Indefinite-term employment contract: common mistakes and pitfalls

The biggest pitfalls of an indefinite employment contract are an unplanned permanent contract via the chain rule, a void probationary period, a non-compete clause that fails, and missing out on the low unemployment insurance premium because the contract is not in writing. These mistakes often only cost an employer money at the end of the employment relationship, when rectification is no longer possible. Because a permanent contract provides strong protection against dismissal, a mistake here is more expensive than with a temporary contract. Below are the most important pitfalls and how to avoid them.

The short answer

• Unintentionally permanent: continuing to work or a fourth temporary contract automatically makes the employment permanent.
• Void probationary period: longer than two months or not in writing means no probationary period.
• Untenable non-compete clause: formulated too broadly, fails in court.
• High unemployment insurance premium: no written, signed contract costs the low premium.
• Outdated model: missing the mandatory information since August 2022.
• Collective Labour Agreement ignored: lower wages or incorrect allowances lead to back payment.

Pitfall 1: unintentionally obtaining a permanent contract via the chain rule

The most common pitfall is the chain rule (Art. 7:668a BW). After three temporary contracts, or after more than three years of consecutive temporary contracts with intervals of no more than six months, a permanent contract arises by operation of law. Anyone who tacitly allows an employee to continue working after the expiration of a temporary contract also legally has a permanent employment relationship.

Prevent this by keeping track of the chain and deciding in time: offer a permanent contract or part ways before the third contract expires. It cannot be reversed afterwards.

Pitfall 2: a void probationary period

For an indefinite contract, the probationary period may not exceed two months, must be agreed upon in writing, and be the same for both parties. A longer probationary period is not partially valid, but entirely void: in that case, no probationary period applies at all. An employer who wishes to quickly dismiss an employee in the “third month” is left empty-handed and bound by the full protection regime.

Pitfall 3: a non-compete clause that does not hold up

A non-competition clause is only valid if entered into in writing with an employee who is of legal age. However, even then, the court may moderate or annul it if it unfairly disadvantages the employee, for example due to an excessively broad geographical scope or an excessively long duration. An overly broad clause offers a false sense of security: you think you are protected, but upon leaving, it turns out to be unusable. Formulate it restrictively and specifically, or opt for a lighter non-solicitation clause.

Pitfall 4: missing out on the low unemployment insurance premium

Since the WAB, the low unemployment insurance premium applies only to a written contract for an indefinite period, signed by both parties. If the signature or the document is missing, the employer pays the higher premium, a difference of approximately five percentage points on the salary. Therefore, ensure that every permanent contract is signed and archived before the employee starts.

Pitfall 5: an outdated model

Templates from before August 2022 lack the mandatory information from the Transparent Employment Conditions Act: workplace, entitlement to training, termination procedure, and separate wage components. They also often still contain a general clause regarding ancillary activities, which since 2022 is only valid with an objective justification. Furthermore, an outdated study cost clause for mandatory training is void. Always check whether the template is up-to-date.

Pitfall 6: Ignoring the collective labor agreement and the pension fund

If the company is covered by a collective labour agreement (CLA), the contract may not deviate unfavorably from it. The employee may claim a lower wage than prescribed by the CLA with retroactive effect. The same applies to a mandatory industry-wide pension fund: registration is compulsory, regardless of what the contract states. A concrete SME example: a transport company used its own salary scale under the transport CLA and, following a notification, had to pay the difference covering two years back to several drivers.

Pitfall 7: Underestimating dismissal

Because a permanent contract offers strong protection against dismissal, taking the wrong route to dismissal is the most expensive mistake. Without reasonable grounds and without following the correct procedure (UWV or subdistrict court), termination is voidable, and in the case of a deficient file, the judge will order equitable compensation in addition to the transition payment. Therefore, build a solid personnel file from day one.

Honest recommendation

You can avoid most pitfalls yourself with an up-to-date template, maintained chain records, and a correct, signed probationary period; you do not need a lawyer for this. However, do seek assistance in matters where protection is paramount: a non-compete clause that must hold up, a collective labour agreement conflict, doubts regarding the chain rule, or the impending dismissal of a permanent employee. Especially in cases of dismissal, professional advice beforehand is cheaper than fair compensation afterwards.

Read more: employment contract for an indefinite period, drafting a permanent contract yourself , and what exactly a permanent contract is.

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