Draw up a good settlement agreement

An employee who wishes to terminate an employee’s employment contract unilaterally may consult with the employee about the options for parting ways by mutual agreement. This can be done by mutual agreement through a settlement agreement.

Dismissal in the event of a disrupted working relationship

Dismissal through a termination agreement is usually an employer’s preferred option. It avoids going to the subdistrict court – which is often costly and time-consuming – or starting dismissal proceedings through the UWV, but it also has advantages for employees. In practice, this method of terminating an employment contract is usually chosen when there is a disrupted employment relationship. In this situation, the employer and the employee agree that terminating the employment contract is the best solution for both parties.

A settlement agreement is also regularly discussed in cases of dismissal due to long-term disability. After the expiry of the statutory ban on notice, after a period of 104 weeks, parties may choose to terminate the employment contract via this route. In the case of dismissal after 2 years of illness, the employee’s long-term incapacity for work applies as grounds for termination.

Advantages of an employer’s settlement agreement

In a settlement agreement, both parties record agreements on the termination of the employment contract. Usually, these agreements are drawn up after employer and employee have conducted settlement negotiations. This includes, for example, an agreement on any severance pay or lump sum, the reason for the dismissal and the dismissal date.

By opting for mutual agreement dismissal, both parties agree to end the employment contract. This avoids having to start a lengthy and costly process at the cantonal court or the UWV. In addition, this agreement allows the employer to dismiss an employee while not fulfilling all dismissal conditions.

Conditions for dismissal by mutual agreement

An employer and employee can mutually decide to end the cooperation. This way of ending an employment contract is called a dismissal by mutual agreement. In this situation, both parties waive a dismissal procedure. The employer and employee make agreements about dismissing the employee together. These agreements are recorded in the settlement agreement, also called a termination agreement.

In a dismissal by mutual agreement, the main point is that the dismissal of the employee takes place at the initiative of the employer. As a result, the employee retains the right to an unemployment benefit. It is also important that the employee agrees to the termination of the employment contract and that both parties jointly agree on the financial settlement of the dismissal.

Notice period and employee reflection period

The agreement must state that the employee has at least two weeks’ notice. If this mention is missing, the reflection period is automatically three weeks. During the reflection period, the employee has the right to go back on the signed settlement agreement. When an employee reconsiders, the employee must declare to the employer in writing that he or she wishes to rescind the signed settlement agreement and the employment contract is not terminated.

What does the settlement agreement contain?

Drafting a settlement agreement is bound by the laws and regulations of the Civil Code. This means that there must be a number of mandatory sections in the agreement. The following items must be included in the termination agreement:

• The reason for the dismissal;
• A statement that there is no urgent reason for the dismissal;
• The date on which the employment contract ends;
• The date on which the final settlement takes place;
• The agreed severance payment;
• The length of the (possible) notice period;
• Agreements on the exemption from work for employees;
• Provisions on non-competition and/or confidentiality clauses;
• The employee’s two-week reflection period.

Besides the mandatory parts of the settlement agreement, there are also a number of agreements that may constitute useful additions. Examples of additional agreements that parties make with regard to the dismissal include the number of holiday days to be included in the agreement, agreements on company property, a possible non-competition clause and the commitment of a positive certificate from the employer.

Right to an unemployment benefit employee

One of the most important elements for the purpose of the employee’s right to WW benefit is that the agreement must state that the employee initiated the dismissal. This means that the employer proposed the dismissal. In addition, there must not be an urgent reason for summary dismissal. An urgent reason is a very serious situation that could lead to the dismissal of the employee, think of theft, work refusal (without good reason), criminal behaviour and breach of the duty of confidentiality.

Severance pay is not mandatory

When drawing up a settlement agreement to terminate an employment contract, the employer is not obliged to pay a transition fee. However, employer and employee can agree on a transition compensation. This severance payment may be as high as the statutory transitional compensation, but they may also agree to pay a lower or higher severance payment.

The amount of the severance payment depends on the number of years the employee has been employed by the company and the employee’s gross monthly salary. Because this dismissal route avoids going to the subdistrict court or the intervention of the UWV, in practice it regularly happens that employees choose to pay a higher severance payment.

Notice period

In the settlement agreement, employer and employee lay down the date on which the employment contract ends. Here, the statutory notice period must always be taken into account. This means that the period from the moment the termination agreement is signed and the date on which the employment contract ends is at least equal to the statutory notice period. During this period, the employer is obliged to continue paying the employee’s salary.

What are the advantages for the employee?

A dismissal through a settlement or termination agreement not only offers advantages for the employer, it can also be a wise decision for the employee. By entering into a termination agreement, the employee does not have to resign himself and is therefore not culpably unemployed, which is important when applying for unemployment benefit. However, the employee’s departure should be carefully worded in the agreement. The UWV assesses the employee’s WW claim on the basis of the settlement agreement. Another advantage for employees is that they can negotiate the terms of dismissal themselves.

Have settlement agreement checked

Given the various conditions and legal obligations that apply to drafting a settlement agreement, it is wise to have the termination agreement reviewed by a lawyer. Are you looking to dismiss an employee? At Fruytier Lawyers in Business, you can have a settlement agreement reviewed. Here, a specialized lawyer will check, among other things, whether the agreement meets all legal requirements and whether the agreements made are clear. For more information about terminating an employment contract, questions regarding dismissal law or checking a settlement agreement, please contact one of our employment lawyers.