Same law, different lawyers
02 April 2020

COVID-19 crisis – sharing the financial burden by changing employees' employment conditions?

The COVID-19 crisis is currently holding us in its grip. For many Dutch employers, the crisis already has, or will have, (major) financial consequences. Despite a decrease in turnover, employers are obliged to continue the employment benefits of their employees.  However, the COVID-19 crisis is a situation of force majeure for employers.  From this point of view, the question arises whether an employer can induce an employee to share some of the (financial) burden by (unilaterally) amending some of the employment conditions.

Legal framework

First of all, an employer may be able to invoke a unilateral amendment clause in the employment agreement or a bonus scheme, for instance. Please note, however, that, based on article 7:613 Dutch Civil Code (''DCC''), this will only be possible in case an employer has a significant interest that reasonably outweighs the interest of an employee that will be harmed by the change.

Furthermore, if such a clause has not been agreed between the parties, an employer could make a reasonable proposal to change certain employment conditions. In such a case, both an employer and an employee will have to act as a good employer and a good employee should (article 7:611 DCC). When determining whether or not an employer is able to reasonably make such a proposal or whether an employer has a significant interest that outweighs the interest of an employee, all circumstances of the case have to be taken into account.

Case law shows that, in case of financial crisis, it may be possible for employers to unilaterally amend employment conditions, [1] for example if, in the absence of austerity measures, the continuity of the business would be jeopardised. On the other hand, case law also shows that the Courts apply the rules on unilateral amendments of employment conditions very strictly. However, under the current unprecedented circumstances it may not be unreasonable to expect from a good employee to share the financial burden due to the COVID-19 crisis with an employer to a certain extent, by agreeing to reasonable amendments of the employment conditions.

Which measures can the employer change unilaterally because of the COVID-19 crisis? 

A few relatively small measures that Dutch employers, who are facing financial difficulties, could consider are withdrawing travel/kilometre allowances, lunch allowances and amendments of discretionary employment conditions, such as (non-agreed) salary increases.

Please note that (without the explicit consent of an employee) it will be more difficult to change wages and working hours unilaterally, since these are considered to be agreed primary employment benefits. However, it is arguable that a temporary, proportionate reduction of a salary or a temporary suspension of the payment of certain allowances may be deemed reasonable, due to the current extremely exceptional circumstances. Especially in the case of employees who will be at home without performing any work, it may be reasonable to agree on such temporary decrease of wages in exchange for continuation of employment for a couple of months.

A salary decrease may be more difficult to bring into effect if employees continue to perform work. However, please note that if an employer has enough work for employees and is financially strong, despite the decrease of revenue, the interests of an employee will most likely outweigh those of an employer. When reducing a salary temporarily, please take into account that a deduction of the salary has to be proportionate and necessary and the deduction should not lead to a salary which is less than the statutory minimum wage, which is currently EUR 1,653.60 gross per month.

The same balancing act has to be made when imposing measures such as the mandatory use of holidays, suspension of payment of a holiday allowance and a temporary suspension or withdrawal of emoluments, such as performance bonuses, profit distributions and commissions.

Moreover, if an employer has opted to make use of the Temporary Emergency Relief Measure for the Preservation of Work (Tijdelijke noodmaatregel overbrugging voor werkbehoud, ''NOW'') [2], it will not be reasonable to unilaterally change employment conditions, because the purpose of this measure is to help an employer to continue paying salaries as much as possible.

Collective labour agreements usually do not allow adverse wage amendments. However, the social partners in numerous sectors are currently holding consultations and discussing adverse amendments to benefits if employers are in major financial difficulties, in order to prevent (mass) redundancies.

Last but not least, depending on the changes, involving a Works Council, or any other form of an employee representative body, may be a condition precedent. A Works Council has a right of consent in case of changes of, for example, pension plans, regulations on working and rest periods and holidays (article 27 Dutch Works Councils Act). Employees will not be bound by the consent of a Works Council, but a Works Council's consent may create support for the proposed changes among employees.  Also the NOW shows that consulting an employee representative body provides an opportunity to consider, in consultation with employees, what other measures are needed to bridge this difficult period.

We consider such sense of pragmatism by the Dutch state a vital signal that reasonable amendments to employment conditions should be possible even if the company were to receive a compensation for wages under NOW. Although this does not prejudice the obligation for employers making use of the NOW to keep the wages as much as possible at the same level during the period of 1 March 2020 up to 1 June 2020.

Conclusion

When considering appropriate measures, employers who face financial difficulties have to be pragmatic, but at the same time will have to react in a careful and fair way, by also taking into account the legitimate interests of employees.

Given the exceptional circumstances and the possible major financial consequences, employees may be willing to agree to changes, especially to prevent scenarios such as mass redundancies and bankruptcy, which will even be more painful.

And as indicated above, employees may also be obliged to accept unilateral austerity measures if necessary, in light of all circumstances of the case; for example, the question of whether or not an employer has requested a NOW subsidy.  In any event, an employer will have to communicate effectively the reasons for changes in order to create as much support as possible amongst employees.

For more information, please contact Anita de Jong or Maria Benbrahim.

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[1] Court of Appeal Arnhem 2 March 2009, ECLI:NL:GHARN:2009:BH7770.

[2]  In our latest blog you can read about the eligibility criteria and the outline of Temporary Emergency Relief Measure for the Preservation of Work (Tijdelijke noodmaatregel overbrugging voor werkbehoud) has been introduced. Employers can apply to the Employee Insurance Agency (UWV) for a generous allowance to cover up to 90% of wage costs , and receive an advance payment of (a minimum of) 80% of the allowance expected to be granted by the UWV.