Collective agreements and individual contracts of employment in labour law : the netherlands

Aukje A.H. van Hoek^** III C


1 Collective labour relations: the institutional context
Collective labour relations are shaped by the interaction between the unions, employers’ assocations and the government. In the Netherlands most unions are organized in one of the two federations: the christian CNV and the neutral FNV (the latter being the product of a merger between the catholic and socialist federations in 1976¹). There is however a separate federation for unions representing the higher-level personnel groups. The federations are the contactper­sons for both the central employers’ organizations and the national government on general socio-economic issues. They are not involved in direct negotiations on collective agreements, a task which lies with the unions. The federations can issue recommendations to the unions, but the latter are not legally or hierarchially bound by such advice. Besides their national coordinating role, the federations play a role in representing the employees at the national and international levels, e.g. in the European Trade Union Confederation and the International Confederati­on of Independent Unions. Membership of the federations is only open to unions.

The unions are predominantly organized along the lines of economic activity. After the Second World War and again in the 1990s, the unions demonstrated a tendency to merge into ever larger organisations.² In 1997 the unions for the arts, information technology and the media all merged. Another recent merger occurred in 1998 when several FNV unions representing particular branches formed one union with over 500.000 members.³ Time and again, however, members of a particular profession would not feel sufficiently represented by these unions and would create (or maintain) separate professional unions.⁴ In the late 1980s, for example, a separate union for nurses and paramedics came into existence. The 1970s saw the appearance and rise of unions for higher-paid employees.⁵ The formation of these unions would often be a reaction to specific incidents or specific union politics.⁶ The predominant union politics in the 1970s was aimed at a levelling of the differtial between the higher and lower wage groups (‘nivellering’). For that purpose the scope of application of collective agreements was extended to include the higher wage groups. The employees concerned objected to this. Until then, they had not been covered by collective agreements and did not feel that they were adequately represented by the traditional unions.⁷ As a result, the unions representing higher-level personnel flourished and a separate federation organizing these unions was created in 1974. Since then there have been three federations represented at the central level, the CNV, the FNV and the Unie MHP. Other professional unions are either independent or are members of the existing federations, the CNV or FNV.

Just as the unions have reshaped their structure in recent times, so have the employers. Since the mid-1990s, the employers are no longer organised along political and/or religious lines, but mainly follow economic structures.⁸ The VNO-NCW federation⁹ is the major representative of the Dutch private sector, representing the larger enterprises in both social and economic issues. It is associated with the General Dutch Employers’ Organisation (AWVN), which concentrates on the interests of undertakings in their function as employers. The VNO-NCW federation is a member of the European confederation of employers, the ‘UNICE’.¹⁰ Small and medium-sized enterprises are organised in MKB-Nederland¹¹, entreprises active in agriculture in LTO-Nederland¹². The three federations cooperate within the RCO: the council of central organisations of enterprises.¹³ Membership of the federations is open to federations, branchorgani­sations, local organisations and single undertakings. Their function is mainly political.¹⁴ They partake in the social dialogue which takes place in the Joint Labour Council (Stichting van de Arbeid) and the Social and Economic Council (see below) but neither the VNO-NCW nor the MKB are themselves parties to collective agreements. They do coordinate the negotiations, however.¹⁵ Collective agreements are closed by branchorganisations and/or (groups of) enterprises.¹⁶ There are quite a few branchorganisations, sometimes more than one within the same branch of industry.¹⁷ The largest and most influential is the FME-CWM, which since a merger in 1995 is the main representative of the employers in the steel industry, in synthetic fibres, electronics and the electrotechnical industry. The membership of the FME-CWM includes multinational corporations like Philips, Stork and Corus.

