An employer can dismiss employees if the company runs into financial difficulties or if there is a reorganization. This is called dismissal on business economic grounds. Because this has a major impact on employees, strict rules and procedures apply.
In this article we explain when dismissal on business economic grounds is permitted, how the procedure works, and what rights you have as an employee.
What is dismissal on business economic grounds?
In a dismissal on business economic grounds, the employer terminates employment contracts for reasons that relate to business operations. Examples include:
-
Poor financial situation.
-
Reduction in work.
-
Company closure or relocation.
-
Organizational changes (reorganization).
-
Automation or digitization that eliminates positions.
What rules apply to collective dismissal?
In the case of collective dismissal, the employer must comply with additional legal obligations. For example, he must inform the UWV and the trade unions in a timely manner about the intention to dismiss several employees. In addition, there is a mandatory consultation period, during which the employer and trade unions work together to find solutions and discuss the consequences for employees. There are also deadlines that the employer must observe before the dismissals may actually take place.
Approval via UWV
An employer may not simply dismiss employees. In the case of dismissal for business-economic reasons, approval from the UWV required. The UWV assesses whether the reason for dismissal is sufficiently compelling.
Burden of proof for dismissal on business-economic grounds
To be permitted to dismiss an employee for business-economic reasons, the employer must convincingly demonstrate that all conditions have been met. The UWV will request evidence of the following points:
- There is indeed a business-economic reason underlying the dismissal, such as persistent financial problems or a structural reduction in work.
- The employer must substantiate that the situation is not expected to improve within 26 weeks—so it is not a temporary setback.
- The correct dismissal order is followed, i.e. the reflection principle is applied.
- It has been credibly demonstrated that reassignment to another suitable position within a reasonable period is not possible.
- If there is a works council, it must be shown that it was able to issue advice in good time on the proposed dismissal.
Only once this evidence has been submitted can the UWV proceed to grant permission for dismissal.
If the UWV grants permission, the employer must still comply with the notice period.
After approval from the UWV the employee receives a letter from the employer stating that the employment contract will end. The employer has four weeks to do this, counting from the moment that the UWV has granted permission for dismissal. During the notice period, the contract remains in effect.Please note: the time that the UWV has needed to complete the dismissal procedure may be deducted by the employer from the notice period. In the letter from the UWV it states exactly how much time remains. Is this period shorter than one month? Then there is always a minimum notice period of one month.Example:Suppose the notice period is three months and the employer terminates the contract on January 10, after the UWV took three weeks to complete the procedure. Normally the contract would then end on April 10, but due to the deduction of three weeks the end date shifts to March 20. Because it is often rounded to the first of the month, the contract is then terminated as of April 1.
Difference between dismissal via UWV and via a dismissal committee
In some cases the employer does not request permission from the UWV, but from a dismissal committee. How exactly does this work, and what are the main differences?Permission from the UWV:For most dismissals for business-economic reasons, the application is made through the UWV. The UWV assesses whether the reason for dismissal is serious enough and checks whether the employer complies with the rules, such as the correct order of dismissal and the search for redeployment options. It is also checked whether the employee’s position will not change in the coming period. Only after approval by the UWV may the employer terminate the contract, respecting the notice period.Dismissal committee under the collective labor agreement:Does the collective labor agreement state that the dismissal committee takes over this task? Then the employer must submit the application there. This committee is usually composed of experts, such as union representatives or independent specialists. The committee assesses, just like the UWV whether the rules have been met, but may apply additional or different criteria. Sometimes, for example, the order of dismissal differs: the committee may look at employees’ qualities or even choose by lottery, depending on what is in the collective labor agreement.In short:
- Where to apply? UWV or dismissal committee, depending on the collective labor agreement.
- Who assesses? UWV-employees or members of the dismissal committee.
- Rules: At the UWV statutory rules apply; with a committee, tailored arrangements from the collective labor agreement may apply.
So your collective labor agreement determines whether the UWV or instead a dismissal committee decides on your dismissal.
How is the notice period calculated after approval from UWV?
After approval from the UWV the employer must inform in writing that the employment contract is ending. This is done by letter, usually within four weeks after the approval has been granted. The notice period starts as soon as the employer gives notice.Important to know:
- The notice period still applies, but the time that the UWV needed for the dismissal procedure may be deducted from it.
- In the letter from the UWV it states exactly how much time remains.
- If the remaining notice period is therefore less than one month, a minimum notice period of one month still applies.
Example to clarify:Suppose: the employer receives permission from the UWV and a notice period of three months applies. Normally, the employment contract would then end on 1 May. Did the procedure at the UWV take three weeks? Then that period may be deducted from the notice period. In this example, the end date moves to 1 April.This way, you take into account both the notice period and the time the UWV needed to process the application.
