Settlement agreement

Ending by mutual agreement

An employer and employee can always end their employment contract by mutual agreement. Such an agreement will be reflected in a settlement agreement. This is the most common form of ending an employment contract in the Netherlands. In this blog we will give a list of common subjects included in a settlement agreement:

The reason for ending the employment
The settlement agreement gives the reason that parties have agreed to end the employment contract. It also usually states that the settlement agreement is concluded at the initiative of the employer. This is done to prevent the employee from losing his rights to unemployment benefits.

The settlement agreement contains the date on which the employment contract will end. It is not necessary to take the notice period into account. However, to prevent  that the employee loses his right to unemployment benefits, the notice period is usually taken into account anyway.

Dismissal payment
If the employer terminates the employment agreement, he owes the employee a severance payment. Severance payment is not owed when parties end the employment contract via a settlement agreement. To move the employee to agree to the settlement agreement and save the employer work and time a dismissal payment is offered. This payment is usually equal to or higher than the severance payment.

Final discharge
Usually, a final discharge clause is included in the settlement agreement. Via this clause both parties agree that they have no other claims, rights or duties in respect to each other after signing, other than those agreed upon in the final settlement agreement. When including final discharge it is therefore very important to discuss all pending agreements and claims and include these in the settlement agreement. Anything that falls under the final discharge can no longer be claimed, not even in court.

Post contractual obligations
An employment contract may contain post contractual obligations, like a non-competition clause or a business relation clause. In the settlement agreement the employer can accommodate the employee by agreeing that the employer will not hold the employee to these post contractual obligations. This can make finding new employment easier for the employee.

Exemption from work
Parties often agree that after signing the final settlement the employee will be exempted from work. Exemption from work is not always preferable. Sometimes the employer wishes for the employee to continue working until the end date. In order to motivate the employee to do so, a bonus for continued employment may be offered. The employee is then awarded a bonus after performing his work as usual until the end date. 

Sometimes, the employee may prefer to continue working. This is of importance to expats who receive the 30%-benefit. After all, the 30%-benefit ends at the moment the employee is exempted from work. At that moment the employee has 3 months to find new employment and regain the 30%-benefit. By not agreeing to an exemption from work, the employee will postpone the loss of the 30%-benefit until the end date.

Letter of reference
An agreement concerning a letter of reference is often made in the settlement agreement as well. The employer may agree that he will give a positive letter of reference if the employee agrees to the settlement agreement. 

Unemployment benefits
The unemployment benefits have already been mentioned. To gain unemployment benefits after the end of the employment contract, the employee must not have become culpably unemployed. In light of this, the notice period should be respected, the ending of the employment should be at the initiative of the employer and the settlement agreement should be worded as such that it is clear that the employee is not to blame for the ending of the employment.

Reflection period
After signing, the employee has fourteen days to change his mind. This should be included in the settlement agreement. If it is not, the employee will have 3 weeks to change his mind.

Legal budget
Often, the employer offers a legal budget for the employee to have his settlement agreement checked by a legal expert before agreeing to it. At Wessel Van der Lans Advocaten we check and negotiate settlement agreements on a regular basis, both from employers’ and employees’ perspective.