Employers’ organisations and the unions work together at different levels, in different institutions. Until recently they were fully responsible for running the labour exchange.¹⁸ They implemented both the general, statute-based social security and the additional social security at branch level. They (still) operate social funds and arbitration bodies. However, the Dutch system of labour relations does not include participation in or influence on the judiciary. Labour conflicts are dealt with through the ordinary (civil) courts. The highest-level organisations of employers and employees participate in two permant institutions, the Stichting van de Arbeid (Joint Labour Council) and the Sociaal Economische Raad (Social and Economic Council). The SER is the central institution within a system of sector organisations under public law. It consists of 33 members, 11 of which are appointed by the central employees’ organisations (FNV 8, CNV 2, MHP 1), 11 represent the employers (VNO 7, MKB 3, LTO 1) and 11 members are independent and are appointed by the ‘Crown’. The sector organisations, of which the SER is the supervisory body, have (limited) legislative powers, e.g. in the areas of registration, professional standard setting and labour conditions. The latter competence, which stands in direct competition with negotiated collective agreements, is rarely used.¹⁹ The SER is one of the main advisory bodies of the government and in that capacity it deals with a wide range of social and economic issues. The Joint Labour Council or STAR is composed of representatives of the social partners only. It advises the government on social issues and is, inter alia, consulted during the process of declaring collective agreements to be generally applicable. Since both the SER and the STAR advise the government on social issues, the tasks of these institutions overlap to a certain extent. If both are consulted on the same issue or a similar issue, they try to avoid reaching contradictory conclusions by informal cooperation.

Twice a year, in the autumn and in the spring, the highest-level institutions of employers and employees hold a ‘conference’ with government officials in which they discuss the economic developments and prognoses. At this conference they try to reach an agreement on the desired developments in the field of wages and other labour conditions. This agreement functions as a recommendation to the unions and employers’ organisations for the next round of negotiations.
2 Collective labour relations: the legal context
2.1 General
In the Netherlands, the legal position of the unions and the system of industrial relations is - on the whole – based on general rules on the one hand, and international agreements on the other. Although collective agreements and their general applicability are covered by special statutes, the negotiating process leading up to their conclusion has received little or no attention from the legislature. The Constitution does not contain any articles which specifically pertain to industrial relations. The freedom to establish trade unions, to operate as such and be members thereof are all covered by the right of association guaranteed in Article 8 of the Constitution.²⁰ The unions as institutions are governed by the rules on associations laid down in Articles 26 ff. of the Civil Code.²¹ The right to strike has not been the subject of any codification whatsoever and is based on case law. This lack of constitutional protection has not hampered the development of unions and industrial relations in the Netherlands. This in in part the result of the Dutch system of judicial control, which diminishes the legal effect of the Constitution considerably and favours international conventions instead. The legislature being corrected by the courts cannot be based on a violation of the Constitution: Article 120 of the Constitution specifically states that the courts will not judge the constitutionality of statutes and international conventions. The courts can set aside statutory provisions, however, if these provisions violate treaty provisions having direct effect within the Dutch legal system.²² Such generally binding treaty provisions can be found in the European Social Charter (Article 6 section 4 on the right to strike is recognized as having direct effect²³), the European Convention on Human Rights and the International Convention on Social and Economic Rights.

ILO conventions will not – as a rule – have direct effect. Yet the norms contained therein have influenced Dutch labour law. For several decades after the Second World War, labour conditions were part of the general economic policy and as such a primary concern for the central government. The government had several legal instruments to control wages and other primary labour conditions, both in the profit and the non-profit sectors of the economy. These instruments did not sit well with the international obligations taken on by the Netherlands²⁴ and were gradually abandonded. One of the last vestiges of this interventionist policy was the Pay Adjustment (semi-public sector) Act²⁵, which was repealed in 1995.²⁶ This Act governed the wage levels of employees in organisations funded by the government. As it severely limited the right of negotiation for employers and unions, it was deemed to be incompatible with international law. To date, all that remains of the powers of government to intervene in the setting of wages is de Wage Formation Act²⁷. Article 10 of this Act contains the possibility for the government to freeze wages in an economic emergency. Article 5 ff. contain a procedure under which the Minister of Social Affairs may create regulations similar in content and effect to collective agreements (see below). Both powers are rarely used.

