DISMISSAL LAW; A COMPARISON
D O T H E D I S M I S S A L LE G I S L A TI O N S WO R K B E T T E R I N A M E R I C A O R TH E N E TH E R L A N D S ?
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INTRODUCTION
In this paper, the differences between dismissal legislations in America and the Netherlands will
be compared and evaluated. The legislations are very different in both countries and this paper
will try to find the different effects these legislations have on the economy, job security and
unemployment. First it will look at the currents situation in America and after that at the situation
in the Netherlands. Then, a comparison will be made to see which one of the countries it works
better or that both countries should go a different direction.
DISMISSAL LAW IN AMERICA
CURRENT SITUATION
In America, there is the so called ‘at-will’ rule. This simply means that employers can terminate
the contract of an employee without having any reason to do so. Next to that, the employer can
change terms of the employment relationship just as easy. An employer is, because of this rule,
able to cut benefits, alter wages or reduce time paid off and there is nothing employees can do
about it. But, there are a few exceptions to the rule. So is it possible to modify the rule with use
of a contract, this makes is possible to have a ‘termination only by cause’ clause in the contract.
The only problem is that employers only use this to keep their high-level employees satisfied.
Next to that, there are three big common law exceptions to protect employees for this, sometimes
harsh, ‘at-will’ rule. These exceptions are public policy, implied contract and implied covenant
of good fate. But also here is a catch; it’s very difficult for employees to prove that these
exceptions apply to them and not all jurisdictions recognize them. As last, there are two statutory
exceptions on the ‘at-will’. The first is discrimination and in extension off-duty activities. So, not
only can’t employees be fired because of race, color, religion, etc., but also when they like to
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smoke outside of work for instance. The second is protection for retaliation and especially for a
whistleblower. When an employee is engaging in legally proper, necessary or desirable
activities, like claiming a minimum wage, this law prevents the employer from firing the
employee. Although in most states whistleblowers are protected in the public sector, the
protection in the private sector is much more limited. So even though there are common-law and
statutory exceptions on the ‘at-will’ rule, it is still a very important feature within the U.S.’s
dismissal law and the claims can still be very hard to prove for employees even if they’re
recognized by the jurisdiction, which is not always the case.
EFFECTS ON ECONOMY
Now let’s see what these legislations mean for the economy and unemployment in the U.S. The
current unemployment rate in the U.S. is 5.5% and according to Bloomberg the probability of
being fired is at its lowest in almost 15 years (Bloomberg, Article, 2015-04-09). These are good
signs and are probably because of the exceptions on the ‘at-will’ rule. As Lawrence E. Blades
concludes on the ‘at-will’ rule: “This outmoded doctrine has been supported by technical
principles of contract law. But another common law resource can be tapped to eliminate much of
the potential for oppression inherent in the employment relationship. Through adaptation of the
general emphasis on wrongful or ulterior motives which today pervades the law of torts the
courts could fashion a remedy for the abusively discharged employee and thereby give to all
employees some assurance that they will be their own masters as to matters not their employers'
business” (Lawrence E. Blades, 1967) On the other hand, a recent journal by the University of
Chicago Press reveals a flip-side on the exceptions. It claims that temporary help supply
employment increased significantly after the adoption of implied contract exception as seen in
figure 1.
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FIGURE 1 SOURCE:
HTTP://WWW.JSTOR.ORG/ACTION/SHOWPOPUP?CITID=CITART1&ID=FG4&DOI=10.1086%2F344122
The findings of this figure implicate that, although these exceptions on the ‘at-will’ rule intended
to protect or expand the employment rights for employees, the consequences worked out
conversely. For instance, Oyer and Scheafer (2000, 2002), concluded that the Civil Rights act of
1991 increased the use of huge layoffs within firms to shield themselves against the firing of
black men and this research (University of Chicago press, 2003) says that the court’s efforts to
help workers against unjust dismissal only increased the temporary help employment rate, which
are non-preferred jobs with lower job security and a lower wage. So do strict legislations on
dismissal law really work? To answer that question it could be wise to look at the Dutch
dismissal law.
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DISMISSAL LAW IN THE NETHERLANDS
CURRENT SITUATION
It’s much harder to fire employees in the Netherlands, where in America the employer doesn’t
need any explanation, as long as he does it within the rules, to fire someone, in the Netherlands
the employer has to go through several steps before some can get fired. To fire someone, the
employer needs to get permission to do it. He can ask for a fire permit at the CWI (Centre for
Work and Income) or he can go to the court and ask for dissolution of the contract. The
procedure through the CWI takes up six months where the employer has to prove that is
company is underperforming and can’t pay the employee or that the employee is not functioning
properly. After the dismissal is granted, the employer still has to pay the employee a
compensation to prevent a lawsuit. The court procedure for the employer is much faster but also
more expensive. Still most of the cases are only formal because both parties agree, only the
employee must appeal otherwise he doesn’t receive an unemployment payment. Next to that, the
employer also has to pay dismissal compensation which is three quarters of the monthly salary
per service year with the maximum of a year salary and a maximum fee of $75.000. In July 2015
some new rules will be applied because politicians think it should be easier for employers to fire
employees.
