In 2020, COVID-19 without a doubt had a major impact on the most noteworthy employment legislation and case law. Over the course of the year, we kept you informed about those developments. However, if we look back on the past year as we stand on the eve of 2021, we can see that 2020 was not only marked by the developments surrounding COVID-19. The year also saw other employment law issues result in new developments, for example in Supreme Court case law. Below you will find four Supreme Court judgments which we believe should be added to the ‘employment law backpack’ that HR professionals carry into the new year.
The relevance of the parties’ intentions when entering into an employment contract
On 6 November 2020, the Supreme Court rendered an important judgment regarding the question of when a contract must be regarded as an employment contract, and specifically whether the parties’ intentions play a role in that respect (ECLI:NL:HR:2020:1746). The Supreme Court was quite clear on the matter. Section 610 of Book 7 of the Dutch Civil Code describes an employment contract as a contract under which the employee undertakes to perform work in the service of the employer in exchange for a salary during a given period. If the substance of a particular contract satisfies that description, that contract must be regarded as an employment contract.
According to the Supreme Court, it is irrelevant whether or not the parties intended their contract to fall within the scope of statutory provisions governing employment contracts. It would seem that the Supreme Court has reconsidered its judgment in Groen/Schoevers from 1997. In its November 2020 judgment, the Supreme Court does, however, leave room for the possibility that the parties’ intentions should play a role in interpreting what rights and obligations the parties have agreed on, before making a decision as to how those arrangements should be labelled. In other words, the parties’ intentions can play a role in answering the question of whether the parties have agreed on wages or in answering the question of whether a relationship of authority exists between them.
It is nevertheless assumed in professional legal literature that, based on this judgment, for the purposes of answering the question of whether a particular contract constitutes an employment contract, the parties’ intentions are less relevant and that therefore the courts in the fact-finding instances will be more likely to conclude that an employment contract exists in cases where that was not the parties’ initial intention. It is logical that parties should bear the potential implications of this judgment in mind when they enter into contracts that are not intended to be employment contracts, for example contracts for services.
Nullifying an employement contract on the grounds of deceit
On 7 February 2020, the Supreme Court rendered its first judgment on the question of whether it is permissible to nullify an employment contract on the grounds of deceit (ECLI:NL:HR:2020:213). In the case at bar, the deceit consisted of an employee falsely claiming to possess qualifications (e.g. having a particular educational background) listed in his curriculum vitae in order to form his employment contract.
Until this judgment was rendered, it was assumed in case law of the lower courts that nullification on the grounds of deceit was possible in only a limited (or very limited) number of situations, owing in part to the effect of retroactivity and the fact that this manner of termination is at odds with the laws governing termination of employment contracts which are laid down separately in Book 7 of the Dutch Civil Code. Therefore, it was assumed that an additional requirement had to be met, being that nullification on the grounds of deceit is possible only if it is established after the deceit is discovered that the employment contract is entirely useless because the work cannot be performed.
The Supreme Court did not follow the reasoning adopted in the lower courts’ judgments: if an employee is deceitful and an employment contract is formed as a consequence of that deceit, the employer is entitled to nullify the employment contract without needing to apply to the courts. This is not diminished by the statutory system of the laws governing termination, as that system is not aimed at protecting deceitful employees. In general contract law, courts have the option of mitigating the consequences for employees, for example by denying the nullification some or all of its effect. The Supreme Court opined that an employment contract becoming devoid of substance is not a condition that needs to be met in order to nullify an employment contract on the grounds of deceit. This judgment shows that employers that are confronted with deceitful employees when entering into an employment contract have more options for nullifying their employment contracts than was previously assumed. Combining those options with summary dismissal is also worth considering in such situations.
Cancellation by the employer does not affect the transition payment
On 17 July 2020, the Supreme Court ruled that in a situation where an employment contract was cancelled without the standard notice period being observed, the entitlement to the statutory transition payment must be determined on the basis of the date on which the employment contract would have ended if the standard notice period had been observed (ECLI:NL:HR:2020:1286).
By so ruling, the Supreme Court remedied a consequence that the legislature did not foresee in 2015 when the statutory right to a transition payment was introduced. As a consequence of this judgment, employers must award employees the transition payments that they would have owed if they had observed the appropriate notice period. Observing a shorter notice period, whether intentionally or not, will not benefit employers. In the case in question, the employer had observed a notice period of a little more than 1 month when it cancelled the employment contract with the employee, whereas it should have given 6 months’ notice. The transition payment to be made by the employer should then be calculated based on the employment contract’s end date that would have applied if the employer had actually observed the 6-month notice period.
The law provides that the employer also owes the employee fixed-rate damages, to a sum that is identical to the salary for the period that the employment contract would have remained in place if the 6-month notice period had been observed.
Broad margin for discretion when negotiating social plans
In its judgment of 24 January 2020, the Supreme Court set aside a judgment rendered by the Amsterdam Court of Appeal in which a maximum severance payment scheme in a bank’s social plan was deemed void on the grounds of age-based discrimination (ECLI:NL:HR:2020:114). Under the maximum severance payment scheme, the severance payment granted under the social plan was capped at the sum of the employee’s gross salary until retirement age. Based on that cap, the employee in question was not awarded any severance payment.
Both the sub-district court and the court of appeal deemed the maximum severance payment scheme to be contrary to the prohibition against discrimination on the grounds of age. The Supreme Court held that, when assessing the appropriateness and necessity of the maximum severance payment scheme, the court of appeal had paid too little attention to the broad margin of discretion that management and labour (i.e. employer organisations and trade unions) have to strike a balance between the various interests.
According to the Supreme Court, this means that courts must exercise restraint when assessing arrangements made in social plans. It is logical that this judgment will mean that arrangements in social plans will now less be likely to be declared void by reason of age-based discrimination.
We wish you a healthy and successful 2021. Please feel free to contact us if you have any questions about the matters addressed above or any other matters.
On behalf of Rutgers & Posch’s employment law team,