2.2 Freedom and duty to negotiate²⁸
Collective agreements in Dutch law are based on the law of contract. In line with the law on contracts in general, parties to the collective agreement, i.e. employers and the unions, have freedom as to whether they want to negotiate and with whom. This means that Dutch law does not contain a general obligation to negotiate, enter into agreements and/or regularly amend them as some other countries do (e.g. France). As collective negotiations are widely accepted in industry, most employers will be willing to negotiate. If not, pressure can be applied by way of industrial action, but no employer can be forced by law to enter into negotiations. Once negotiations are commenced, however, the freedom to choose with whom to negotiate is limited by law, albeit only marginally. Dutch law contains hardly any specific conditions which parties to a collective agreement have to fulfil. Any union may enter into negotiations and become a party to collective agreements, the only prerequisite being that the union is an association with full legal capacity which has been given the authority to negotiate collective agreements in its constitution.²⁹ A union does not have to be elected by the personnel it claims to represent, nor does it have to meet any test as to its representativeness. This might lead to tension, especially when employers choose to negotiate with minor (or even yellow³⁰) unions and thereby exclude the big national unions associated with either the FNV or the CNV. Or conversely, to negotiate with a FNV- or CNV-union having little support in the company involved to the detriment of a more specialist and more representative union. This tactic of picking and choosing one’s contractual partner is particularly rewarding in the Dutch system, since collective agreements affect all employees of the employers who are bound by the agreement and not only those employees who are members of a union which is a party to the agreement.³¹ Such an agreement can even eventually bind the whole industry, by the process of declaring it to be generally binding (see below). A striking example of this effect occurred in January 2002, when the employers in child care entered into a collective agreement with one union against the objections of two other unions participating in the negotiations. The union which closed the agreement had 85 (!) members under the 35 000 employees in the sector; the two opposing unions 11 500 members. Still, the unions thought the Minister of Social Affairs might declare the collective agreement to be binding on the sector as a whole. To counter this effect, both legal scholars and policy makers have at times suggested to introduce a test of representativeness into the Dutch system. So far, this has been rejected. However, since the early 1980s courts have in some instances obliged employers to accept ‘representative’ organisations as parties to ongoing negotiations. This obligation is based on good faith and the duties of a good employer and seems to be restricted to cases where the freedom of negotiations is being abused. The duty of the employers is limited to negotiating in good faith; the employers cannot be obliged to enter into an agreement.
2.3 Statutory regulation of collective agreements and similar instruments
Dutch law does not contain a special labour code. Labour law topics are dealt with in a myriad of legal rules. The regulation of individual labour contracts, for example, forms part of the Civil Code, whereas safety at work and working time are dealt with in special statutes. Even the statutory regulation of collective agreements is to be found in several laws. The collective agreement itself is regulated in the Collective Labour Agreements Act of 1927 (Wet CAO). This law contains the necessary requirements as to the parties to and the contents of collective agreements, the legal effects thereof and the legal remedies in case of breach. Entry into force of collective agreements is regulated in Article 4 of the Wage Formation Act (Wet op de loonvorming) which contains a duty to inform the Minister of Social Affairs of any collective agreements entered into. No collective agreement can enter into force without such notification. Since the law makes entry into force dependent upon the Minister sending a receipt of notification to the parties, Dutch law is most probably in violation of international law on this point. Another law which is relevant to the system of collective negotiations is the Collective Labour Agreements (Declaration of Generally Binding and Non-binding Status) Act of 1936 (Wet AVV). This law contains the procedure to make collective agreements generally binding and regulates the legal consequences thereof.

If it is impossible to reach an agreement between the social partners on labour conditions in a specific sector of the economy, the Minister of Social Affairs may, upon the request of the social partners, determine the relevant standards. These regulations have a content and binding force which is similar to collective agreements or generally binding collective agreements, depending on the procedure followed.³² In practice, this power is rarely used by the Minister. Most sectors of the economy have a working system of collective negotiations. Even if it occasionally proves difficult to reach an agreement, the government will not intervene. But if for some reason a sensible system of negotiations cannot take place, then the special procedure of the Wage Formation Act can be used. The most recent example thereof consists of regulations pertaining to the labour conditions of seafarers (regeling arbeidsvoorwaarden zeevaart).³³

4 The concept of the collective agreement in the Collective Labour Agreements Act 1927
In Dutch law, one has to distinguish between a formal and a material concept of ‘collective agreement’. The material concept of ‘collective agreement’ is very wide. The Collective Labour Agreements Act stipulates that a collective agreement is an agreement between one or more employers or one or more organisations of employers³⁴ and one or more organisations of employees, which contains predominantly or exclusively stipulations on the labour conditions to be respected in individual labour contracts.³⁵ This description of the collective agreement, stemming from the time when the Act on collective agreements was enacted in 1927, has proved over the years not to pose a real limitation on the powers of the social partners. The concept of ‘collective agreement’ covers both sector agreements and agreements between the unions and a single employer. It applies to collective agreements containing provisions on a myriad of subjects as well as to specific agreements on a single subject only. Basically, all the elements of labour law that lend themselves to negotiation between the unions and employers, can be the subject of a collective agreement in the sense of the Act.³⁶

