The Netherlands Update: The tone has been set, firmest wage requirement of all time

The day before Prinsjesdag, the FNV announced perhaps the strongest wage requirement of all time. The wage in the collective agreements should be linked to inflation, which was 12% in August. According to the FNV, this is possible because the money at the companies sloshes against the skirting boards. The fact that there are many companies for whom higher purchase prices, higher energy prices, higher wages and repayment obligations NOW, are the water on the lips is not mentioned. This brings us to a very important question for 2023: is an employer actually obliged to compensate for inflation?

For years, inflation has fluctuated between 1 and 2.5% per year. That doesn’t seem like much, but with an average inflation rate of 1.66% per year, the purchasing power of your assets decreases by about 50% within a 40-year period. Because many employers index salaries annually, this does not run so fast. But what to do in 2023? Inflation over 2022 is currently around 12%.

A right to indexation?
There is no such thing as ‘right to indexation’. In the Netherlands, the negotiations about the level of the salary are largely free. This means that an employer is not obliged to index the salary. But if agreements have been made about this in a collective labour agreement, the employment contract or through permanent use that has created an acquired right, then that may be different.

Agreements are fixed
If agreements on indexation are laid down in a collective labour agreement or employment contract, these apply in principle between the parties. Such recording may: (1) leave no room for manoeuvre; the salary is increased annually by the price indexation in accordance with the CPI (consumer price index);; 2) leave limited space; the salary is indexed annually; or 3) leave a lot of space; the salary can be adjusted annually. So first of all, it is important to take a good look at how the agreements are written down.

Agreements are not (clearly) fixed
Parties are not only bound by agreements that are clearly recorded in writing. An employer who has been fulfilling an agreement in a certain way for years, regardless of whether that agreement has been recorded in writing, may be obliged to continue to do so. We call this an acquired right.

But when is there an acquired right? If you, as an employer, have been indexing according to the CPI for five years? Or ten years? And what if you did this one year but not the next? Or not always with a percentage equal to the CPI?

In 2018, the Supreme Court issued a ruling in which various ‘points of view’ were formulated to determine whether something has become an acquired right, and therefore an employment condition, or not over time. This concerns matters such as the content of the policy, how long a certain benefit has been provided, what the parties have stated about it back and forth, the circle of employees who received the benefit, etc. It always comes down to a combination of different points of view.

For example, if an employer has indexed annually for more than 10 years in accordance with the CPI without any reservation or deviation, then there will be an acquired right. But if the employer has not followed the CPI annually or has not at all or clearly made a reservation for a year that the indexation must keep pace with what the employer can pass on to its customers, then it cannot be said that indexation in accordance with the CPI has become an acquired right. What the employee is entitled to will have to be deduced from what the parties could or could not reasonably expect from each other in view of all circumstances.

A deal is a deal?
Once it is clear what the agreement is, the question is whether that agreement applies in full where inflation was always between 1 and 2.5% and now suddenly about 12% would be due if that would follow from the agreement. Is that reasonable when inflation will certainly not be that high for everyone? Or because inflation largely concerns energy costs and therefore lower incomes are hit harder than higher incomes? Or because inflation may only be temporary because energy prices can also fall sharply again?

The starting point is ‘a deal is a deal’ and that certainly applies to primary employment conditions such as wages. For example, at the time, V&D was unable to reduce wages collectively despite the fact that the company was demonstrably doing badly. Unilaterally imposed wage reductions due to the ‘corona crisis’ also did not reach the finish line with the judges. The non-indexation or limited indexing is in the sense that the employee is not ‘taken away’ something but that he ‘gets a little less’. If an employer can demonstrate that the full implementation of the full price indexation will lead to serious business economic problems and an appropriate proposal is made to the employees, then unilateral changes to the agreements are not excluded in advance.

Consultation

It may be better to discuss this in advance with the employees, and if present the works council, to investigate whether customization is possible. In addition, numerous solutions are conceivable, such as granting a slightly higher indexation to certain groups with a lower income and a slightly lower indexation to other groups, making agreements about a lower indexation now but a guarantee that indexation will also be carried out by a certain percentage in the coming years, granting a one-off compensation to compensate for higher energy costs (for example from the work costs scheme), or the granting of a temporary surcharge in anticipation of developments in 2023, whereby if inflation were to become negative as a result of rapidly falling energy prices, that surcharge could be reduced again.

And, in the unlikely event that no agreement is reached, the more reasonable the employer’s proposal has been, the sooner the employee could have been expected to agree to it. All the more reason to check the employment contracts, and if necessary, to come up with a suitable proposal!

By Hocker, Netherlands, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact netherlands@transatlanticlaw.com

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