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Thursday, March 19, 2015

The end of the “Temporary” employment agreement for a fixed term

By , filed under: Civil

Under Dutch (and Sint Maarten) law it is possible to offer employees a maximum of three employment contracts for a definite term. The fourth contract is, automatically and by law, considered an employment agreement for an indefinite period,

unless the “chain” was broken by an intermediate term of three months or longer during which the employee did not perform any work for the employer. An indefinite contract will also come into effect when a “chain” of employment agreements will have lasted for more than three consecutive years. In that situation the last agreement will, upon exceeding the three year limit, be considered an agreement for indefinite time. These regulations were introduced in order to prevent employers from employing employees on multiple labor agreements for a period term, giving them less protection against termination of those agreements.
In its judgment of 9th January 2015 (source: www.rechtspraak.nl, ECLI:NL:HR :2015:39), the Dutch Supreme Court (Hoge Raad) in The Hague definitely put an end to the practice of offering a fourth employment agreement for a definite term with an employee.
In the case leading to that judgment the facts were as follows. Employer and employee agreed upon three labor agreements for a definite term during the period from August 2008 through February 2011. The employer had the intention to continue his relationship with the employee, however did not wish to agree upon an agreement for an indefinite term. So what did the parties invent in order to prevent the coming into effect of an agreement for indefinite term ? They put up the cunning scheme to agree upon a fourth employment agreement and, simultaneously, agreed upon a settlement agreement in which a termination of that fourth contract was stipulated as well. The settlement agreement stated that the employer would only extend the third employment agreement if parties would reach prior consensus with regard to the date on which the employment agreement (which had by law been converted into a contract for an indefinite period) would end. Parties agreed that the employment agreement would end on 1st January 2012.
However, upon approaching that date the employee (who apparently sought legal advice) opposed the termination of his employment agreement on the agreed upon date and stated that this agreement should be nullified, as the employer coerced him into agreeing upon the agreement. The Court in First Instance (kantonrechter) found for the employee, the Court of Appeal – however – ruled in favor of the employer. The last word is to the Dutch Supreme Court.
The Supreme Court overruled the judgment of the Court of Appeal. In its judgment the Court noted that the Court of Appeal should, with regard to the question what parties had agreed upon, have taken into consideration the original intention of the contracting parties. This was something that the Court of Appeal had overseen. Furthermore, the Supreme Court ruled that the Court of Appeal had erroneously considered that the settlement agreement was valid, even though it was construed in violation of a binding legal provision from which parties can not deviate. A settlement agreement can be construed in order to prevent a future dispute, however a settlement agreement can only be in violation of a binding provision if the agreement is intended for the settlement of an issue that is already existing at the time of agreeing upon such a settlement. That was however not (yet) the case.
With this judgment the Supreme Court has put an end to the practice of binding legal provisions being infringed or undermined by agreeing upon a simple settlement agreement.