However, to qualify as a collective agreement, the contract has to fulfil certain formal requirements as well. The parties to the contract must be organizations with full legal capacity and the agreement has to be notified to the Ministry of Social Affairs.³⁷ If the agreement lacks in these elements, it can still be legally binding, but it will not create the special effects given to collective agreements by the 1927 Act. If the parties did not intend to create a legally binding instrument at all, their agreement can at most be a ‘gentlemen’s agreement’. Disputes as to the characterization of agreements between the unions and employers have arisen mainly in the field of the restructuring of companies. Agreements containing so-called ‘social plans’ relating to collective dismissals or restructuring agreements are not always considered to be collective agreements in the sense of the 1927 Act.³⁸

5 The scope of application of collective agreements
The two types of collective agreements which are prevalent in the Netherlands are the company-agreements and the agreements covering economic sectors. The two differ in both the parties on the side of the employer and the dominant factor determining their application. Company-agreements are concluded by companies or related groups of companies. The major Dutch companies, both national and multinational (Unilever, Philips, KLM, Ahold, KBB etc.) tend to negotiate special agreements for their Dutch enterprises and/or subsidiaries. The scope of application of these agreements is determined to a large extent by the parties on the employer-side (a personal criterion). The companies may have separate agreements for higher and managing personnel and sometimes apply a separate set of labourconditions to international personnel.

Sector agreements will contain the employment conditions for a sector of economic activity. They are typically concluded by organisations of employers rather than by individual employers. Sectoragreements will in general apply throughout the Netherlands, local agreements are extremely rare. The delineati­on of the sector is based on agreement between the parties to the collective agreement. A sector might be defined widely to encompass a variety of economic activities or rather be construed narrowly. Factors that influence the division into sectors of economy are many. The organisational setup of the unions and employers is one. This in turn tends to follow (to a certain extent) divisions between sectors of the economy used in public law and social security law. The system as a whole is not static. Changes in the economic environment may cause collective agreements of related sectors to be merged, decentralization tendencies might cause large collective agreements to desintegrate. For further information, see below (trends). Inbetween sectors, unions may actually compete amongst themselves over the representation of a specific group of employees. These so-called ‘border-disputes’ on the exact delineation of neighbouring collective agreements will be solved either by bipartite borderline commissions or by the negotiating parties. The Minister will not intervene is such disputes.

There are close to 200 sector agreements³⁹ covering 4.4 million employees, or even 5 million if counting the effect of general applicability.⁴⁰ Close to 800 company agreements cover approx. 0.8 million employees.⁴¹ On a total of approx. 7 million employed, this means that most employees are covered by some sort of collective agreement.
6 The binding character of collective agreements and their effect on the individual employment contract
In Dutch jurisprudence it is common to distinguish between the different types of provisions which can form a collective agreement.⁴² On the one hand, a collective agreement may contain obligatory clauses which only bind the parties to the collective agreement. On the other hand, collective agreements are charactarized by the fact that they contain so-called normative clauses: clauses which regulate the relationship between the individual employee and the individual employer. Other provisions might place obligations on - usually - the individual employer viz-à-viz the parties to the collective agreement or third parties (social funds, other employers within the same organisation or branch). Finally, the parties to the collective agreement can use the collective agreement to create bipartite institutions and funds for issues like vocational training and early retirement schemes. The Act contains provisions on the obligations of the parties to the collective agreement as well as on the position of the parties to the individual agreements covered by the collective agreement. The position of third parties is based on case law, in particular a number of decisions by the Dutch Supreme Court.⁴³

