The International Dismissal Survey 2018
Employment law regulations in 45 countries
The fourth edition of the International Dismissal Survey details dismissal legislation, and provides dismissal cost projections from an employer’s perspective, in 45 countries. The survey for the first time includes countries from Latin America and the Asia-Pacific region.
Dutch dismissal law underwent a dramatic change with effect from 1 July 2015. Main drivers of this overhaul were to simplify the dismissal framework and to increase flexibility on the Dutch labour law market, although many questioned – and still question – whether these goals can be achieved with the new system. 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, 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.
Also after these reforms, 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. Overall, this 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.
Some of the survey’s key findings include:
- Belgium remains after Italy the country where dismissal costs are highest for employers in case of a dismissal with objective reason. Sweden, Brazil and Thailand complete the top five. Italy is the most expensive country after Sweden, Slovakia, Luxembourg and Ireland in case of a dismissal without objective reason.
- 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.
- Several systems of dismissal exist: about 40% of the countries attribute only a notice period or an indemnity in lieu of notice, whilst 50% grant both a notice period (or garden leave) and a severance indemnity. The Netherlands is also a two-tier system, i.e. notice combined with a severance indemnity. 10% of the countries only grant a severance indemnity.
- In most countries, the legal grounds for an employer to dismiss employees are restricted and subject to strict formalities. In case of unlawful dismissal, the courts can reinstate an employee. Only in a limited number of countries such as Belgium, Denmark, Finland, Hungary, Luxembourg, Montenegro, Myanmar, Sweden, Switzerland and Vietnam, the courts cannot reinstate the employee and may only determine the indemnity.
- The computation base for the ‘indemnity in lieu of notice’, where applicable, includes in more than 50% of the surveyed countries the total remuneration package (annual base, variable salary and benefits in kind), whereas for the calculation of the ‘severance indemnity’ only 40% of the countries take into account the entire remuneration package. In a limited number of countries, only the base annual salary is taken into account (e.g. Bulgaria, Italy, Portugal, Singapore, UK).
- The highest increase of 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. On average, the cost factor associated with such a dismissal is at least one and a half times the cost for dismissal with objective reason. However, there are important discrepancies per country.
- In about half of the surveyed countries, managing directors do not fall under the compulsory labour rules and parties are free to negotiate dismissal arrangements subject to local corporate governance rules, where applicable.
More information on the dismissal survey or international Employment Law?
Please contact Sashil Durve or Anne-Marie van den Belt