The New Work Costs Regime and Change of Employment Conditions
On 1 January 2011 a new tax regime will enter into force with
regard to the payments and provisions employers can make to their
employees. This new regime is known as the "work costs regime" and
implies that employers may use a maximum of 1.4% of their total tax
payroll sum per year to make untaxed payments and provisions
(although the precise percentage is not yet sure, I will base
myself on 1.4% in this article). This free spending limit is also
known as the general fixed amount.
Employers are therefore no longer required to assess the
payments and provisions on an individual basis; from now on they
only have to render an account at employer's level. Payments and
provisions exceeding the general fixed amount will be taxed to the
employer with a final levy of 80%.
During the first three years, employers will have the choice
between either applying the current regime or the new work costs
regime. Without any action on the part of the employer, the new
work costs regime will automatically become applicable. As the
outcome may differ considerably per regime, employers will have to
examine which regime is more favorable.
Most likely, employers will have to adjust their current
arrangements with regard to payments and provisions at a certain
time. Legally speaking this is not simple, because arrangements
made cannot simply be changed unilaterally.
We have to distinguish two situations here: (i) the situation in
which the employment agreement contains a unilateral alterations
stipulation, and (ii) the situation in which it does not.
Even if an employment agreement contains a unilateral
alterations stipulation, this still does not mean that the employer
can simply change employment conditions. The employer will have to
prove that he has such an important interest in the alteration
that, according to standards of reasonableness and fairness, the
interest of the employee that would be harmed by the alteration
must be overridden.
If the employment agreement contains no unilateral alterations
stipulation, the employer has to prove that maintaining the former
situation in unmodified form would be unacceptable according to
standards of reasonableness and fairness (the "test of
unacceptability").
In summary, and ignoring several nuances, the following
questions must always be answered: (i) Is there an important reason
for the alteration? (ii) Can it be expected of an individual
employee that he will agree? With regard to the latter question,
this test is a little less strict if a unilateral alterations
stipulation has been agreed.
In any case, the employer must always demonstrate on the basis
of objective information why an alteration of employment conditions
is necessary. A particular example of such information is financial
information.
The next question to be answered on an individual level is
whether the employee may be expected to agree to the alteration. At
this stage the interests of the employer on the one hand will be
weighed against the interests of the employee on the other hand.
Important aspects in this respect are the level of the additional
costs the alteration would involve for the employer and how much
the employee would lose by it.
Case law shows that a unilateral change often does not stand up,
and that courts tend to apply the test of unacceptability strictly.
In practice, however, employers regularly alter their employment
conditions unilaterally, and successfully. "Successfully" may take
shape in successful legal proceedings, but also in the fact that
employees accept the alteration and do not go to court. The
employer may also influence this by proceeding carefully. In any
case, good communication with the employees (or their
representatives) and the Works Council is of great importance.
Pursuant to Section 27 of the Works Councils Act ("WOR"), the
Works Council does not have a right to consent to the introduction
of a work costs regime or the alteration of a reimbursement of
expenses scheme. This may be different if the consent on this topic
of the Works Council has been asked in the past, or if the Works
Council has been promised that it will have a right to consent in
this respect.
Even though the Works Council has no right to consent, it is
good to inform it about the intended change and the reasons behind
it. If the Works Council subsequently raises no objections, this
will be an important - albeit not decisive - element in the
weighing of interests in the employer's favor.
In conclusion, it is essential that an employer who wishes to
alter employment conditions unilaterally as a result of the
introduction of the work costs regime goes about it carefully and
collects sufficient objective (financial) information that make
clear that the employer has a great interest in the alteration.
Furthermore, all these things should be communicated carefully and
in good time to the Works Council and the employees. It is also
necessary to look at the way the changes will work out at an
individual level. If the changes appear to bring about a big
deterioration for the employees (or an individual employee), it is
recommendable to introduce a transition period or compensation
scheme.
Observing the above-mentioned "standards of due care" will lead
to it - although it cannot guarantee - that there is a bigger
chance that the intended alteration of employment conditions will
stand up. Moreover, these standards will increase acceptance among
the staff.