In general, a collective agreement is binding upon the parties to the agreement and any member thereof. This means that the individual employer and employee are bound by an operational agreement when they are (become or were at the time of conclusion) members of the organisations which are party to the agreement.⁴⁴ Any stipulations in the individual agreement which violate the collective agreement are void and are automatically replaced by the relevant stipulations in the collective agreement.⁴⁵ Any lacunae are automatically filled with the collective stipulations. In this fashion, the individual agreement is modelled on the collective agreement. The individual employee can (and in most cases must) rely on this remodelled individual agreement if he wants to claim performance by the individual employer. If this incorporation theory does not suffice in order to guarantee enforcement, the employee can sometimes rely directly on the collective agreement itself. A good example of this latter mechanism is to be found in a case which came before the Supreme Court and which dealt with the probation period. According to the relevant collective agreement any probation period had to be agreed upon in writing, adding a formal requirement to the legal requirements in the Civil Code. According to the Supreme Court the requirement in the collective agreement rendered an orally agreed probation period void. Since a provision of this kind cannot be deemed to be incorporated in the individual agreement, the individual employee had to base the avoidance of the probation period on the collective agreement itself. So, in principle all normative provisions in collective agreements are deemed to become part of the individual labour contract. It is in line with this incorporation theory that ‘horizontal’ stipulations in collective agreements are deemed to have an ‘after-effect’: they continue to shape the individual contract even after the expiry of the collective agreement. The after-effect lasts until the horizontal provisions are replaced or annulled by a subsequent agreement at the individual or collective level.

Collective agreements do not bind employees who are not members of a union, which is a party to the collective agreement: so-called non-organized or otherwise-organized workers. However, according to Art. 14 of the Collective Labour Agreements Act, an employer who is bound by a collective agreement is obliged to apply the agreement to his non- or otherwise-organized employees.⁴⁶ Most employers fulfil this duty by agreeing with each of their employees that the current sector agreement will apply to their contract. In this way up to 85 % of workers are covered by collective agreements even though only approx. 26 % are members of a union.⁴⁷ The influence of the Dutch unions far exceeds their representativeness based on membership only. The Collective Labour Agreements (Declaration of General Binding and Non-binding Status) Act only enhances this effect.

Through the decree on general applicability a sector agreement, or rather certain provisions thereof become binding on anyone falling within its scope of application. The most important effect in practice is that the collective agreement from then on also applies to the employees of non-organized employers. But, strictly speaking, the decree also changes the position of the other ‘players’ in the field. Those already bound by the collective agreement itself are now bound by the decree as well. The ‘Article 14’ employees are legally bound whereas previously they were not.⁴⁸ And finally, the decree limits the freedom of the parties to the original collective agreement.

Both the effect of generally binding provisions on the individual contract and the remedies for the breach thereof are very similar to those concerning collective agreements in general. However, such generally binding provisions do not ‘remodel’ the individual labour contract as the collective agreement itself does. They are looked upon as quasi-statutory provisions. This means, inter alia, that the decree on general applicability does not have any after-effect.⁴⁹ After expiry of the decree, the pre-existing individual contract is revived. This causes problems of continuity, which are to some extent countered by the judiciary using concepts from the law of contract. In 1993 the Supreme Court dealt with supplementary wages for working overtime granted in a collective agreement. Did the employee have a right to be supplemented even when the collective agreement was no longer applicable and the indidividual agreement was silent on this point? The Supreme Court decided that the answer depended on the reasonable expectations of the parties.⁵⁰ In 1994 the question arose whether an employee could still claim supplementary sickness benefit from his employer after the relevant provision in the collective agreement had ceased to apply to his individual contract. In this case the Supreme Court used the doctrine of acquired rights: the worker had acquired this specific right by becoming ill during the decree’s period of application. According to the Supreme Court he retained that right even after the expiry of the decree.⁵¹ Though these judgements come close to granting after-effect to generally binding provisions, the Supreme Court has not yet reversed its official opinion.

Collective agreements can be declared generally binding only when the agreement itself already covers a significant majority of the employers and employees in the sector.⁵² Interestingly enough, in calculating the range of the original agreement, the Minister will take non-organized employees into account. Although strictly speaking not bound by the collective agreement, they are deemed to be covered by it. Since sector agreements are almost automatically declared to be generally binding, most employees will be bound by a collective agreement in one way or another. It is therefore of crucial importance to study in more detail the limits posed by the law on the contents of the collective agreement as well as its relationship to the individual contract.