An employer can dismiss employees if the company encounters financial problems or if there is a reorganization. This is called economic dismissal. Because this has a major impact on employees, strict rules and procedures apply.
In this article we explain when dismissal for economic reasons is permitted, how the procedure works, and what rights you have as an employee.
What is dismissal for economic reasons?
In the case of dismissal for economic reasons, the employer terminates employment contracts for reasons related to business operations. Examples are:
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Poor financial situation.
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Reduction of work.
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Business closure or relocation.
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Organizational changes (reorganization).
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Automation or digitalization causing functions to disappear.
What rules apply to collective dismissals?
In the event of collective dismissal, the employer must comply with additional legal obligations. For example, he must inform the UWV and the trade unions in a timely manner about the intention to dismiss several employees. In addition, there is a mandatory consultation period, during which the employer andtrade unions together look for solutions and discuss the consequences for employees. There are also deadlines that the employer must adhere to before the dismissals can actually take place.Permission via UWV
An employer may not simply dismiss employees. In case of dismissal for economic reasons, permission from the UWV is required. The UWV checks whether the reason for dismissal is sufficiently serious.
Burden of proof for dismissal for economic reasons
To be allowed to dismiss an employee because of business economic reasons, the employer must convincingly demonstrate that all conditions have been met. The UWV will request proof of the following points:- There is actually a business economic cause underlying the dismissal, such as persistent financial problems or structurally less work.
- The employer must substantiate that the situation is not expected to improve within 26 weeks—so it is not a temporary setback.
- The correct dismissal order is followed, i.e. the reflection principle is applied.
- It has been made plausible that redeployment to another suitable position is not possible within a reasonable period.
- If there is a works council, it must appear that it was able to provide timely advice on the intended dismissal.
If the UWV gives permission, the employer must still observe the notice period.
After permission from theUWVthe employee will receive a letter from the employer stating that the employment contract will end. The employer has four weeks to do this, calculated from the moment that the UWV has given permission for dismissal. The contract remains valid during the notice period. Please note: the time it took for UWV to complete the dismissal procedure may be deducted from the notice period. The letter from the UWVstates exactly how much time remains. Is this period shorter than one month? Then there is always a minimum notice period of one month. Example: Suppose the notice period is three months and the employer cancels the contract on January 10, after it has taken UWVthree weeks to complete the procedure. Normally the contract would end on April 10, but due to the deduction of three weeks, the end date shifts to March 20. Because rounding is often done on the first of the month, the contract will be terminated on April 1.Difference between dismissal viaUWV and via a dismissal committee
In some cases, the employer does not request permission from theUWV, but from a dismissal committee. How exactly does this work, and what are the main differences? Permission from the UWV: For most business redundancies, the application is submitted via the UWV. The UWV assesses whether the reason for dismissal is serious enough and examines whether the employer complies with the rules, such as the correct dismissal order and the search for redeployment options. It is also checked whether the employee's position will not change in the coming period. Only after approval by the UWV may the employer terminate the contract, taking into account the notice period. Dismissal committee from the collective labor agreement: Does the collective labor agreement state that the dismissal committee will take over this task? The employer then submits the application there. This committee is usually composed of experts, for example representatives of the trade union or independent specialists. The committee, just like the UWV, investigates whether the rules have been met, but may apply additional or different criteria. For example, sometimes the order of dismissal deviates: the committee can look at the qualities of employees or even opt for a draw, depending on what is stated in the collective labor agreement. In short:- Where to apply? UWV or dismissal committee, depending on the collective labor agreement.
- Who assesses? UWV employees or members of the dismissal committee.
- Rules: At the UWV legal rules apply; Customized agreements from the collective labor agreement may apply to a committee.
How is the notice period calculated after permission fromUWV?
After permission from the UWV the employer must notify in writing that the employment contract is ending. This is done by letter, usually within four weeks after permission has been granted. The notice period starts as soon as the employer gives notice. Important to know:- The letter from the UWV states exactly how much time remains.
- If the remaining notice period is less than one month, a minimum notice period of one month still applies.
