limitative) statutory reasonable grounds under Dutch law are as follows:

  1. Economic grounds
  2. Long-term illness or disability
  3. Regularly not being able to perform work due to illness or disability
  4. Underperformance
  5. Culpable acts or omissions
  6. Conscientious objection
  7. Disturbed working relationship
  8. Other grounds than those mentioned above
  9. Cumulated dismissal grounds based on more than two dismissal grounds as mentioned under C – H combined

2.2 Form

A resolution is taken by the shareholders and / or board of directors, depending on the form of the company and the internal organisation of the management. The managing director must be given the opportunity to explain himself or herself and the revocation must not be made vexatiously.

Before being able, exceptions excluded, to terminate the corporate position of the statutory director by means of a shareholders' resolution, certain procedural steps must be taken. These steps are set out in the articles of association of the company. The manner in which the statutory director is invited in writing, the wording of the invitation (which should not only include the reasonable grounds but also explicitly state that the statutory director has the right to render advice about the contemplated decision and be heard) and the timing of the shareholders' meeting are essential to ensure that the corporate termination cannot be legally challenged.

It is also important to ensure that the discussion held during the shareholders' meeting and the resolution are well documented in case the statutory director decides to initiate court proceedings afterwards to claim damages. Once the corporate position has been terminated validly, the employment agreement will end automatically after expiration of the notice period.

2.3 Notice period

No notice period, except where one is provided by the by-laws of the company or in the resolution of appointment of the managing director.

The statutory-notice period for the statutory director is one month, regardless of the number of years of employment. The statutory notice period for the employer depends on the length of service as per the termination date. An applicable collective bargaining agreement may stipulate otherwise, but the statutory notice period to be observed by the employer is equal to:

  • One month if the employment has lasted five years or less;
  • Two months if the employment has lasted between five and ten years;
  • Three months if the employment has lasted between ten and 15 years;
  • Four months if the employment has lasted for 15 years or longer.

The period of notice may, for the statutory director, be extended contractually up  to a maximum of six months. If the statutory director's period of notice is extended, however, the period of notice for the employer may not be less than twice that of the statutory director.

2.4 Involvement of works council

No involvement.

If the company has a works council, then both the dismissal and the hiring of a statutory director (in light of the Works Councils Act, this person is defined as the individual who, alone or jointly with others, exercises the highest direct authority in managing work within an enterprise) are subject to the prior advice of the works council. The involvement of the works council must be initiated at such a stage when the decision is still being contemplated. In practice, the handing over of the invitation to the shareholders meeting, which handles the corporate dismissal, may hold an element of surprise, but the works council is usually involved shortly after the invitation has been handed over.

2.5 Involvement of a union

No involvement.

No involvement.

2.6 Approval of state authorities necessary

For limited liability companies (‘SARL’), appointment of a new director is subject to government approval. For all companies, the change of director must be registered in the Monaco Companies Register.

Not applicable.

2.7 Collective redundancies

Not applicable.

Not applicable.

2.8 Summary dismissals

Not applicable.

An employer can terminate an employment agreement (definite and indefinite) with immediate effect for an ‘urgent’ cause, such as theft, fraud, or other serious misconduct. One of the formalities to take into account is that notice must be given shortly after the employer has become aware of relevant findings. Due to the fact that the statutory director also holds a corporate position, a shareholders meeting should be convened as soon as possible – in accordance with the articles of association – in which the immediate dismissal is put on the agenda. 

Until the shareholders meeting takes place, parties have the opportunity to negotiate a settlement agreement. The benefit of reaching a settlement agreement is that it allows the employer to know usually within a week whether the matter can be closed by means of a final settlement instead of being confronted with lengthy and costly procedures initiated by the statutory director.

If no settlement agreement is reached, the shareholders' meeting will take place. In this meeting, the statutory director will be given the opportunity to be heard and will be given an advisory vote as a statutory director. In the shareholders' meeting, the decision will be made to terminate the corporate and employment position with immediate effect. 

2.9 Consequences if requirements are not met

Damages may be claimed, mainly:

  • for the lack of a just cause, in the event that such reason is legally required to revoke a legal representative; or
  • if the revocation is notified under hurtful circumstances (e.g. is very sudden and unexpected, or is publicly announced before the director is informed), or if the managing director has not been granted a reasonable opportunity to make his / her point before the board’s / shareholders’ decision to revoke him / her (absence of due process). However, the managing director cannot be reinstated.

If there is no reasonable ground and/or if redeployment (within the group) is reasonable, but the statutory director has been dismissed anyway, the requirements for dismissal are not met. If these requirements have been violated, the court may grant the statutory director fair compensation.

2.10 Severance pay

Not applicable.

When the statutory director’s employment agreement is terminated, the mandatory transition payment is due. The amount of the transition payment depends on the seniority of the employee and is equal to:

  • One-third of the monthly salary for each calendar year.

In 2020, the maximum transition payment is EUR 83,000 gross and for employees who earn more than EUR 83,000 gross a year, the transition payment is maximised at one annual gross salary.

In case parties have agreed to a contractual severance, one should verify whether the statutory director is entitled to both the contractual severance (i.e. a golden parachute) as the statutory severance.

The statutory director may be entitled to an additional (reasonable) compensation, if the employer has acted in a seriously culpable manner. This could apply if the dismissal is not based on any of the statutory reasonable grounds. In that case, the additional compensation, damages, remuneration is not subjected to a specific maximum amount and will be determined by the court. If the statutory director wishes to challenge the decision of the shareholder, he should initiate court proceedings within three months after termination of his employment.

2.11 Non-competition clauses

Non competition clauses are only valid insofar as they specify a restricted application in time and space. They also have to include financial compensation in order to compensate the director for the loss of revenue they cause him or her. If the clause does not include those elements, it is null and void. In that case, the director may still be held liable for unfair competition towards the company if it is demonstrated that the director resorted to fraudulent practices intended to disturb the company’s activity such as denigrating it or employing key members of its staff.

A non-competition clause may be inserted into the employment contract, but it will only be valid if it was set out in writing with an adult employee. If a non-competition clause is inserted into a definite-term employment agreement, the compelling reasons that such a clause is necessary must be specified in writing in the employment agreement.

2.12 Miscellaneous

Not applicable.

The termination prohibitions that apply to employees also apply in the relationship with the managing director. Dutch employment law prohibits giving notice to certain categories of employees, such as pregnant women, members and former members of a works council (which will probably not be statutory directors), and employees who are absent due to illness (at least during the first two years).

If the statutory director falls ill before actually receiving the invitation to the shareholders' meeting, the employment agreement will not end automatically, but will remain in place. The statutory director will in that case be protected against termination of his employment agreement whereas his corporate position can end.