International Business Articles
Russell Advocaten B.V.
Amsterdam, The Netherlands
The Netherlands is located in Northwest Europe. It borders the North Sea, Belgium and Germany. The Netherlands owes its name to its low-lying geography, with a great part of its land area (the polders), lying below the sea level. The country is also referred to as Holland after the most important region in the Netherlands.
The Netherlands has an open economy that heavily depends on foreign trade. The country plays an important role as a European transportation hub and is known as the “gateway to Europe”. The main industries are food processing, chemical production, petroleum refining and electrical machinery. The highly mechanised agricultural sector provides large surpluses for food-processing and export. Other important sectors of the Dutch economy are international trade and banking, which attract foreign investment.
The Dutch are known for the polder model, which refers to the consensus approach to decision-making. For employers and employees, that means searching for and finding mutual interests on the work floor. Foreign entrepreneurs who wish to conduct business in the Netherlands benefit from knowing the rules of the game of this culture of consensus.
This article will first discuss direct participation by employees within the company in the Netherlands and in other European countries and, subsequently, indirect participation through unions. The difference to the US is that collective bargaining takes place per sector of industry instead of being business-based.
Direct participation allows employees to protect their position and look after their interests within the company. The idea behind employee participation is that it benefits both the employee and employer. It provides the employer with a tool through which he can obtain broader support for his decisions and it allows employees to influence the decision-making process of the company.
There are several forms of direct employee participation within companies. The form of employee participation depends on the number of employees that work for a company based on an employment contract.
Companies with 50 or more employees are obliged to establish a Works Council (Ondernemingsraad). In case there are more than 10 but less than 50 employees working at a company, it may suffice to establish an employee representative body (Personeelsvertegenwoordiging). Setting up such a body is inevitable if requested by a majority of the employees. The members of both participation bodies are chosen by the employees.
If it’s a small company and the entrepreneur does not (by choice) set up a Works Council or an employee representative body, a minimum level of participation is guaranteed by law. The entrepreneur then has to organize a meeting with all of his employees at least twice a year to discuss business affairs.
The Works Council is the most powerful body of employee participation within a company. It has extended powers to influence important decisions of a company and has even got the power to stop or reverse decisions of a company to merge or to sell the company.
The European Works Council
The European Works Council Act (EWCA) applies if a company seated in the Netherlands has over 1000 employees working within the European Union, with at least 150 employees working in two member states of the European Union (a so-called “communal company”). Furthermore, this Act applies to a communal group, which is an entity of companies, consisting of a “parent company” which has the control of at least two communal companies, if the parent company is seated in the Netherlands.
According to this Act, the general board of directors of a communal company or communal group may institute a special delegation of negotiators to reach an agreement on the institution of a European Works Council, and must institute such a delegation in case at least 100 employees (from at least two member states of the European Union) request so.
In case the company does not comply with the request within six months, or in case an agreement between the negotiators and the company on the institution of a European Works Council has not been reached within three years, the general board of directors of the company is obliged to institute a European Works Council.
According to the Act, the European Works Council is limited by law to the right of information and the right to advise with regard to issues that are of importance to the entire company or group company with a communal dimension or to at least two companies of the group in different Member States. The general board and the European Works Council have to meet at least once a year.
Employee participation through unions
Collective bargaining agreements (CAO; collectieve arbeidsovereenkomst) are agreements between employers or employers’ organizations, and employees’ organizations. In the Netherlands most employment agreements are regulated by CAOs. Many aspects of the employment, such as wages, working hours, overtime, vacation days, pension schemes and rules on health and safety, are governed by a CAO. A CAO prevails over an individual employment agreement. A provision in an individual employment agreement that conflicts with the applicable CAO is null and void, unless the provisions included in the employment agreement are an improvement to the terms included in the CAO, and this improvement is not prohibited by the terms of the CAO.
Employers’ and employees’ organizations
The employees’ organizations can be categorized as follows: the trade union federations, the non-affiliated (craft) unions, and the company unions.
