More differentiation by degree of culpability required in Penalty Policy under Foreign Nationals Act

On 13 July 2022, the Administrative Law Division of the Council of State (the Council of State) (Afdeling bestuursrechtspraak van de Raad van State) ruled in an important judgment that the standard penalty amounts applied by the Minister of Social Affairs and Employment (the Minister) for violations of the Foreign Nationals Act (FNA) are unreasonable. The Council of State ruled that the Minister should revise her Policy Rules on the Imposition of Penalties under the FNA (the Penalty Policy). In the Council of State’s opinion, the Minister did not take sufficient account of the extent to which the violator can be blamed for the violation. The Council of State sees reason to make a differentiation according to the degree of culpability, including an appropriate percentage of the penalty. In this blog we explain and analyze the new case law of the Council of State. Finally, we discuss the consequences for the enforcement practice.

I. Factual background of the judgment

This case concerns a greenhouse nursery. In that greenhouse nursery, nine foreign nationals performed various production activities in horticulture between 6 July 2016 and 29 September 2016, while they were not entitled to work in the Netherlands. The greenhouse nursery thus breached the prohibition on employment under Article 2 of the FNA.

The Minister therefore decided on 18 September 2019 to impose an administrative penalty of €36,000. The Minister arrived at that amount by multiplying the standard penalty amount of €8,000 for violation of Article 2 of the FNA for legal persons (see Annex I to the 2017 Penalty Policy) by nine, because of the illegal employment of nine foreign nationals. The Minister then mitigated this penalty of €48,000 by 25%, because there was a period of more than six months between the completion of the investigation and the submission of the penalty report (currently a fixed ground for mitigation: see Article 11 in conjunction with Annex II of the 2020 Penalty Policy).

The judgment of the Council of State only deals with the question whether the Minister or the court should have seen reason to further moderate the penalty imposed.

II. Judgment of the Council of State

Unlike in the past, the Council of State ruled that the standard amounts of penalties in the Minister's 2017 Penalty Policy are unreasonable. According to the Council of State, the standard penalty amounts in the 2017 Penalty Policy insufficiently reflect the degree of culpability of the violation. As a result, the Minister does not give an employer sufficient opportunity to successfully invoke grounds for exemption and mitigation. The Council of State considers it undesirable that a mala fide employer that intentionally violates the FNA receives the same penalty as a non-mala fide employer that violates the FNA once as a result of inattention. Also in view of Article 5:46(2) of the General Administrative Law Act (GALA), the Minister must establish a system that sufficiently reflects the extent to which the violation can be attributed to the violator.

The Council of State sees reason to make a differentiation according to the degree of culpability, including an appropriate percentage of the penalty:

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This differentiation made by the Council of State aligns with the degree of culpability set out in the Social Security Penalty Decree (Boetebesluit socialezekerheidswetten) and the Civic Integration Decree 2021 (Besluit inburgering 2021).

The Council of State found that, in principle, normal culpability may be assumed in cases of violation of the FNA.

III. Analysis of new case law

In accordance with policy, in most cases the Minister imposed the full 100% of the standard penalty amount on violators of the FNA, even where there was clearly no question of intent or gross negligence (see, for example, ABRvS 30 September 2020, ECLI:NL:RVS:2020:2323). Until recently, the Council of State considered this approach reasonable. With this judgment, however, the Council of State has taken a new direction and (seven years later) has sought to follow the line of case law of the Central Appeals Tribunal (CAT) (Centrale Raad van Beroep). The CAT already ruled that a penalty policy that does not differentiate according to culpability is disproportionate:

• On 24 November 2014, the CAT ruled that the Minister had to differentiate according to culpability for penalties in social security that had been drastically increased by the Social Affairs and Employment (Stricter Enforcement and Sanctions) regulations (ECLI:NL:CRVB:2014:3754).
• On 2 December 2020, the CAT ruled that the Minister did not sufficiently differentiate according to the degree of culpability of the violation in the Penalty Policy for violations of the Placement of Personnel by Intermediaries Act (Wet Allocatie arbeidskrachten door intermediairs) (ECLI:NL:CRVB:2020:2871).

In legal literature, many have long questioned whether the Penalty Policy applied by the Minister for the fining of the FNA gave sufficient opportunity for customization and it was suggested that the Minister should look for inspiration in the case law of the CAT (cf. our previous blog posts from 2015 and 2016). We therefore applaud the fact that in this judgment the Council of State finally "comes around" and rules that it expects more customization from the Minister for the imposition of penalties for violation of the FNA. The Council of State makes it clear that the Minister must present concrete facts and circumstances to prove gross negligence or fault. Moreover, this judgment offers FNA employers more possibilities to successfully rely on grounds for exclusion of liability and mitigation. This judgment is an important step towards a more responsive and reasonable fining policy of the Minister for violations of the FNA.

We do believe, however, that the differentiation made by the Council of State in this judgment is incomplete on a single point. The Council of State seeks alignment with the Social Security Penalty Decree, but does not interpret reduced culpability entirely in the same way as in that decree. Article 2a(2)(e) of the Social Security Penalty Decree offers the possibility to assume reduced culpability when circumstances considered together give reason thereto, although these circumstances, when viewed in isolation, do not give reason to do so. We are of the opinion that this should also be a basis for assuming reduced culpability for violation of the FNA.

IV. Application of differentiation to this case

For the greenhouse nursery, the new line of case law of the Council of State entails a halving of the penalty. The Council of State assumes normal culpability for the violation. In order to prevent a violation of the FNA, the greenhouse nursery should have checked at the start of the activities whether the FNA regulations had been complied with. By failing to do so, the violation of the FNA is therefore 'normally' culpable, according to the Council of State. Since there are no grounds for assuming gross negligence or intent, the Council of State considers a total penalty of €18,000 appropriate.

V. Practical significance

With the differentiation called for by the Council of State in this judgment, the Council of State puts an end to the practice of the Minister whereby the well-intentioned FNA employer that makes a mistake is lumped together with the FNA employer that knowingly and intentionally violates the FNA. The Minister can no longer simply impose the standard penalty, but will in most cases have to start with 'normal' culpability and moderate the penalty by 50%. Only if the Minister can prove gross negligence or intent may the penalty be increased.

We would like to note that this new line of case law not only applies to new cases. Because of the 'ex nunc' review, the Minister and the administrative courts must also apply this new line of case law to administrative penalties against which (i) an objection, (ii) an appeal or (iii) an appeal before the Council of State is still pending.

Finally, we await the Minister's new penalty policy with great interest. In particular, we are curious as to whether the Minister will apply the same differentiation as proposed by the Council of State in this judgment and will take the circumstances into account in connection with reduced culpability. In any event, we hope that in the new penalty policy the Minister will provide points of reference as to which circumstances indicate 'reduced culpability', 'gross negligence' or 'intent'.

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