Compensation only due in absence of notification

On 19 October 2020, the Arnhem-Leeuwarden Court of Appeal ruled on whether an employer had met its duty of notification and whether it owed the compensation in lieu of notification.

According to the law, no later than one month before a fixed-term employment contract is due to end by operation of law, the employer must inform the employee in writing whether it is to be extended or not and, if it is to be extended, the employer must state the terms on 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. That is referred to as the notification compensation.

The issue

The parties entered into a one-year employment contract on 12 October 2018. That contract was due to end on 11 November 2019. On 4 October 2019, the employer and the employee discussed the “further course of events with regard to the restaurant”. On 7 October 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 3 November 2019, the employee told the employer that he would serve out the rest of his contract and then leave.

The employee subsequently claimed payment of the notification compensation due to the breach of the notification obligation provided by in Article 7:668(1) of the Dutch Civil Code (“DCC”). 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 that, but that the employee himself had then decided to leave because he did not agree with the amended employment terms under the extension. In a nutshell, 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) DCC, the employer had been obliged to inform the employee in writing before 11 October 2019 about whether his employment contract was to be extended or not. The Court of Appeal found that the employer had met that obligation. Regard also being had to the discussion of 4 October 2019, the employer had adequately informed the employee about the extension of his employment contract in its email of 7 October 2019 and it had given him the clarity due to him that his employment contract would be extended. Accordingly, the employer had met the notification obligation provided by Article 7:668(1) 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 by Article 7:668(3) DCC is only owed 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, you must inform the employee in good time whether you want to extend their employment contract. If you do not, then you will be liable for the notification compensation, which can be as much as one month’s salary. If, however, you state your intention to extend the employment contract, then you do not need to also inform the employee in writing of the terms of that extension one month before the contract ends.

Wouter Engelsman (we@clintlegal.com / +31 20 820 0330)