Draw up a good settlement agreement

If the employer and employee wish to terminate the employment contract (or if one party wishes to do so unilaterally), they can enter into consultation to discuss the possibilities for a mutual agreement. They may decide to agree on the dismissal by mutual consent and to record the agreements made in a settlement agreement.

What is a settlement agreement?

A settlement agreement (VSO) is a written agreement between employer and employee to terminate the employment contract by mutual consent. It offers both parties the opportunity to make clear agreements about the terms of departure, without the need for formal dismissal. For you as an entrepreneur, this can be an efficient way to part ways with an employee in a dignified manner.

Why choose a settlement agreement?

A settlement agreement offers several advantages:

1. Quick solution: You can terminate the employment contract more quickly than through an official dismissal procedure.
2. Prevents legal problems: By making agreements together, you avoid conflicts and lengthy procedures.
3. Customised agreements: You can make specific agreements that suit the situation, such as severance pay or the end date.
4. Peace of mind and clarity: Both parties know where they stand because everything is laid down in writing.

Dismissal in the event of a disrupted working relationship

Dismissal by means of a termination agreement is usually preferred by employers. This avoids the often costly and time-consuming process of going to the subdistrict court or starting dismissal proceedings via the UWV, but there are also advantages for employees. In practice, this method of terminating an employment contract is usually chosen when there is a disrupted working relationship. In this situation, the employer and employee agree that terminating the employment contract is the best solution for both parties.

A settlement agreement is also regularly used in the case of dismissal due to long-term incapacity for work. After the expiry of the statutory notice period, after a period of 104 weeks, the parties may choose to terminate the employment contract in this way. In the case of dismissal after two years of illness, the employee’s long-term incapacity for work is considered grounds for termination.

Advantages of a settlement agreement for the employer

In a settlement agreement, both parties lay down agreements on the termination of the employment contract. These agreements are usually drawn up after the employer and employee have conducted settlement negotiations. This concerns, for example, an agreement on a possible severance payment or lump sum, the reason for the dismissal and the date of dismissal.

By opting for dismissal by mutual consent, both parties agree to the termination of the employment contract. This prevents the need to initiate a lengthy and costly process before the subdistrict court or the UWV. In addition, this agreement offers the employer the possibility of dismissing an employee even if not all the conditions for dismissal are met.

Conditions for dismissal by mutual consent

An employer and employee can decide in consultation to terminate their working relationship. This method of terminating an employment contract is called dismissal by mutual consent. In this situation, both parties waive the right to dismissal proceedings. The employer and employee make agreements together about the dismissal of the employee. These agreements are laid down in the settlement agreement, also known as a termination agreement.

In the case of termination by mutual consent, it is essential that the employee’s dismissal is initiated by the employer. This allows the employee to retain their right to unemployment benefits. It is also important that the employee agrees to the termination of the employment contract and that both parties agree on the financial settlement of the dismissal.

Notice period and cooling-off period for the employee

The agreement must state that the employee has a minimum cooling-off period of two weeks. If this is not stated, the cooling-off period is automatically three weeks. During the cooling-off period, the employee has the right to reconsider the signed settlement agreement. If an employee changes their mind, they must provide the employer with a written statement that they wish to terminate the signed settlement agreement and that the employment contract has not been terminated.

What should you include in the settlement agreement?

The drafting of a settlement agreement is subject to the laws and regulations of the Civil Code. This means that the agreement must contain a number of mandatory elements. The following points 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 pay
• The duration of the (possible) notice period
• Agreements on exemption from work for the employee
• Provisions on non-competition clauses and/or confidentiality clauses
• The employee has two weeks to consider the agreement

In addition to the mandatory components of the settlement agreement, there are also a number of agreements that can be useful additions. Examples of additional agreements that parties make with regard to dismissal include the number of vacation days included in the agreement, agreements about company property, a possible non-competition clause, and the employer’s commitment to provide a positive reference.

Employee’s right to unemployment benefits

One of the most important elements with regard to the employee’s right to unemployment benefits is that the agreement must state that the employee took the initiative for the dismissal. This means that the employer proposes the dismissal. In addition, there must be no urgent reason for summary dismissal. An urgent reason is a very serious situation that could lead to the dismissal of the employee, such as theft, refusal to work (without good reason), criminal behaviour and breach of confidentiality.

Transition payment is not mandatory

When drawing up a settlement agreement for the termination of an employment contract, the employer is not obliged to pay a transition payment. However, the employer and employee may agree on a transition payment. This severance payment may be as high as the statutory transition payment, but it may also be agreed 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 route to dismissal avoids going to the subdistrict court or the intervention of the UWV, in practice it is common for employers to opt to pay a higher severance payment.

Notice period

In the settlement agreement, the employer and employee specify the date on which the employment contract will end. The statutory notice period must always be taken into account. This means that the period from the moment the termination agreement is signed to the date on which the employment contract ends must be 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?

Termination by means of a settlement agreement or termination agreement not only offers advantages for the employer, but can also be a sensible decision for the employee. By concluding a termination agreement, the employee does not have to resign themselves and is therefore not culpably unemployed, which is important when applying for unemployment benefits. However, the employee’s departure must be carefully worded in the agreement. The UWV assesses the employee’s unemployment benefit application on the basis of the settlement agreement. Another advantage for employees is that they can negotiate the terms of their dismissal themselves.

What happens if the employee does not agree to the proposed settlement agreement?

If the employee does not agree to the proposed settlement agreement, the employment contract remains in force and there is therefore no dismissal by mutual consent.

Can agreements in a settlement agreement be changed later?

In principle, agreements in a settlement agreement cannot simply be changed unilaterally. The settlement agreement is specifically intended to definitively settle legal disputes or uncertainties and is therefore binding. Only if both parties — employer and employee — agree can the agreements made be amended retrospectively. In exceptional cases, such as error, fraud or abuse of circumstances, a party may attempt to have the agreement annulled or revised by the court. In practice, it is therefore important to carefully review the content of a settlement agreement in advance, so that both parties know where they stand and subsequent discussions are avoided.

Have the settlement agreement checked

Given the various conditions and legal obligations that apply to drawing up a settlement agreement, it is wise to have the termination agreement checked by a solicitor. Do you want to dismiss an employee? At Fruytier Lawyers in Business, you can have a settlement agreement checked. A specialist solicitor will check, among other things, whether the agreement complies with 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 law solicitors.

Authors: Employment law solicitors Judy Sliepen and Myrddin van Westendorp