The employment contract can be terminated at the initiative of one of the parties, but also in mutual consultation. When the parties reach agreement on the termination of the employment agreement, they will (have to) make agreements on several topics. The agreement reached can be laid down in an “ordinary” agreement, but often a special agreement is chosen, namely: the settlement agreement.
The negotiations between the parties
Negotiations between parties usually start with a proposal from the employer. The negotiating position of the parties depends, among other things, on (1) their legal position (if the employer has a good file, his position is stronger and vice versa) and (2) the extent to which they want to terminate the employment contract (if the employee would like to leave, his negotiating position is less strong than if the employment contract can also continue as far as he is concerned).
The agreement must be laid down in writing
Under the law, the agreement terminating the employment contract is only valid if it has been laid down in writing. The oral agreement is therefore not sufficient and not binding. By the way, the question is anyway whether and, if so, how it could be proven that oral agreement was reached, let alone what its content is.
If the agreement is concluded digitally, this is in principle seen as a written record. This does not only apply if the agreement is confirmed by e-mail. A binding agreement to terminate the employment agreement can also be concluded via social media, such as WhatsApp.
The latter can be deduced, inter alia, from the decision of the cantonal judge of Haarlem of February 18, 2020. Although the judge ruled in that judgment that no agreement had been reached in that matter, from his reasoning can be deduced that he was of the opinion that in principle, agreement could have been reached via WhatsApp about the ending of the employment contract. He does namely not conclude that no agreement has been reached on the ground that communication took place via WhatsApp, but since the employee had clearly not unambiguously agreed to the termination of the employment contract. The cantonal judge took into account that the employee had made the necessary reservations in WhatsApp traffic.
Topics in the settlement agreement
Since the settlement agreement puts an end to the employment contract, it is important to regulate all (potentially) discussions between the parties in it. After all, the parties generally do not want to have anything to do with each other afterwards. Common topics include:
Securing unemployment benefits
As a rule, the employee will want to safeguard his entitlement to unemployment benefits as much as possible. Although an employer cannot provide guarantees about this (the UWV decides on this), parties can (positively) influence the chances for the employee. In view of this, a “neutral” ground for termination is generally included in the agreement. Business economic circumstances of the employer and a difference of opinion about the way in which the position should be performed are probably the most common grounds for termination in a settlement agreement. In addition, it is wise to emphasize that the termination is not attributable to the employee, more specifically that the employee is not accused of behavior that would justify dismissal at instance.
The end date
The second issue on which the parties will generally have to agree on is the end date. This is the date on which the employment contract will end.
If the employee wishes to apply for unemployment benefit (WW) after the end date, it is important to take into account the notice period of the employer when determining the end date. The UWV takes this “fictitious” notice period into account when determining the commencement date of the unemployment benefit.
The termination fee
The amount of the termination fee
When the employment contract ends at the initiative of the employer, the employee is in principle entitled to the transition allowance (transitievergoeding). The method of calculation is laid down in the law. In brief, this (pro rata) is 1/3 of the month’s salary for each year of service worked. Only in exceptional circumstances a judge may deviate from this.
During the negotiations, the parties are in no way bound by (the calculation method of) the transition allowance. They may therefore deviate from this to the extent they wish, to the benefit of both the employer and the employee. In practise (however) a connection is often sought with (the calculation method of) the transition allowance. This provides the parties with tools in those negotiations.
The moment of payment of the termination allowance
The amount of the termination allowance is usually negotiated in detail. On the other hand, the moment of payment is often hardly (if not) considered. For many parties (both employers and employees) it is self-evident that the severance payment is paid four weeks or one month after the termination date. If both parties agree, it is of course not necessary to negotiate (extensive) about this.
However, payment of the entire amount in one installment is not an obligation. If the liquidity position of the employer does not allow this, but also in other situations, it is possible to make a payment arrangement. However, as soon as the employer starts talking about payment in terms, he should be aware that the employee will often react with suspicion. After all, due to such spread payments, the risk for the employee increases that the employer will at some point be unable to meet its payment obligations. This prospect is particularly unattractive if the employer already announces (in advance) that his financial position is not good anyway. Some form of security can then be an option.
Vacation days & exemption from work
Vacation days that have not been taken on the end date must be paid out by the employer. Especially when the employee has a reservoir of holiday hours, this can represent serious amounts. In order to save costs, it can then be beneficial for the employer that the employee takes the vacation days prior to the end date. To motivate the employee to agree to this, the employee is often offered that he is then exempted from performing work in return. An additional advantage for the employer may be that in that case the employee cannot cause unrest at the workplace.
Such an exemption can also offer advantages for employees. Besides the fact that an exemption from work gives the employee free time, he also gets time to orientate himself on the job market and to apply for a job.
An outplacement and/or training budget
After the end date, the employee will generally want (and must) continue elsewhere in the labor market. This is possible as an employee, but also as a self-employed person (zzp-er). This can be an uncertain period, especially when the employee has not applied for a job for a long time. An outplacement program can then be an interesting option.
Many employees will consider themselves immediately available for the labor market. They know what they want and are convinced that they have the necessary education and experience. This may be different for other employees. If it has been a long time since they have completed training, or if they want to make a career move, they may need education.
If the employer wants to support the employee in this, he can decide to offer an outplacement and/or training budget. If the employer does not offer this on its own initiative, the employee can request it.
A contribution towards the legal costs
Most employees do not have much experience with drafting and checking a termination agreement. Engaging good legal support is therefore very wise. After all, the interests (including securing unemployment benefits) are high. Unless the employee has legal insurance, there will be costs associated with this support.
