General Law of Obligations: Entering into Contracts, Termination, and Dealing with Unapproved Hours

Why this is relevant to your work

When drafting, entering into, and ending agreements, the rules of the law of obligations always apply, even if a specific agreement says nothing about this. If you don't know these basics, you risk uncertainty about when a contract is binding, how a termination should correctly proceed, and who is responsible for what in a dispute about hours.

What is an obligation and an agreement

An obligation is a duty owed by one party to another that is legally enforceable. An agreement is the most common source of obligations: parties agree on something and bind themselves to it. A few basic rules apply to the formation of an agreement:

• An agreement is formed through offer and acceptance
• Agreements are, in principle, not subject to any form requirement: verbal agreements are also binding, but the major downside is that verbal agreements are very difficult to prove
• Reasonableness and fairness supplement an agreement, even where the parties have not agreed on something

Consider a client who agrees by email to a rate and a start date. Even that can already create a binding agreement, even without a signed contract.

How do you enter into a contract

Before entering into or having a contract signed, check the following points:

• Are the parties and authority clear? Check whether the person signing is authorized to bind the organization.
• Are the essential terms recorded? Think of duration, rate, invoicing, notice period, and the result or effort to be delivered.
• Does the agreement match the actual collaboration? A contract that describes something different from what happens in practice creates legal risk, regardless of whether it concerns the provision of workers (staffing/secondment) or a statement of work.
• Is a suspensive or resolutive condition needed? For example, when a collaboration depends on an approval or screening that still needs to take place.

Always record agreements in writing, even if this is not mandatory. If you are unsure about the content or the template used, contact Contract Management or Legal before sending or having a contract signed.

How do you handle terminations

Many agreements in our industry are contracts for services (overeenkomst van opdracht) — for example, agreements with suppliers and with self-employed professionals. For these, the following applies with regard to termination:

• The client can, in principle, always terminate a contract for services, including during its term
• The contractor can, in principle, also terminate, unless the agreement was entered into for a fixed term or the nature of the agreement precludes this
• In the event of early termination, the contractor is usually entitled to compensation proportional to the work already performed, unless the end of the agreement is attributable to the contractor itself

The above applies when nothing has been recorded in writing about terminations. We, however, always make arrangements about terminations. The relevant provisions can be found in the agreements we enter into with clients and suppliers/self-employed professionals.

When processing a termination, check the following:

• Has the notice period been observed? Look at what the agreement says about this, and otherwise at what is reasonable given the nature of the collaboration. In certain cases, different notice periods may apply.
• Has the termination been confirmed in writing? Even though a verbal termination can be legally valid, you always want to record and confirm this in writing to all parties. When a client terminates, therefore, always make sure the client confirms this in writing!
• What happens to ongoing obligations? Think of work still to be performed, invoices still to be paid, and any final settlement.
• Is the termination due to breach of contract? Then stricter rules apply: a failure must be sufficiently serious to justify rescission, and usually a formal notice of default is required first, unless performance is already permanently impossible.

How to act when hours are not approved or paid

Disputes about unapproved or unpaid hours occur regularly. Proceed as follows:

• First check the underlying process. Is there an established approval process for hours, for example via a timesheet portal or client sign-off? Check whether this process was followed.
• Find out the reason for the rejection. Is it an administrative error, for example an incorrectly entered hour or rate? Or is it a substantive dispute, for example disagreement about the quality delivered or the time worked?
• Do not take independent steps toward paying out invoices from suppliers/self-employed professionals before approval has been given. If you pay out without the client's approval, you bear the risk yourself if the hours are later not recognized after all.
• Record contact with the client in writing. Ask for a substantiated response, and confirm any commitments or agreements by email.
• Escalate in time. If approval is not forthcoming, or a dispute drags on too long, report this to your manager and, if necessary, to Legal or Credit Management (and involve Finance to potentially block invoices). A claim that is due and payable can, if payment continues to be withheld, also result in interest and collection measures.
• If a client is not going to pay an invoice, it is essential that we inform the supplier/self-employed professional of this in a timely manner.

Watch out for this combination

If a contract is amended verbally during its term — for example, a different rate or a different way of working — without this being recorded in writing, there is a risk that, in the event of a later termination or a dispute about hours, it will be unclear which arrangement actually applies. Always record changes in writing, therefore, even when the original agreement does not strictly require it.

Why this is relevant to the law of obligations

The general law of obligations in the Dutch Civil Code governs when an agreement is formed, what obligations follow from it, and what the consequences of a failure to perform are. If we assess this incorrectly, the client, the professional, and HeadFirst risk:

• Disputes over whether, and under what conditions, an agreement was formed
• An incorrect or late termination, potentially giving the other party a right to damages
• Liability for unpaid hours that are later found to be owed after all, including statutory interest

How to approach this

In case of doubt, ask the following questions:

• Was an offer made and accepted, and is this recorded in writing? If not, record it after the fact.
• Has the notice period and the correct procedure been observed? If not, wait with further processing until this has been sorted out.
• Is the reason for unapproved hours an administrative error or a substantive dispute? Do not treat these two situations the same way.
• Has there already been written contact with the client about the dispute? If not, record this first before escalating further.

If you have doubts about a specific contract, a termination, or a dispute about hours, consult with your manager or the Contract Management department and, if necessary, Legal, so that the situation is correctly assessed before you take further steps.