The Netherlands: Compensation due only in absence of contract extension notification

On October 19, 2020, the Arnhem-Leeuwarden Court of Appeal ruled on whether an employer had met its duty of notification and whether it owed compensation in lieu of notifying the employee about his contract extension. Under Dutch law, no later than one month before a fixed-term employment contract is due to end, the employer must inform the employee in writing whether or not the contract will be extended. If the contract will be extended, the employer must state the terms under which it wishes to extend it. This is referred to as the notification obligation. If the employer fails entirely to meet this obligation, then it will owe the employee compensation equal to one month's salary, known as the notification compensation.  

The issue

The parties entered into a one-year employment contract on October 12, 2018. That contract was due to end on November 11, 2019. On October 4, 2019, the restaurant operator employer and the employee discussed the "further course of events with regard to the restaurant." On October 7, 2019, the employer told the employee that a follow-up discussion about the future would have to be postponed, but that "the employee had no need to worry." Then, on November 3, 2019, the employee told the employer that he would serve out the rest of his contract and then leave.

During the course of the parties’ conversations, the employer had shared the employment terms of the extended contract, but not in writing. The employee subsequently claimed payment of the notification compensation due to the employer’s breach of the notification obligation provided under Article 7:668(1) of the Dutch Civil Code (DCC), arguing that the employer should not only have confirmed in writing that he wished to extend the employment, but also under which terms.

The Sub-District Court dismissed the employee's claim because the employer had wanted to continue employing the employee and had also notified him about future employment, but the employee decided to leave because he did not agree with the amended employment terms under the extension. In essence, the employee came away empty-handed.

Arnhem-Leeuwarden Court of Appeal

The Court of Appeal chose a slightly different approach but the outcome was the same. It held that, on the basis of Article 7:668(1)(a) of the DCC, the employer had been obliged to inform the employee in writing before October 11, 2019 about whether or not his employment contract would be extended. The Court of Appeal found that the employer had met that obligation. The court considered the discussion of October 4, 2019, and determined the employer had adequately informed the employee about the extension of his employment contract in its October 7, 2019 email and had made it sufficiently clear to the employee that his employment contract would be extended. Accordingly, the employer had met the notification obligation under Article 7:668(1) of the DCC, meaning that the employee was not entitled to the notification compensation provided in paragraph 3 of that article.

Notification compensation pertains solely to the extension and not its terms

Contrary to what the employee submitted, the notification compensation provided under Article 7:668(3) of the DCC is owed only if the obligation referred to in paragraph 1(a) of that article is not met. Put briefly, that obligation pertains solely to "whether or not the employment contract is to be extended" and not to the "terms on which the employer wishes to continue the employment contract." Therefore, according to the Court of Appeal, the fact that the employee had not been informed in writing about the terms of the new contract was not relevant to whether he could claim the notification compensation. The employee's appeal was dismissed.  

Lessons for employers

In a nutshell, employers must inform the employee in good time whether they want to extend their employment contract. If an employer does not, then it will be liable for the notification compensation, which can be as much as one month's salary. If, however, an employer states its intention to extend the employment contract, then it does not need to also inform the employee in writing of the terms of that extension one month before the contract ends.

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.