How long do you have to respond to a dismissal application?
If you receive a notice from the UWV about a dismissal application, you will have 14 days to submit your response. During this period, you can explain your position and any objections via the special response form of the UWV. This way you can make your situation clear before a decision is made.
Permission via a dismissal committee
In some cases an employer does not need to ask the UWV for permission, but instead a dismissal committee. This happens if the collective labor agreement (cao) prescribes it. The dismissal committee assesses – just like the UWV – whether all the rules for dismissal on economic grounds have been met.The composition of such a committee is usually explained in the collective labor agreement. The committee often consists of representatives of the trade union or independent experts, who assess whether the dismissal has been rightfully requested.In addition, the collective labor agreement may contain supplementary rules, for example about how it is determined who is dismissed first. Thus, in case of dismissal the reflection principle is not automatically followed, but, for example, employees’ qualifications may be considered, or even a draw may determine who has to leave.
Minimum notice period of one month
Sometimes the procedure at the UWV takes some time. The employer may deduct this period from the statutory notice period. Is the notice period less than one month after this deduction? Then a minimum notice period of one month always applies.
Role of the subdistrict court judge in business-economic dismissal
In some situations the subdistrict court judge becomes involved. This happens, for example, if you have a fixed-term contract that cannot be terminated early, or if the UWV does not grant permission for the dismissal.The subdistrict court judge assesses – just like the UWV – whether your employer complies with the rules regarding business-economic dismissal. The judge carefully examines the reason for dismissal and assesses whether it is valid under the law.
Legal assistance
Is your dismissal being requested through the subdistrict court? It is advisable to seek legal advice, for example from a lawyer, trade union, or your legal expenses insurance. This way you are well prepared for what is to come.
What if the UWV-procedure takes longer than the notice period?
Sometimes the processing at the UWV takes more time than the usual notice period. In that case, the employer may deduct the waiting time from the notice period, but there is always a minimum notice period of one month.Does the procedure become so long that after deduction less than one month remains? Then the remaining notice period remains one month. The termination date then shifts, so that you still have at least one month notice period, despite the duration of the UWV-procedure. This way, as an employee, you are assured of a minimum bridging period.
To the subdistrict court
There are situations in which an employer must request dismissal not via the UWV, but must request dismissal via the subdistrict court. This is the case, for example, when:
- You have a fixed-term contract stating that the contract may not be terminated early.
- The UWV or a dismissal committee has rejected the application for dismissal.
The subdistrict court judge then assesses whether the dismissal complies with all legal requirements, just like the UWV does that.
The reflection principle
In reorganizations, the employer may not choose who is laid off. The reflection principle:
-
Employees are divided into age groups.
-
Within each group, they look at who joined most recently (“last in, first out”).
-
This way, the layoffs are distributed fairly.
Sometimes your collective labor agreement (cao) may contain additional or different rules about the order of dismissal. For example, it may be possible that when deciding who is laid off, the employer is also allowed to look at employees’ qualifications, or that a lottery even takes place. Therefore, always check the arrangements laid down in your collective labor agreement or any social plan.
Redeployment obligation
The employer must investigate whether you within the company or group to another suitable position can be redeployed. Only if that is not possible may dismissal follow.
Severance pay in case of dismissal on business-economic grounds
In case of dismissal on business-economic grounds, you are entitled to the transition payment. Sometimes there is also a social plan, which contains agreements about:
-
Additional compensation.
-
Outplacement support.
-
Training or retraining.
A social plan may be agreed through the works council or a trade union and often offers more favorable terms.
Always check whether a social plan applies and what arrangements it contains, for example about additional compensation or support in finding new work. Sometimes the employer must adhere to these agreements, especially if the termination agreement (settlement agreement) states that the social plan applies.It is also wise to check whether the works council has issued an opinion on the dismissal. This advice can influence the creation of the social plan and your rights upon dismissal.
Settlement agreement instead of UWV procedure
Sometimes an employer chooses to arrange a dismissal through a settlement agreement (VSO) instead of via the UWV. This is faster and avoids procedures.
👉 Note: you can then negotiate extras, such as a higher severance payment or longer salary continuation.
How do you respond to a dismissal application for business-economic reasons?
Are you confronted with a dismissal application at the UWV? Then you will receive from the UWV a copy of this application. It is important to know that you have the right to respond: you usually have 14 days to do so.Use this period to carefully prepare your response:
- Fill in the response form of the UWV and set out your view on the proposed dismissal.
- State why you agree or disagree with the reasons given.
- Add evidence or substantiation where possible (for example, that redeployment is possible or that the reflection principle was not applied correctly).
