Compensation Systems and the Role of the Works Council: An Important Ruling for Entrepreneurs

In the recent ruling of the Rotterdam District Court (ECLI:NL:RBROT:2025:15750), an important issue regarding the authority of the Works Council (OR) in relation to changes in remuneration systems was addressed. This case has far-reaching implications for entrepreneurs dealing with Works Councils. In this blog post, we summarize the essence of this ruling and discuss what this decision means for entrepreneurs and their organizations.

The essence of the case

The case revolved around a conflict between the Works Council of a company and management regarding changes in the employee remuneration system. The OR argued that the changes were null and void because no consent was sought, which is required by the Works Councils Act (WOR) for proposals relating to fundamental employment terms. However, the court determined that the management's decisions were not subject to consent, as the changes did not fundamentally affect the remuneration system but only its implementation.

Factual background

In this case, [the respondent] was the Dutch branch of an international company, [company X], that operates globally. Employees had a remuneration system based on individual performance, which led to annual salary increases depending on their performance. This system consisted of two main components: the 'Merit Pay Policy' and additional bonus programs.

Due to a decrease in revenue, the company was forced to reduce costs. This resulted in the decision not to grant salary increases for the fiscal year 2024. The company announced that the salary increase for 2025 would be brought forward, but this did not alleviate the OR's concerns about the legality of the decisions made.

Key findings of the court

The court ruled that OR consent is necessary for decisions to alter a remuneration system, but it defined 'remuneration system' in a strict sense. Changes that only pertain to the method of calculating remuneration but do not affect the ranking within those remunerations do not fall under this. This is a crucial distinction for entrepreneurs to keep in mind. It means that not every small change in remuneration entails a requirement for consent.

Practical implications for entrepreneurs

For entrepreneurs, this ruling provides important insights. It broadens the possibilities for implementing changes to the remuneration system without always requiring approval from the OR. Especially in times of financial pressure, such as now in the aftermath of the pandemic and other economic challenges, this can help entrepreneurs operate more flexibly.

However, it is crucial that entrepreneurs always communicate effectively with their employees and the OR about such changes. The risk of losing goodwill is significant if employees feel they are not involved in changes that directly affect their compensation.

Moreover, an entrepreneur must always carefully weigh the legal implications of changes in remuneration schemes. It is essential to understand the difference between what requires consent and what does not.

Impact on the relationship with the Works Council

The ruling will undoubtedly influence the dynamics between entrepreneurs and their Works Councils. As the consent requirement for many changes has been lifted, it is possible that the OR has less influence over remuneration issues. This could lead to tensions if employees feel that their interests are not adequately represented. Therefore, it is advisable for entrepreneurs to actively maintain the relationship with the OR.

Conclusion

This ruling underscores the importance of a good understanding of the WOR and the rights and obligations of the Works Council and entrepreneurs. It presents opportunities for entrepreneurs but also carries responsibilities. A well-managed remuneration system can have a positive effect on employee motivation and loyalty, which is crucial at this time.

Take the time to regularly review your remuneration systems and associated procedures, and ensure that you always remain in dialogue with your employees.

It is important that entrepreneurs understand not only the legal aspects but also the impact of their decisions on the workplace. By being transparent and engaged, dissatisfaction among employees and the OR can be minimized.

Ruling

This blog post is based on ECLI:NL:RBROT:2025:15750.