Settlement agreements in employment law

A good alternative to proceedings before the UWV or the subdistrict court

Dismissal proceedings take time, money and effort, and the outcome is never certain. It is therefore unsurprising that, in practice, many employers prefer speed and certainty and offer employees a settlement agreement. The employer and employee remain in control: they determine the termination date and terms themselves, the employee can move on quickly, and the employer knows where it stands.

The amount and substance of the offer depend largely on whether the employer has valid grounds for dismissal and therefore a fallback option: proceedings before the UWV or the subdistrict court. We discuss several key topics below.

Severance payment and termination date

A settlement agreement does not automatically entitle the employee to compensation. Where the employer takes the initiative, the statutory transition payment (Section 7:673 of the Dutch Civil Code) generally serves as the minimum in practice: one-third of the gross monthly salary for each year of service. The parties are, of course, free to agree on higher payments, depending on the litigation risk and the other costs arising from the settlement agreement.

Technically, an employer is not bound by the notice period (Section 7:672 of the Dutch Civil Code) when concluding a settlement agreement, but the notice period remains relevant to the employee. If the full notice period is not observed, the UWV may temporarily refuse unemployment benefits (“WW”). The parties may also agree on a longer notice period, for example to give the employee time to find other work.

Final settlement and costs

A settlement agreement must clearly set out how the final settlement will be handled. The parties therefore often make arrangements on a range of matters, such as salary up to the termination date, payment or set-off of accrued holiday entitlement and holiday allowance, a pro rata bonus, outstanding expenses, the return of company property, and arrangements concerning pension, the non-compete clause, communications about the departure, and confidentiality.

Many employers also reimburse the employee's legal fees up to a specified maximum amount, as well as the costs of an outplacement programme and/or a training budget. This may be the outcome of individual negotiations or a requirement under a social plan.

At the end of the settlement agreement, the employer and employee usually grant each other full and final discharge. This means that neither party has any further claims against the other. The parties should therefore consider whether there are any unresolved matters or ‘loose ends’ – such as a personal injury claim arising from a workplace accident – that they wish to exclude from the full and final discharge.

Reflection period

Under Section 7:670b of the Dutch Civil Code, the employee may rescind the settlement agreement within fourteen days after signing, without stating reasons. If the agreement does not mention this period, it is extended to three weeks. Please note: if the parties conclude a new settlement agreement after the employee has invoked the reflection period, no reflection period applies to that new settlement agreement.

We are happy to advise you

Every settlement agreement is unique, as is every dismissal matter. You should therefore seek proper advice before signing a settlement agreement, whether you are acting as an employer or an employee. The specialists in our Employment Law team draft and negotiate settlement agreements on a daily basis and are happy to advise you. Please feel free to contact us or subscribe to our newsletter.