It is advisable to seek legal assistance for your response—for example through an employment lawyer, your legal expenses insurance, or if you are a member of a trade union. These experts can advise you and strengthen your position when drafting a well-substantiated defense. This increases your chances of preventing the dismissal or negotiating better terms.
When are you entitled to a WW benefit after dismissal?
After a business-economic dismissal, in many cases you can apply for a WW benefit through the UWV. You are entitled to this benefit if you meet a few important conditions:
- You lost your job involuntarily, for example due to reorganization or your employer’s poor financial situation.
- You have worked at least 26 weeks in the 36 weeks preceding the dismissal (the so-called weeks requirement).
- You are immediately available for new work and are actively trying to find other work.
- You did not become unemployed through your own fault (so there was no summary dismissal for serious misconduct).
- You live and work in the Netherlands (or meet specific rules for cross-border work within the EU).
Please note that self-employment after dismissal, or having a temporary contract that ends, can also affect your unemployment benefit (WW) entitlement. Do you want to be sure you qualify? Then consult the UWV and apply for a benefit within one week after your last working day, so that you do not miss out on entitlements.
Practical examples
-
Example 1: A company had to downsize due to a drop in revenue. Under the reflection principle, an employee lost his job. He received a transition payment and outplacement through the social plan.
-
Example 2: An employer offered a VSO to avoid a UWV procedure. The employee received, in addition to the transition payment, 2 extra monthly salaries.
-
Example 3: An employee was wrongfully the only one dismissed, while the reflection principle had not been properly applied. The court reinstated the employment.
Checklist for dismissal on economic grounds
-
📑 Check whether there is a genuine business-economic reason.
-
⚖️ Assess whether the reflection principle has been applied correctly.
-
📅 Check whether there are redeployment opportunities.
-
💶 Check your entitlement to the transition payment and social plan.
-
📝 Always have a VSO legally reviewed.
What should you do if you receive a notice of termination?
Are you facing dismissal for economic reasons? Then follow these steps to protect your position:
- Read the termination letter carefully. Check the reason for termination and how it is substantiated.
- Ask for an explanation if necessary. Do you have doubts about the reason or the procedure? Ask your employer for additional clarification.
- Check whether the reflection principle has been applied. Check whether the employer has complied with the rules in deciding on dismissal.
- Check redeployment options. Ask whether you can be transferred to another suitable position within the company.
- Assess your right to a transition payment and any social plan. Check which compensation and support schemes apply to you.
- Always have a settlement agreement reviewed by a legal expert. This way you can be sure that your interests are well protected and that you do not miss out on rights (such as unemployment benefits or higher compensation).
- Do not sign immediately. Take the time to seek advice, for example from a union or legal advisor, before you agree.
By proceeding carefully and step by step, you avoid missing out on rights or agreeing to an offer too quickly.
Common mistakes
-
Thinking that dismissal due to reorganization is always valid.
-
Not checking whether the reflection principle has been applied correctly.
-
Agreeing too quickly to a VSO without negotiation.
-
Not taking the notice period into account.
Frequently asked questions (FAQ)
1. Is my employer allowed to dismiss me due to reorganization?
Yes, but only with permission from the UWV and after applying the rules.
2. What is the reflection principle?
A method to fairly determine which employees are dismissed, divided across age groups.
3. Am I entitled to compensation in the event of dismissal on economic grounds?
Yes, at least the transition compensation and often extra through a social plan.
4. Can I refuse to sign a settlement agreement?
Yes, you are never required to sign. If you refuse to sign, your current employment contract remains in force. Your employer may then start a dismissal procedure with the UWV or the subdistrict court. It is wise to always have the settlement agreement carefully reviewed before you make a decision. Pay attention to things like the amount of the transition compensation, the notice period, and your right to unemployment benefits.
5. Does a lawyer help with dismissal on economic grounds?
Yes, a lawyer can check whether the rules have been correctly applied and negotiate for higher compensation. If you disagree with your dismissal for business-economic reasons, you can lodge an objection or mount a defense. A lawyer or legal advisor can support you, for example by assessing whether the dismissal is justified and whether all requirements have been met. A lawyer can also negotiate on your behalf for better terms or a higher severance payment. This way you can be sure that your interests are well protected.
Why Arslan Advocaten?
-
Specialized in employment law and reorganizations
-
Checking whether UWV and collective labor agreement rules have been applied correctly
-
Negotiating for higher compensation via settlement agreements
-
Guiding employees through procedures and the social plan
Conclusion
Dismissal due to economic reasons is subject to strict rules. Employers must request permission from the UWV, apply the reflection principle, and investigate redeployment. As an employee, you are entitled to protection and often also to additional compensation. Therefore, always have your situation assessed by an employment law attorney.