How long can you respond to a dismissal request?
If you receive a message about a dismissal application from the UWV, you will be given 14 days to provide your response. During this period you can explain your position and any objections via the special response form of theUWV. This way you can make your situation clear before a decision is made.Consent via dismissal committee
In some cases, an employer does not have to ask permission from theUWV but rather from a dismissal committee. This happens if the collective labor agreement prescribes this. The dismissal committee assesses – just like the UWV – whether all rules for economic dismissal have been met. The composition of such a committee is usually explained in the collective labor agreement. The committee often consists of representatives of the trade union or independent experts, who assess whether the dismissal has been correctly requested. In addition, the collective labor agreement may contain additional rules, for example how it is determined who is dismissed first. For example, the principle of reflection may not automatically be followed in the event of dismissal, but the qualifications of employees may be taken into account, for example, or even lots may be drawn to determine who should leave.Minimum notice period of one month
Sometimes the procedure at the UWV takes a while. The employer may deduct this period from the statutory notice period. Is the notice period after this deduction less than one month? Then a minimum notice period of one month always applies.Role of the subdistrict court judge in dismissal for economic reasons
In some situations, the subdistrict court judge comes into the picture. This happens, for example, if you have a temporary contract that cannot be terminated prematurely, or if the UWV does not give permission for the dismissal. The subdistrict court judge - just like the UWV - assesses whether your employer complies with the rules regarding dismissal for economic reasons. The judge carefully looks at the reason for dismissal and checks whether it is valid according to the law.Legal support
Is your dismissal being requested through the subdistrict court? It is then wise to seek legal advice, for example from a lawyer, trade union or your legal expenses insurance. This way you are well prepared for what is to come.What if the UWV procedure takes longer than the notice period?
Sometimes it may be the case that the processing of theUWV takes more time than the usual notice period. In that case, the employer may deduct the waiting period from the notice period, but a minimum notice period of one month always applies. Will the procedure be so long that less than a month remains after deduction? The remaining notice period then remains one month. The termination date will then move forward, so that you still have at least one month's notice period, despite the duration of theUWV procedure. This way, as an employee you are assured of a minimum bridging time.To the subdistrict court
There are situations in which an employer must not apply for dismissal via theUWV, but via the subdistrict court. This is for example the case if:- You have a temporary contract which states that the contract may not be terminated prematurely.
- It UWV whether a dismissal committee has rejected the application for dismissal.
The reflection principle
In the event of reorganisations, the employer is not allowed to choose who is dismissed. The reflection principle:
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Employees are divided into age groups.
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Within each group, we look at who was hired last (“last in, first out”).
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This way, the layoffs are distributed fairly.
Relocation obligation
The employer must investigate whether you can be reassigned to another suitable position within the company or concern. Only if that fails, dismissal may follow.
Severance pay in case of economic dismissal
In the event of dismissal for economic reasons, you are entitled to the transition compensation. Sometimes there is also a social plan, which contains agreements about:
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Additional fees.
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Outplacement guidance.
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Training or retraining.
A social plan can be agreed through the works council or trade union and often offers more favorable conditions.
Always check whether a social plan applies and what agreements it contains regarding, for example, additional compensation or guidance in finding new work. Sometimes the employer must adhere to these agreements, especially if the termination agreement (settlement agreement) states that the social plan applies. It is also wise to check whether theworks councilhas issued an advice on the dismissal. This advice may influence the development of the social plan and your rights in the event of dismissal.Settlement agreement instead of UWV procedure
Sometimes an employer chooses to make a dismissal arrangement via a settlement agreement (VSO) instead of via the UWV. This is faster and prevents procedures.
👉 Please note: you can then negotiate extras, such as a higher severance payment or longer continued payment.
How do you respond to a dismissal request for business economic reasons?
Are you confronted with a dismissal application from the UWV? You will then receive a copy of this application from the UWV a copy of this application. It is important to know that you have the right to respond to this: you usually have 14 days to do so. Use this period to carefully prepare your response:- State why you agree or disagree with the reasons given.