EFFECT ON ECONOMY
The total unemployment rate in the Netherlands is 7.2% currently, which is higher than in
America. But has is something to do with the strictness of employment protection. The OECD
has estimated the strictness in employment protection in the late 90s in the Netherlands at 3.1
where America only has 0.2 (OECD Employment Outlook (1999)). According to Ronald
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Schettkat, the influence of welfare state institutions has a negative effect on employment. The
main factors related to this effect are employment protections laws and unemployment insurance
(Oxford University press, 2005). This means that the Netherlands should have higher
unemployment rates because of the high employment protection and greater unemployment
benefits, which if definitely the case here. MKB Netherlands also claims that a deregulation of
dismissal law will lead to a more dynamic, flexible and mobile labor market plus reduced costs
for companies, better adaptability for companies and a better competitive position. It will also
lead to lower unemployment because the bar is much lower to hire someone, especially with
older workers. Another problem within the Dutch dismissal law is that it works with a principle
of proportionality. This means that, when someone has to be fired, the oldest employee or the
one with the most service years has to be fired. Of course, this is a very strange principle. Why
should a company fire their most experienced employees? MKB also states here that quality
should be a more important factor when firing someone.
CONCLUSION
After looking at both countries and their unemployment rates it would be easy to say that
America has a better working system. And on one hand I have to agree. The system in the
Netherlands is way to restricted, which makes companies very reluctant to hire employees for a
long time, because if the employee doesn’t meet the expectations it costs a lot of money and time
to fire him. Also, it makes it on the other side very hard for employees to find a job because
companies are looking for the perfect worker afraid of making a mistake. When dismissal law is
deregulated, I believe that companies will become more willing to hire employees, but
employees will also work harder because they know they can be fired if they don’t perform well
enough. And this will eventually lead to a more flexible market place and competitive advantage
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for companies. On the other hand, if you make it too easy for a company to fire its employees,
like with the ‘at-will’ rule, employees will get too stressed at their jobs because every wrong
move can end their career. Not only will this decrease productivity, which again can lead to
dismissal and more costs for the company to find new employees, it will also lead to more people
with burn-outs and people who are reluctant to go on the labor market because of the high stress
and low job security. Still, when comparing the two, America looks in theory better but would be
smart if it gets rid of the ‘at-will’ rule.
REFERENCES
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Lawrence E. Blades. “Employment at Will vs. Individual Freedom: On Limiting the
Abusive Exercise of Employer Power”, Columbia Law Review Vol. 67, No. 8 (Dec.,
1967): 1435. Accessed April 24, 2015. http://www.jstor.org/stable/pdf/1120937.pdf
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David H. “Outsourcing at Will: The Contribution of Unjust Dismissal Doctrine to the
Growth of Employment Outsourcing”, in Journal of Labor Economics, Editor-in-Chief
Paul Oyer (University of Chicago press, 2003) Accessed April 24, 2015. Article DOI:
10.1086/344122
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Oyer, Paul, and Schaefer, Scott. “Layoffs and Litigation.” Rand Journal of Economics
32, no. 2 (2000): 345–58. Accessed April 24, 2015.
http://www.jstor.org/stable/2601044?seq=1#page_scan_tab_contents
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———. “Litigation Costs and Returns to Experience.” American Economic Review 92,
no. 3 (2002): 683–705. Accessed April 24, 2015.
http://www.jstor.org/stable/3083361?seq=1#page_scan_tab_contents
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Ronald Schettkat, “Is labor market regulation at root of the European unemployment?:
the case of Germany and the Netherlands”, in Fighting unemployment: the limits of free
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market orthodoxy, edited by David R. Howell (Oxford University press, 2005), 262-280
Accessed April 29, 2015
http://books.google.bg/books?hl=nl&lr=&id=BR1VrJ50A90C&oi=fnd&pg=PA262&dq=
deregulation+Dutch+dismissal+law+&ots=3qu6UQd2bZ&sig=2qpDZIclOWvbVAhVn6
0jeHY2ICY&redir_esc=y#v=onepage&q&f=true
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BloombergBusiness. “Job security helps explain why Americans becoming more
confident” Accessed on April 23, 2015 http://www.bloomberg.com/news/articles/201504-09/jobless-claims-in-u-s-over-past-month-lowest-in-almost-15-years
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National Conference of State Legislatures. “The At-Will Presumption and Exceptions to
the Rule”. Accessed on April 23, 2015 http://www.ncsl.org/research/labor-andemployment/at-will-employment-overview.aspx
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NRC. “Dismissal Law”. Accessed on April 29, 2015
http://vorige.nrc.nl/nieuwsthema/ontslagrecht/article1852903.ece
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MKB. “Dossier, Ontslag”. Accessed on April 30, 2015
http://www.mkb.nl/index.php?pageID=14&dossierID=432260
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MKB. “Kwaliteit personeel zwaarder wegen bij ontslag”. Accessed on April 30, 2015
http://www.mkb.nl/index.php?pageID=4&messageID=7773
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