This article was last updated on 11 June 2020, to reflect any clarifications issued by the government. On 31 March 2020, the Dutch Minister of Social Affairs and Employment published the conditions for the NOW framework, which aims to support employers, big and small, whose revenues have been reduced by at least 20% as a result of the coronavirus. Employers may be eligible to receive up to 90% of capped salary costs in the form of subsidies during a three-month period, with the possibility of extending this period by an additional three months. On 20 May 2020, the Dutch government announced the extension of the NOW framework by four months (NOW 2.0). According to the government's letter to the House of Representatives, NOW 2.0 will cover the period from 1 June through 30 September 2020. The material obligations for employers will still apply under NOW 2.0. Other than the first NOW framework, filing a termination request for economic reasons will not automatically result in a reduction of the subsidy. Moreover, the following additional requirements will apply for receiving a subsidy under NOW 2.0:

• no payment of bonuses or dividends in 2020 until the general meeting of shareholders in 2021, where the financial statements are adopted,
• the employer may not buy (back) its own shares, and
• the employer must encourage its employees to take retraining or reskilling courses.

NOW 2.0 is currently being fleshed out, and certain requirements may change. Employers are expected to be able to apply for a subsidy under NOW 2.0 as of 6 July 2020. This article sets out the conditions for receiving salary subsidies under NOW and discusses the implications for our clients.

Two points of attention

First, a full understanding and application of NOW requires the assistance of an expert who looks at each situation from an employment law, tax law, corporate law, subsidy law and accountancy perspective. In this article, we discuss what the framework means for our clients from an employment law perspective. Second, NOW is a generic set of emergency rules and does not include extensive guidance for all types of businesses and scenarios. We expect that the actual application of NOW by the Minister and the UWV will provide further details and interpretation on the conditions for NOW subsidies; this could mean that outcomes may differ from the expectations outlined below.

Conditions and obligations

Employers will be eligible to receive a subsidy for salary costs between 1 March and 31 May 2020 on the basis of NOW if they experience a revenue loss of 20% or more for a period of at least three consecutive months between 1 March and 31 July 2020. By receiving a subsidy under NOW, an employer will commit to the following material obligations, non-compliance of which may affect the amount of the subsidy:

• the employer maintains salary costs at the same level "as much as possible" during the period for which it will receive a subsidy;
• the employer does not submit a request for dismissal on economic grounds during the period for which the subsidy has been awarded;
• the employer uses the subsidy exclusively for the payment of salaries; and
• the employer informs the works council, employee representation or employees about awarded subsidies.

Establishing revenue loss

In order to establish the level of revenue loss for NOW, the employer's revenue for accounting purposes over a period of three consecutive calendar months, starting on 1 March, 1 April or 1 May 2020, will be offset against the reference revenue. That reference revenue is 25% of the employer's annual revenue in 2019, as published in its annual accounts for 2019. The employer does not need to demonstrate a causal link between the revenue loss and the coronavirus. Example In 2019, an employer's total revenues were EUR 100 million. The reference revenue is therefore EUR 25 million. The employer will calculate the combined expected revenue in each of the potential measurement periods starting on 1 March, 1 April or 1 May 2020. In the worst-performing three-month period, the total combined revenue is expected to be EUR 12.5 million. The employer chooses to apply that period as the measurement period to apply NOW, and the revenue loss will be established at 50%.

Establishing salary for compensation

NOW compensates the salary costs for employees with permanent and provisional employment agreements, as well as for employees with flexible working hour arrangements (zero-hour contracts and "min-max" contracts). Subject to certain exceptions that we will not discuss here, the monthly salary costs that qualify for preliminary compensation of up to 90%, will be established for each employee as follows: (salary in January 2020) x 1.3, with a cap of EUR 9,538 (gross) per individual employee "Salary" for this purpose is salary as defined in Article 16 of the Dutch Social Insurance Financing Act, excluding holiday allowance and minus any social security benefits the employer has received for employees during the subsidised period. The salary is multiplied by 1.3 in order to account for holiday allowance, social insurance and pension premiums and other (pro-rated) additional remuneration components. An auditor should be able to identify employer's costs that qualify as "salary" for purposes of NOW. Upon retroactively verifying the subsidy, the UWV will no longer take the salary costs in January as a benchmark, but will look at the actual salary costs over the subsidised period.

