Concluding a settlement agreement is the most common way to terminate an employment contract. It is therefore important for you as an employer to be aware of the rules that apply to this termination route. As an employer, you must ensure that the employee knows what they are agreeing to before the settlement agreement is signed. They must receive correct information about the consequences that the termination will have. If you fail to do this as an employer, you run the risk that the settlement agreement will be declared (partially) invalid afterwards, as evidenced by a recent ruling.
What happened?
The employee had been employed by a family business since 2014. In March 2022, she reached agreement with her employer on a termination agreement and left employment that same month. Subsequently, the employee received notice from the UWV that she was only entitled to unemployment benefits from June 1, 2022, because the UWV takes into account the (fictitious) notice period for the start date of unemployment benefits. During the intervening period, the employee received no unemployment benefits, because the notice period of two months should have been observed, and therefore no salary either.
Subsequently, the employee went to court and requested annulment of the settlement agreement due to mistake and/or abuse of circumstances.
Court ruling
Agreements that have been concluded under the influence of mistake and that would not have been concluded with a correct representation of the facts are voidable. The court concludes that the employer incorrectly informed the employee about the start date of unemployment benefits. Prior to signing the settlement agreement, the employee asked the employer whether she would receive unemployment benefits immediately, which the employer answered affirmatively. The employer did not know that the employee would only be entitled to unemployment benefits after June 1, 2022. There was a mistake on this point.
The court did not find it necessary to annul the entire settlement agreement. The court considers it likely that the employee would have agreed to an end date of June 1, 2022 with correct information, therefore the court proceeds to partial annulment of the settlement agreement. The end date is set at June 1, 2022 and the employer must pay the salary for the intervening period.
Conclusion and practical tips
The above ruling shows that it is important to correctly inform the employee about the main consequences of a termination, such as the start date of any unemployment benefits. Many employers solve this by enabling the employee to obtain legal advice on the content and conditions of the settlement agreement, at the employer’s expense. If you approach it this way as an employer, then an appeal to mistake or abuse of circumstances afterwards will be much more difficult. After all, the employee has had the opportunity to be assisted by a professional.
It is possible to terminate the employment contract (by means of a settlement agreement) without observing the notice period. Important in that case is to inform the employee about this, this can be done for example by including a provision about this in the settlement agreement from which this explicitly follows and pointing out to the employee the consequences of this agreement.