The three most important trade union federations are Federatie Nederlandse Vakbeweging (FNV; Dutch Trade Union Federation), Christelijk Nationaal Vakverbond (CNV; Christian Trade Union Federation), and Vakcentrale voor middengroepen en hoger personeel (MHP; Federation of Managerial and Professional Staff Unions).
The Vereniging VNO-NCW, (VNO-NCW; Confederation of Netherlands Industry and Employers VNO-NCW) is the largest body of representation of employers. This is the umbrella organization of a large number of employers’ organizations that have been instituted according to branch of industry or ideology and the major companies. In addition, the (associations of) medium and smaller companies are organized in MKB-Nederland (Dutch Federation of Small and Medium-Sized Enterprises), and the employers in the agricultural sector are represented in LTO-Nederland (Dutch Confederation of Agriculture and Horticulture).
Union density in The Netherlands is rather low (less than 30%). Such a low percentage can be explained by the fact that the work of the unions also benefits those who are not a member. The percentage is different when it comes to employers: about 90% of the employers are affiliated with an employers’ organization.
To compensate the lack of union members, employers or employers’ organizations pay a contribution to the unions every year. Some unions refuse these payments because they fear losing their independence.
The collective bargaining agreement
The CAO is governed by the Collective Agreements Act (Wet op de collectieve arbeidsovereenkomst). CAOs are concluded in writing by one or more employers or one or more incorporated associations of employers, and one or more incorporated associations of employees. Due to the manner in which employers can take part in the negotiations, there are CAOs on company level as well as on sector level. The agreement comes into effect when it has been reported to the Ministry of Social Affairs and Employment.
Employers and employees are bound by a CAO when they are members of the contracting parties (unions) or, in case of employers, when they are the contracting party. The employer has to implement the terms of the CAO into employment agreements with non-member employees that are concluded during the term of the CAO. Employees can not directly appeal to the terms and conditions of a CAO, because they are not a contracting party. Therefore, only the unions may invoke an action against the employer regarding terms and conditions of a CAO.
According to the Collective Agreements (Declaration of Universally Binding and Non-Binding Status) Act (Wet verbindend en onverbindend verklaren CAO), the Minister of Social Affairs and Employment may extend the scope of a CAO to an entire business sector. As a consequence, all employers and employees in that particular sector will be bound to the agreement, even when neither party to the labour contract is a contracting party to the CAO.
The Minister may only extend the CAO upon request of one or more employers, or one or more incorporated associations of employers or employees that are parties to the CAO. He can comply with their request if he is of the opinion that the agreement already applies to a vast majority of the employees within the sector in question. The extension can be ordered for a maximum period of two years.
The scope of the CAO may also be enlarged by the rules that govern the rights of employees in case of a takeover. The purchasing company must continue to apply the CAO by which the target company was bound. This obligation is terminated by the end of the term of the respective CAO or as soon as the purchasing company is bound by a new CAO after the takeover.
In the Netherlands, employee participation within companies through a works council or employee representative body is mostly geared towards reaching solutions in an amicable way. Nevertheless, in particular the Works Council has extended powers to influence, stop or to reverse important decisions of your company. Therefore, it is important to maintain a good relationship with a Works Council or employee participation, not only to avoid problems but also to create a broad base of support for important decisions for your company and employees.
The same advice applies to employee participation through unions. Contrary to unions in most other countries, unions in the Netherlands prefer reaching solutions by negotiating, rather then by using strikes. Although union density is relatively low in the Netherlands, the influence of the unions is important given the fact that the labour conditions of a majority of Dutch employees are governed by CAOs concluded between employees’ unions and employers or employers’ organizations.
So the Dutch polder model benefits both the employee and employer. Direct or indirect employee participation allows employees to influence the decision-making process of the company, but, more importantly, provides the employer with a tool through which he can obtain broader support for his decisions.
The Netherlands is an appealing place to conduct business. At Russell Advocaten, they have highly skilled specialists to assist foreign entrepreneurs in successfully entering the Dutch and European markets and we render legal support to their day-to-day business operations.