Employee participation and the Dutch works council

A participation plan usually starts as an idea of the management team or the owners. As soon as it applies to a group of employees in the Netherlands, it also becomes a topic for the works council (ondernemingsraad). That is not an obstacle, but it is something to plan for from the start.

Law

When the works council has a say

A works council is mandatory from 50 employees. The Dutch Works Councils Act gives it a right of consent on arrangements concerning remuneration systems. A plan that lets employees share in profit or value growth is a form of remuneration, so introducing or changing such a plan for a group usually requires the works council's consent.

• A group, not a person. The right of consent concerns arrangements. A one off agreement with a single executive or key person usually falls outside it.
• The form matters little. Profit sharing, virtual shares, SARs, options or depositary receipts: what counts is the reward, not the legal structure.
• Already in the collective agreement? If the collective labour agreement already covers the subject in substance, the right of consent falls away for that part.
• Fewer than 50 employees. There may be an employee representative body, with fewer powers than a works council. Check what applies to you.

If a plan is introduced without the required consent, the works council can invoke the nullity of the decision within a month. If it refuses consent, the employer can ask the subdistrict court for substitute consent. Neither is a good start for something meant to build trust.

Distinction

Sharing value is not having a say

In conversations with a works council two questions often get mixed up: do employees share in the results, and do they have a say in the direction of the company? Those are two different things.

With profit sharing, virtual shares and SARs, participants share financially, without voting rights at the shareholders' meeting. Real shares add a say, and with depositary receipts through a foundation (STAK) that say runs through the foundation's board. Which route fits depends on what you want to achieve. Either way, employee representation on staff policy keeps running through the works council.

Make that distinction explicit in your explanation. It prevents the works council from assessing a financial plan as if it were a change in control, or the other way around.

Social partners

What employers and unions advise

Employers and unions now explicitly recognise that employee participation does not always require real shares. Profit sharing, SARs and phantom shares sit alongside options, shares and depositary receipts as fully fledged forms. In practice, a works council or union looks mainly at a few fixed principles:

• Consultation and support. Introduce the plan in consultation with the works council and the unions. The sample clause for a company level agreement also suggests support from at least half of the employees.
• On top of pay. Participation does not replace regular pay, and existing pay agreements stay in force.
• Clear information. A written explanation upfront of how it works, the criteria and the risks, followed by a yearly update.
• Voluntary, with objective criteria. For example length of service or size of the contract, or a group defined upfront.
• Long term. The plan should serve the long term interest. One sample clause mentions a minimum holding period of three years.
• Review. The works council or union is involved in reviewing and adjusting the plan.

If you check your plan against these points, you have answered most of a works council's questions before they are asked.

Approach

How to involve the works council

Inform early, do not just ask for consent

Tell the works council you are considering a plan before the design is fixed, and why. What do you want to achieve: retention, reward, sharing in an exit? A works council that knows the goal will think along about the means.

A draft with worked examples

Share a draft of the plan rules: who joins, how large the pool is, how vesting and leaving work, and when payouts happen. Add a few worked examples in euros, including a scenario where things go less well. That makes it concrete and honest.

A written request for consent

After the consultation comes the formal request, with the final plan rules and an explanation. Allow enough time: the works council may ask questions, seek advice and attach conditions to its consent.

Explaining it to the team

The explanation you prepare for the works council is also the basis for explaining the plan to participants. Then let everyone see what their own grant is worth, so the plan stays clear not only at launch but every year.

Later

Changes and reviews

The right of consent also applies to changing or withdrawing the plan. If you want room to adjust, for example, the valuation method or the criteria, state in the plan rules which changes are possible and how the works council is involved. Agree on a fixed review moment, for example every year, so adjusting becomes routine rather than a conflict.

Separately, changes that affect existing grants often also need an agreement with the individual participant. Works council consent does not replace that.

Checklist

Checklist before you announce the plan

• You know whether your company has a works council or employee representative body, and what the collective agreement already covers.
• The goal of the plan is written down in one sentence.
• The eligibility criteria are objective and easy to explain.
• There are worked examples in euros, including a disappointing scenario.
• The plan rules say how changes and reviews work.
• The works council was informed before the design was fixed, not after.

Sharesquare provides software and knowledge, not legal or tax advice. Have the application to your company reviewed by an employment lawyer.

Knowledge base

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