Wednesday 6 October 2010

Labor laws in Europe, and resignation

Given the amount of conversations I've had lately about resignation, and the apparent lack of knowledge from people outside of the Netherlands about our Labour Law (not surprisingly), I deemed it fit to write up a short one on resignation, and the situation in Europe regarding that

In the Netherlands, everyone has a notice period for resignation / termination: the employee usually has 1 to 2 months notice, for the employer it depends on the amount of years someone is employed:
  • Less than 5 years: 1 month
  • Between 5 and 10 years: 2 months
  • Between 10 and 15 years: 3 months
  • 15 years and more: 4 months
In my case, I had 2, and my employer 4

There also is a termination fee involved, when someone is fired. When someone voluntarily resigns, "it's free" so to say. The termination fee is subject to debate and often fought over in court, but here's the rule of thumb: for every year of employment, the employee gets paid 1 month. If the employee neglected his work and is "fired for a good reason", that sum is divided by 2. If the employer is to be blamed for the termination in some way, than the sum gets added another 50%. If the employer is to be severely blamed for the termination (gross negligence on his part), than the sum gets doubled

An example:
  • Annual income: 35,000 euro
  • Consecutive years of employment with same employer: 12
  • Employee "to blame": 17,500 euro termination fee
  • Default scenario: 35,000 euro termination fee
  • Employer somewhat "to blame": 52,500 euro termination fee
  • Employer seriously "to blame": 70,000 euro termination fee
Since 2009 there is also a rule that determines that employment years become more expensive depending on the age of the employee:
  • Each year of employment before 35th birthday: 0,5 monthly salary per year
  • Each year of employment between 35th and 45th birthday: 1 monthly salary per year
  • Each year of employment between 45th and 55th birthday: 1,5 monthly salaries per year
  • Each year of employment after 55th birthday: 2,0 monthly salaries per year
Next to that, we have collective bargaining in all state-owned and most semi-state-owned companies, meaning that everyone will get a salary increase of roughly 2.5%-3.5% regardless of their individual contribution (but that's pretty much all they usually get, save promotions)

One can imagine that there is a lot of "old blood" to be found across companies in NL: people that are just way too expensive to get fired. I think that's very bad for companies, as it's very bad for the entire country. There are a lot of not-too-competent *cough* people (see the Peter Principle, the Dilbert principle or the Gervais principle) that make over 100,000 euros a year but don't get fired because that would cost a quarter to a half million euros. Needless to say, these people won't move voluntarily because there's nowhere to go

Fortunately, in NL there is now a new law in the making to maximise termination fees to 75,000 euro - period. People that make more than 100,000 a year, get a maximum of 100,000 regardless of everything. Due to our long series of cabinet crises, this bill hasn't made it all the way yet, but it will surely revolutionise the way we do business over here

Let's look across Europe a bit: in France, being fired usually takes 2 years in front of a judge, during which employees enjoy employment benefit. A law (Contrat Prem├Čere Embauche (CPE)) meant to be able to fire anyone during the first 2 years of employment, was abolished in 2006 by president Chirac after fierce protests. In Germany, only when an employee fights his termination is there a termination fee determined by a judge: 0,5 monthly salary per year usually. In Denmark, even when an employee resigns, he gets employment benefits: about 80% of the current wage. In England, there is a maximum of 4 weeks of salary for every year someone was employed

A note: in all situations and countries, firing someone immediately is possible and usually "free", as long as there is a well-built case and file on the employee

An example of how this all can cause friction: let's say a medior employee (10-15 years of service) has a conflict with his boss or company and wants to resign. In NL, doing so he won't get any money though, and will throw away a possible termination fee of 50,000 - 100,000 euro given his employment record. That's quite an "investment".
So, he resigns in early Q2 per Q1 next year - or even after that. As the period of notice is a minimum one, the only thing his boss can do, is reluctantly watch, or fire him - but that'll cost the company dearly and they still have to obey the 3-4 months notice they have themselves

Stalemate they call that, and the usual end to that would be that employer and employee put up with one another for the remainder of the contract, or arrange an intermediate solution (guess what)

Unthinkable in the United States, where the employee would probably be fired free-of-charge at the same day. Yes, this is a big world with fine differences all over the place - read the fine print!

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