- Add evidence or substantiation where possible (for example that relocation is possible or that the reflection principle has not been applied correctly).
When are you entitled to unemployment benefits after dismissal?
After a dismissal for economic reasons, you can in many cases apply for unemployment benefits via the UWV. You are entitled to this benefit if you meet a number of important conditions:- You have lost your job involuntarily, for example due to reorganization or poor financial situation of your employer.
- You have worked at least 26 weeks in the 36 weeks prior to dismissal (the so-called weeks requirement).
- You are immediately available for new work and are actively doing your best to find other work.
- You have not culpably become unemployed (so there is no immediate dismissal due to serious misconduct).
Practical examples
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Example 1: A company had to downsize due to a decline in turnover. An employee lost his job via the reflection principle. He received transition compensation and outplacement through the social plan.
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Example 2: An employer offered a VSO to avoid a UWV procedure. In addition to the transition payment, the employee received 2 additional monthly salaries.
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Example 3: An employee was the only one who was unfairly dismissed, while the reflection principle had not been properly applied. The judge reinstated the employment contract.
Checklist for dismissal for economic reasons
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📑 Check whether there is a real business economic reason.
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⚖️ Test whether the reflection principle has been applied correctly.
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📅 Check if there are relocation options.
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💶 Check your right to transition compensation and social plan.
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📝 Always have a VSO legally checked.
What should you do if you receive a layoff?
Are you faced with dismissal for business reasons? Then follow these steps to protect your position:- Read the resignation letter carefully. Check the reason for dismissal and how it is substantiated.
- Ask for clarification if necessary. Are you unsure about the reason or the procedure? Ask your employer for additional explanation.
- Check whether the reflection principle has been applied. Check whether the employer has complied with the rules when choosing to dismiss.
- Check redeployment options. Ask to be transferred to another suitable position within the company.
- Assess your right to transition compensation and a possible social plan. Check which compensation and support arrangements apply to you.
- Always have a settlement agreement assessed by a legal expert. This way you can be sure that your interests are well protected and that you will not miss out on any rights (such as unemployment benefits or higher compensation).
- Do not sign immediately. Take time to seek advice, for example from a trade union or legal advisor, before agreeing.
Common mistakes
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Thinking that dismissal during reorganization is always valid.
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Not checking whether the reflection principle has been applied correctly.
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Agreeing too quickly to a VSO without negotiation.
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Do not take the notice period into account.
Frequently asked questions (FAQ)
1. Can my employer dismiss me due to reorganization?
Yes, but only with permission from UWV and after application of the rules.
2. What is the reflection principle?
A method to fairly determine which employees are dismissed, divided over age groups.
3. Am I entitled to compensation in the event of dismissal for economic reasons?
Yes, at least the transition payment and often extra via a social plan.
4. Can I refuse to sign a settlement agreement?
Yes, you are never obliged to sign. If you refuse to sign, your current employment contract will remain in force. Your employer may then start a dismissal procedure with theUWVor thesubdistrict court. It is wise to always check the settlement agreement carefully before making a decision. Pay attention to matters such as the amount of the transition payment, the notice period and your right to unemployment benefits.
5. Does a lawyer help with economic dismissal?
Yes, a lawyer can check whether the rules have been applied correctly and negotiate for a higher compensation. If you do not agree with your dismissal for economic reasons, you can object or defend yourself. A lawyer or legal advisor can support you in this, for example by assessing whether the dismissal is justified and whether all conditions have been met. A lawyer can also negotiate better conditions or a higher severance payment on your behalf. This way you can be sure that your interests are properly represented.
Why Arslan Lawyers?
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Specialized in employment law and reorganizations
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Check whether UWV and collective labor agreement rules have been applied correctly
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Negotiate for higher compensation through VSOs
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Guiding employees with procedures and social plan
Conclusion
Dismissal for business reasons is subject to strict rules. Employers must request permission from UWV, apply the reflection principle and investigate redeployment. As an employee you are entitled to protection and often also to additional compensation. Therefore, always have your situation assessed by an employment law lawyer.