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Employment contract

What is an employment contract?

We speak of an employment contract if one party, (the employee), commits himself to perform work in the service of the other party, (the employer), in exchange for wages during a certain period of time. Any agreement that meets this definition is an employment contract. It does not matter what name the parties have given to the agreement. If the agreement between the parties contains the elements of personal labour, wages and a relationship of authority, it is an employment contract. What labour and wage means is often clear. This does not apply to the element “relationship of authority”. In short, this means that the employer may instruct the employee what work to do, when to do it and how to do it. It also means that, for example, the employee is bound by the company regulations, such as those regarding sick leave and taking holidays.

If there is an employment contract, it has important consequences. An employment contract is subject to labour law. Labour law has many (mainly mandatory) provisions to protect the employee. Think, for example, of the obligation to continue to pay wages in the event of incapacity for work, the accrual of holidays and the (limited) possibilities for dismissal. In addition, in the event of an employment contract, an employer is obliged to withhold wage tax and social security contributions. Also, in general, the employee cannot bluntly be dismissed. The employer is bound by dismissal law. Here you can read more about dismissal law.

Service agreement

It can be difficult to distinguish an employment contract from a service agreement, on the basis of which, for example, a self-employed person works. After all, both agreements imply that one party works for the other party against payment (e.g. an hourly rate). In a service agreement, however, there is no element of “authority”. Here you can read more about the service agreement of a self-employed person.

Formation of an employment contract

An employment contract is established by offer and acceptance. Although it is not a requirement for the formation of an employment contract, it is wise to write down the agreed terms of employment in advance so that there can be no ambiguity about this afterwards. The employment contract may also include whether company regulations or a collective labour agreement apply.

Fixed-term employment contract

An employment contract can be agreed upon for a fixed period of time. This means that the employment contract expires by operation of law at the end of the agreed term.

Termination of a fixed-term employment contract: early termination

In general, a fixed-term employment contract cannot be terminated during its term. In that case, the employer cannot terminate the employment contract before the end date. This also applies to the employee. This can only be done by a judge.

If the fixed-term employment contract provides that both the employer and the employee can terminate the employment contract prematurely, it is possible to terminate the fixed-term employment contract before the end date. This means that the employee may terminate the employment contract at any time with due observance of the applicable notice period. This also applies to the employer, but the employer must first obtain permission from the UWV. Here you can read more about dismissal law.

Give notice of a fixed-term employment contract

Although a fixed-term employment contract ends by operation of law, the employer must give notice in due time. This must be done if the employment contract has been entered into for at least six months. This means that at least one month before the end date the employer must:

– inform the employee whether or not the employment contract will be extended;

– if the employment contract is extended, inform the employee of the terms and conditions of employment that will apply.

If the employer does not inform the employee at all whether or not the employment contract will be renewed, the employer must pay the employee a fine, the so called notice fine. The amount of this fine is one time the employee’s monthly salary. If the employer gives notice too late, the fine due is calculated pro rata.

If the employer has failed to comply with one of the aforementioned obligations and the employee continues to work after the end date, the employment contract shall automatically be regarded as having been renewed. The renewed employment contract will have the same duration as the previous employment contract, but with a maximum of one year. Also, the same terms and conditions of employment will then apply. This also applies in certain situations – apart from the obligation to give notice – if the employee continues to work after the end of the employment contract.

Employment contract for an indefinite period of time

An employment contract can also be entered into for an indefinite period of time. This means that the employment contract does not – like the fixed-term contract – expire by operation of law. In general, therefore, the employment contract will continue until it is terminated. Termination can be realized by the employer or the employee themselves, or the court dissolves the employment contract at the request of the employer or the employee. Incidentally, a so-called “pension dismissal clause” may be included in the employment contract. This clause states that the employment contract will end by operation of law when the employee reaches the state pension or retirement age.

The flexible employment contract

An employment contract can have flexible forms, such as the on-call contract, also referred to as employment contract with deferred performance obligation. An example is the so called zero-hours contract, where no fixed number of hours per week has been agreed to. The employee only works when he/she has been called to work.

Another example of an on-call contract is the preliminary employment contract (“voorovereenkomst”). The employer and employee then agree in advance on the terms and conditions of employment that apply if the employee is called to work. Each time the employee is called up, a new (fixed-term) employment contract is entered into. Here you can read more about flexible employment relationships.

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