Calculation and payment of the subsidy

The amount of the subsidy for each employer is 90% of the salary costs in relation to the reduction in revenues as a result of the coronavirus prevention measures. The UWV will pay 80% of the preliminarily established subsidy in advance. Example Employment costs that qualify for compensation under NOW are established at EUR 1.5 million. An employer expects a revenue loss of 60% during the measurement period. The preliminary subsidy will be established at 54% (90% of 60%): EUR 810,000. The UWV will pay 80% in advance: EUR 648,000. The wording of NOW allows the Ministry a decision period of 13 weeks. This would mean that advance payments would start only 15-17 weeks after the submission of a subsidy request. However, in the explanatory statement, the Ministry says that it wants to start paying advance payments within 2-4 weeks after the submission of the request. Actual revenue reductions during the subsidised period will be determined retroactively. This can result in the employer receiving an extra payment of subsidies or having to return part of the advance payment.

Obligation to keep salary costs at the same level

One significant obligation NOW imposes on employers is that they take all possible measures to keep the salary costs at the same level. The employer is encouraged to continue paying the full employment of individual employees even if they work less as a result of the crisis. The employer is further encouraged not to terminate, but rather to extend or renew, the employment agreements of employees who work on the basis of temporary or flexible employment arrangements. This also provides income security to those employees with less contractual employment or income security. While NOW encourages this commitment, it is not, in our view, a condition for receiving a subsidy per se. The consequence of reducing the aggregate salary costs during the subsidised period is a lower subsidy. In the explanatory statement to NOW, the government takes the position that the coronavirus crisis qualifies as an extraordinary reason for not entirely fulfilling work duties, which does not come at the risk and expense of the employee as referred to in article 7:628(1) of the Dutch Civil Code. If a court were to follow this line of reasoning in individual cases, employees could establish a right to receive continued salary payments, even if, because of the coronavirus crisis, they work less.

No dismissals on economic grounds

During the subsidised period after 17 March 2020, the employer may not submit a request for dismissal on economic grounds to the UWV as referred to in article 7:669(1)(a) of the Dutch Civil Code. The UWV will consider requests for dismissal as it does in the regular course of business. However, if the employer dismisses an employee based on economic grounds with a permit from the UWV, the employer will face punitive effects on the subsidy under NOW: 150% of the salary of the dismissed employee will be deducted from the total salary costs eligible for compensation on the basis of NOW. Employers who submit a request for dismissal on economic grounds to the UWV before 18 March 2020 can avoid a penalty deduction by revoking the request during the applicable term.

Informing the works council

An employer who receives a salary subsidy on the basis of NOW must inform the works council or other employee representation about the subsidy. We advise informing the works council regularly (weekly or every two weeks) about all measures resulting from, or aiming to mitigate the effects of, the crisis. This will keep the works council up to date with all efforts the company is making in order to deal with the crisis.

Groups of companies

For the purpose of NOW, one or more subsidiaries and a parent company as defined in Article 2:24a of the Dutch Civil Code will be regarded as a group of companies. Groups need to be aware that each employer within the group will have to submit a separate request for a subsidy under NOW. It is not possible to apply for subsidies as a group. Subsidiaries containing only personnel but not generating revenue (personeels-bv's) cannot apply for a subsidy. On 22 April 2020, the Minister of Social Affairs and Employment provided a further explanation on the applicability of NOW to groups of companies. If a group company does not suffer at least 20% loss of revenue, but a subsidiary does, the subsidiary can apply for salary subsidies, subject to additional conditions. These are:

• The subsidiary in question must reach an agreement with the trade unions on the preservation of work.
• The group must commit to not paying dividend or bonuses over the year 2020 or purchasing its own shares in 2020. This restriction applies until the date of the shareholders meeting where the group's annual accounts for 2020 are to be adopted.
• Further auditing requirements should be met

The NOW subsidy for each subsidiary will be based on loss of revenue compared to the 2019 revenue and on the total salary costs of the period for which the subsidy is granted.

International implications

Internationally operating groups of companies can benefit from temporary salary compensation under NOW, with the following restrictions: First, only salaries for which the employer pays taxes and social insurance in the Netherlands (SV-loon) qualify for compensation under NOW. This means that companies established outside the Netherlands can also benefit from NOW for employees for whom they pay taxes and social insurance in the Netherlands. Second, for the purpose of establishing revenue loss, only the revenues of those Dutch and non-Dutch parts of the group with employees for whom the employer pays taxes and social insurance in the Netherlands, will be taken into consideration.

Formalities

It is no longer possible to submit a request for subsidy for the first three-month period of NOW. Employers are expected to be able to apply for a subsidy under NOW 2.0 as of 6 July 2020. Requests are submitted by way of a form that will become available on the UWV website (www.uwv.nl/werkgevers). If you have any employment-related questions during the coronavirus crisis, get in touch with our dedicated team at employment@debrauw.com or with your usual De Brauw contact.