A global look at dismissal regulations and related costs
The fourth edition of the Deloitte International Dismissal Survey examines dismissal legislation across 45 countries and also provides in-house legal and HR leaders with dismissal cost projections from an employer’s perspective. Leveraging this survey data will help company leaders to understand dismissal regulations across the globe, estimate potential costs, anticipate pitfalls, and make informed hiring decisions.
The survey starts with six cost comparisons, which reflect the dismissal cost in all participating countries. The survey data represents three separate cases with different seniority and remuneration packages―as well as examining the difference between a voluntary and involuntary dismissal in each of these scenarios.
In addition, the survey covers the country specific dismissal rules of 45 countries and the compliance formalities required in the upcoming legislative changes.
Dutch dismissal law underwent a dramatic change with effect from 1 July 2015. The main changes consisted of:
- For a unilateral dismissal, all the conditions of one of the eight statutory reasonable grounds should be met. This is a strict test. If the conditions are not met, the employment agreement cannot be terminated unilaterally.
- All employees employed for at least 24 months are entitled to a statutory severance payment, the so-called transition allowance. The maximum transition allowance payable is capped at EUR 79,000 gross (2018), or at the annual salary of the employee if this is higher than that amount.
- In effecting a unilateral dismissal the employer will no longer be able to choose between the Employee Insurance Agency (UWV) route and the subdistrict court route. The route will be determined by the ground for dismissal:
- An additional reasonable amount of compensation can be granted by the court in the case of severe imputable acts or negligence by the employer. This additional compensation is uncapped.
- A reflection period of 14 days upon signature of the settlement agreement has been introduced whereby the employee has the right to change his mind.
Many questioned, and still question, whether the changes contribute to the goals to simplify the rules and to increase flexibility. Overall, the 2015 reform has led to a significant decrease in severance cost, but as the conditions for dismissal have become more strict, one can question whether the total (direct and indirect) dismissal costs have decreased too. In the meantime this has led to a proposal of the current government to make new changes and amendments to the current dismissal law.
The Survey shows that also after the reforms of 2015, the Netherlands is still one of the few countries where upfront dismissal approval is required. However, it is also one of the few countries where the severance indemnity is capped.
Other highlights from the research
- A number of countries, i.e. France, Italy have reformed their dismissal legislation in order to increase labor flexibility and/or financial predictability of dismissal cost.
- In over 75% of the surveyed countries, the employer is free to dismiss an employee, but the employee may be reinstated by the courts if the reasons for dismissals are deemed unjustified. Besides the Netherlands, upfront approval is only required in Ecuador. In only a limited number of countries, the employer has absolute power to dismiss without any possibility of reinstatement.
- In almost all surveyed countries, seniority (the length of service within a certain company) is the key factor in determining the level of dismissal cost. However, over 60% of all participating countries have capped either the notice period or the severance indemnity or both.
- Basic dismissal concepts such as dismissal for serious cause and protection against dismissal of certain categories of employees (e.g. maternity, educational leave, political mandate, etc.) are present in almost all countries.
- In some countries, termination is only possible for the reasons stipulated explicitly by law, in which case no (or only minimal) indemnities and/or notice periods are due.
- If we compare all scenarios for dismissal with an objective individual reason or economic reason, we see that the dismissal cost varies widely between legislations, without any geographical preference.
- If we compare all scenarios for dismissal without any objective reason, employers in certain European countries encounter the highest costs, even though huge regional variations continue to exist.
- The highest increase in dismissal cost is triggered by the severance indemnity or indemnity for unlawful dismissal which is due if an employee is dismissed without an objective reason.
For more information, please download the survey from our website, or get in touch with our employment lawyers.