Enterprise Chamber rules against Spotify Netherlands B.V.: decision to reorganize does require prior advice

Abridged account of the facts

Spotify is a global streaming service provider with approximately 9,000 employees. Spotify Netherlands B.V. (Spotify NL) is a Dutch subsidiary of Spotify, which has 172 permanent employees. Most Spotify NL employees work in international teams that operate globally, they mostly report to managers in other countries, and perform work that has no direct connection to the Netherlands.

On 4 December 2023, Spotify's CEO announced that approximately 17% of employees worldwide would be laid off. In a consultation held the same day between the works council (the Works Council) and the Human Resources department, the Works Council was first informed that 19 employees would be laid off at Spotify NL. The employees in question had already received a proposal to enter into a settlement agreement to terminate their employment agreements. Spotify NL informed the Works Council that no advice in the sense of article 25(1) of the Works Councils Act (WCA) would be sought. The Works Council did not agree and was of the opinion that it should have been asked for advice.

Background on the right of advice under Article 25 (1) WCA

Pursuant to Article 25 (1) (d) and (e) of the WCA, respectively, the works council must be asked for its advice on any proposed decision to "significantly reduce, expand or otherwise change the activities of the enterprise", and "significantly change the organization of the enterprise, or the distribution of powers within the enterprise."

The term "significant" (belangrijk) is not further defined in the WCA. The legislative history of Article 25 WCA does provide some guidance as to when a proposed resolution qualifies as "significant”. For example, it has been considered that what should be regarded as “significant” depends on the nature and scope of the enterprise’s activities. Also, the number of people involved in (for example) a reorganization, as well as the severity of the consequences of a particular decision, is a factor in determining the "significance" of a particular decision. The decisions must be special, not everyday decisions for the enterprise, which may have substantial consequences for the enterprise’s asset and liquidation position. Hence the advisory right does not apply insofar it regards the standard business activities in the enterprise.

With respect to decisions regarding downsizing (Article 25 (1) under d WCA), the legislator has considered that the "significance" of a downsizing depends on "the size and nature of the activities of the entire enterprise and is therefore not linked to the number of redundancies mentioned in the Collective Redundancy (Notification) Act. Even downsizing involving fewer than 20 redundancies or job cuts may well be "significant" within the meaning of Article 25(1)(d)." The Enterprise Chamber has previously ruled that the reduction of 32 FTEs out of a total workforce of 814 FTEs at a healthcare institution is substantial, and therefore the decision is significant; the discussion of the exact size of the reduction is not crucial. Even when a small service within a company is discontinued, it may be regarded as a reduction, if that service is discontinued (almost) in its entirety.

Regarding the "significant change in the enterprise" within the meaning of Article 25 (1) (e) of the WCA, it follows from case law that a decision can be considered important not only because of its direct consequences, but also (especially) because of its indirect consequences for the employees.

The decision in the present case

According to the Works Council, the reorganization decision is a decision requiring an advisory opinion pursuant to Article 25 (1) (d) or (e) of the WCA. The reorganization decision results in the forced dismissal of at least 19 of the 172 employees, which amounts to 11% of the employees. It therefore concerns a significant downsizing of the work both in terms of its scope and the seriousness of its consequences for the employees concerned, according to the Works Council. According to the Works Council, as a result of the redundancies, the working methods in part of the teams will change significantly and a number of teams will be disbanded, affecting not only the redundant workers but also significantly affecting and changing the organization of the work of the team members working in the Netherlands. All of this leads the Works Council to believe that Spotify NL should have given it a timely opportunity to render its advice on the reorganization decision. Since Spotify NL wrongfully failed to do so, according to the Works Council, it must be judged that Spotify NL could not reasonably have reached the contested decision.

Spotify NL believes that the downsizing cannot be considered a "significant downsizing" within the meaning of Article 25 (1) (d) of the WCA, nor a significant change in the organization within the meaning of Article 25 (1) (e) of the WCA. Spotify NL argues that 19 employees are being laid off, so there is no collective dismissal.  Spotify further pleads that the organizational structure of Spotify in the Netherlands is hardly changed, because – among other things – the 19 employees are divided over various teams, the positions that are declared redundant would have little or no impact on the organizational structure of Spotify in the Netherlands, and no departments are merged or split up. In conclusion, according to Spotify NL, it cannot be concluded that there is a significant change in Spotify NL's organizational structure.

The Enterprise Chamber agrees with the Works Council that there is a reorganization decision that requires the Works Council’s prior advice. The proposed dismissal of 19 of Spotify NL's 172 employees involves a significant downsizing of Spotify NL's operations. Moreover, the proposed decision has serious consequences for the 19 employees in question. Spotify NL has only provided general information about the content and consequences of the reorganization decision and has not further specified – also not in its statement of response – that only positions have been made redundant that have little to no impact on the functioning of the organization. The Enterprise Chamber therefore assumes that the reorganization decision concerns not only a significant downsizing of the work, but also a significant change in the organization of Spotify NL as referred to in Article 25 (1) (d) and (e) of the WCA.

Since it is established that the reorganization decision was not submitted to the Works Council in a timely manner, let alone that this was done in a timely manner and provided with sufficient information, the Enterprise Chamber is of the opinion that Spotify NL could not in all fairness have arrived at the decision when weighing the interests involved.

The Enterprise Chamber requires Spotify NL to revoke the reorganization decision and undo its effects and prohibits Spotify NL from taking any actions to implement the decision or parts thereof or make arrangements for them to be taken.

In practice, it is not always easy to determine whether a (proposed) reorganization qualifies as significant. This case shows that when in doubt, it is best to seek advice.