Redundancy for Economic Reasons: A Practical SME Guide
Falling revenue, a shrinking order book, or a cost structure that no longer adds up — economic redundancy is sometimes unavoidable. But the rules are strict: the wrong order, a missed notification, or an overlooked deadline can be costly. This article walks you through what is expected as an SME employer and how to keep your HR administration ready for the process.
Not legal advice. Consult a legal adviser or employment law specialist for your specific situation.
What Is Economic Redundancy?
Economic redundancy arises from the situation of your business, not from an employee's performance. Think financial difficulties, a reorganisation, a role becoming redundant, or a relocation that makes certain positions unnecessary. The burden of proof lies with you: you must show the dismissal is a genuine business necessity and that no reasonable alternative exists, such as redeployment.
In the Netherlands, the procedure typically runs through the UWV (Employee Insurance Agency). You apply for a dismissal permit and substantiate your request with financial documents, an organisational chart, and an overview of the roles affected. The UWV then assesses whether all conditions are met, including the so-called mirror principle.
The Mirror Principle: Order Is Not Optional
The mirror principle (afspiegelingsbeginsel) determines who is first in line for redundancy. Its aim is to preserve the age distribution within a job category after a redundancy round. Employees are divided into five age groups (15-24, 25-34, 35-44, 45-54, and 55+). Within each group, the employee with the shortest tenure goes first.
For example: you run an installation company with twelve engineers and must cut two roles due to declining orders. Under the rules as set out by the UWV, you are required to assess the distribution per age group and set the redundancy order accordingly. Get it wrong, and the UWV may refuse the permit — or a court may reverse the dismissal.
Accurate HR records are not a luxury here; they are a requirement. You need each employee's date of birth, start date, and exact job category. Well-maintained records, including GDPR-compliant time tracking data, prevent costly errors in this process.
Collective Redundancy: Notification Duty From 20 Employees
When you dismiss at least 20 employees within the same area within a three-month period, this qualifies as collective redundancy under the Collective Redundancy Notification Act (WMCO). Only employees on employment or payroll contracts count towards this threshold. Freelancers and agency workers do not.
Additional obligations apply:
| Obligation | To Whom | When |
|---|---|---|
| Collective redundancy notification | UWV and trade unions | Before individual dismissal applications |
| Works council consultation | Works council or staff representative body | As early as possible |
| Waiting period | (see explanation) | Minimum 1 month after notification |
| Individual dismissal applications | UWV | After the waiting period |
Compliance is not a formality. If the notification is missing or incomplete, trade unions or employees can invoke the nullity of the dismissal. For the current legislation, consult wetten.overheid.nl or seek legal advice.
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Unemployment Benefit and Your Role as Employer
Employees made redundant for economic reasons are generally entitled to unemployment benefit (WW) via the UWV. Your employee applies themselves, but you play an indirect role: correct payroll reporting, the right end date, and timely deregistration all affect whether the WW application runs smoothly.
A clean settlement, including payment of outstanding holiday days and any statutory transition payment, prevents additional claims and objections. According to the UWV, the transition payment amounts to one-third of a monthly salary per year worked. More information is available at uwv.nl.
A solid leave planning and staff overview also helps you track availability during a reorganisation and monitor outstanding obligations.
Closing Notes
Economic redundancy is a demanding process with strict rules. The mirror principle, collective dismissal notification duties, and unemployment benefit obligations all require flawless HR administration. Missing data (dates of birth, start dates, job categories) risks a refused permit or a court overturning the dismissal. Do not wait until the reorganisation has started. Make sure your records are correct now.
Frequently Asked Questions
Must I always go through the UWV for economic redundancy? In most cases, yes. You can also opt for a dissolution procedure through the cantonal court, but the UWV route is standard for economic redundancy. Consult a legal adviser to determine which route suits your situation.
Do freelancers count towards the collective redundancy threshold? No. Only employees on employment or payroll contracts count. Self-employed workers, agency staff, and interns fall outside the WMCO threshold.
How long does a UWV procedure take? Timelines vary, but expect several weeks to two months. For collective redundancy, add the mandatory waiting period of at least one month. Plan your reorganisation timeline accordingly.
What if I do not apply the mirror principle correctly? The UWV can refuse the dismissal permit. If you have already dismissed without a permit or in the wrong order, the employee can challenge the dismissal in court. Reinstatement or compensation are possible outcomes.
Is the employee entitled to a transition payment? Yes, in principle — including for economic redundancy. The amount is one-third of a monthly salary per year worked. Check current rules at rijksoverheid.nl.
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