An employer can agree salary, leave and other employment conditions with its employees without referring to a collective labor agreement at all. That does not necessarily mean that no CAO applies.
An employer enters the Dutch market, puts local employment contracts in place and agrees salary, leave and other employment conditions with its employees. Nothing in those contracts refers to a collective labor agreement.
So no collective labor agreement applies. Right?
Not necessarily.
In the Netherlands, a collective labor agreement, or CAO, can be binding even if the employer and employee never agreed to apply it in the employment contract.
An employer may be bound to a CAO because it is a member of an employers’ association that is party to that CAO. But there is another route that is particularly important for employers unfamiliar with the Dutch system.
Provisions of an industry-wide CAO can be declared generally binding by the Minister of Social Affairs and Employment. If an employer falls within the scope of that CAO, those generally binding provisions apply even if the employer is not a member of the employers’ association and the employment contract does not refer to the CAO.
An employment contract can look perfectly compliant on its own and still provide the wrong employment conditions because an applicable CAO has been missed.
It depends on the activities the business performs
Whether an employer falls within the scope of an industry CAO is determined by its scope provisions.
This means that the question cannot always be answered simply by looking at how a company describes itself. The activities actually carried out within the business, how those activities are organized and, depending on the particular scope provision, which activities are predominant can all be relevant.
This can be particularly easy to overlook for international companies. A group may regard its Dutch operation as part of an international technology, services or manufacturing business, while the activities performed in the Netherlands bring that operation within the scope of a Dutch industry CAO.
Generally binding CAOs are common in sectors such as construction and infrastructure, the metal and technical sectors (Metaal en Techniek, covering metalworking and technical installation businesses, and Metalektro, covering the metal and electrical engineering industry) and various parts of the healthcare sector. The precise scope of the relevant CAO must always be checked against the activities of the individual business.
Missing a CAO can become expensive
A CAO can regulate much more than basic salary. It may contain rules on salary scales, allowances, overtime, working hours, leave and other employment conditions.
If an employer should have applied a CAO but did not, the difference may therefore extend across several elements of the employment package and across multiple employees.
That exposure can also build up over time. Wage claims are generally subject to a five-year limitation period, calculated from the date on which the relevant payment became due.
A relatively small difference in monthly pay or allowances can therefore become a significant financial issue when it affects several employees over several years.
It also matters in an acquisition
The applicability of a CAO should also be checked when a business is acquired. If a CAO should have been applied for several years but was not, employment-related liabilities may already have accumulated.
And do not forget the pension scheme
A similar scope issue can arise in relation to pensions.
In some sectors, employers are required to participate in a mandatory industry pension fund.
The scope of a mandatory pension fund and the scope of a CAO are separate legal questions. In practice, however, the same activities that bring an employer within the scope of a generally binding CAO will often also bring it within the scope of a mandatory industry pension fund.
Practical insight
Whether a CAO applies is not always something an employer can choose. It can follow from the activities of the business, regardless of what the employment contract says.
Finding that out before employment conditions are set, payroll is configured or a business is acquired is considerably easier than correcting employment conditions that have been applied incorrectly for several years.