In many cases, the employer is prepared to provide the employee with a contribution towards the costs of legal assistance. It can also be beneficial for employers if the employee receives good assistance. This often simplifies and speeds up the negotiations. Assuming that the employer has formulated a realistic proposal, the employee’s legal adviser will be able to confirm this. In any case, the employee will then be more aware of his (real) legal position, which leads in general to a more realistic attitude.
Returning company property
Many employees are in possession of property of their employer. The first thing that often comes to mind is the lease car, the company telephone and the business laptop. It must be agreed whether the employee must hand these in (and, if so, on which date), or whether he may keep it (whether or not for a fee).
But (company-sensitive) files (on paper and/or digital) can also form a relevant topic of the negotiations. After all, it is undesirable for the employer that an (upcoming former) employee keeps such (business-sensitive) files, without knowing what he or she will do with them.
However, “returning” property can also work the other way around. After all, an employee may have parked and/or stored goods at his employer, or have lent such items to his employer. In addition, many employees will like to take personal (digital) files – which they have stored on the employer’s computer network or collected in their business e-mail address, for example – or want to copy them.
A certificate and/or references
Under the law, employees are entitled to a neutral drafted certificate (getuigschrift). In many cases, however, the employer is willing to provide a positive statement and positive references.
Communication towards colleagues, business relations and third parties
Surprisingly often, an employee does not care how his departure is communicated to his colleagues, the business relations of the employer and (other) third parties. He does inform the colleagues with whom he has a good relationship (if they do not already know this); the others he may never meet again.
This may be different for other employees. In view of (among other things) their reputation, they may have an interest in having their departure communicated in a specific way. But employers can also have an interest in clear communication by the employer and the employee. In those cases, it may be wise to make specific agreements about this.
Confidentiality about the content of the agreement
Employers do not always have a strong negotiating position when they want to terminate an employment agreement. This often leads to a higher severance payment for the employee. In general, the employer will want to prevent this from becoming known within the organization (with other employees). Otherwise, the employer runs the risk that other employees will (try to) take advantage of this in a given case. To prevent such situations, employers often stipulate that the employee may not provide information about the content of the agreement to third parties (including colleagues), whether or not linked to a fine.
In many cases, the parties have already made agreements in the employment contract for the period after the employment contract has been terminated. Think of the non-competition clause, the relationship clause, the study costs clause and/or the confidentiality clause. Since these provisions take effect at the moment the employment contract has ended, they are referred to as post-contractual provisions.
If the parties do not arrange anything about this, such provisions will remain in full force after the end date. After all, that was the will of the parties (when entering into the employment contract). However, new agreements are regularly made about this in the termination agreement. For example, employers frequently waive a non-compete clause, or this is converted into a relationship clause.
The reflection period
Under the law, the employee is entitled to a reflection period of 14 days, from the moment that agreement is reached on the settlement agreement. The employer must inform the employee about this reflection period in the settlement agreement. If the employer forgets or fails to do so, the reflection period is three weeks.
Dissolution and nullification
If one of the parties fails to fulfil an obligation under an agreement, the other party may under certain circumstances be entitled to dissolve (ontbinden) the agreement. This is subject to the condition that the defaulting contract partner is in default.
However, ending a termination agreement can be an undesirable scenario. Then the employment contract is revived. Most parties will generally not want that.
For this reason, the possibility of dissolution is often excluded. Unless the parties agree on specific penalty provisions, the sanction for violations in such a case is, in principle, the obligation to compensate the other party for the damage.
Sometimes one of the parties finds out afterwards that he made a wrong assumption when concluding the termination agreement. Then there could be aberration (dwaling). In that case the agreement can be voidable (vernietigbaar). In in the event of nullification, the employment contract is revived, which the parties – as mentioned – often do not consider desirable. In view of this, the right to nullification is (also) often waived.
Reasonableness and fairness prevail
Although the parties may in principle exclude dissolution and annulment, reasonableness and fairness may in certain circumstances bring with them that the parties cannot invoke that clause. This may be the case, for example, if it later transpires that the employee was seriously ill at the time of signing.
The termination agreement is generally intended to bring an end to all legal relationships between the parties. For this reason, it is usually agreed that the parties will have nothing more to claim from each other after implementation (handling) of all agreements made. They then grant each other full and final discharge.
If the parties cannot reach agreement on all points of dispute between them, they may decide to explicitly exclude specific discussions from the final discharge. In this way parties can conclude parts of the debate, while they can reserve their rights (including starting a procedure) with regard to other discussions.
Settlement agreement (vaststellingsovereenkomst) or not
The termination agreement is, in the basis, an “ordinary” agreement. All rules of Dutch law (including the statutory protection provisions) therefore always apply in principle.
During the negotiations, it will often not be (completely) clear to the parties how the judge would settle their dispute if it was submitted to him. With the agreement they want to end that uncertainty (ambiguity), without the judge having to rule on it. In order to end this uncertainty, and to prevent future disputes, the parties can “establish” the existing legal relationship between them. The agreement in which this is laid down is called a settlement agreement (vaststellingsovereenkomst), which in Dutch is often abbreviated to VSO.
Since at such a moment it is a conscious choice of the parties to establish the legal relationship, they cannot (easily) change their mind (afterwards). To that extent, parties are bound by a settlement agreement in more cases (and “longer”) than by an “ordinary” agreement. If the parties want to exclude the possibilities of dissolution and/or annulment as much as possible, they would be wise to qualify the termination agreement as a settlement agreement, although reasonableness and fairness can – under certain circumstances – overrule the party agreement.
Although the settlement agreement for the termination of the employment agreement is, thus, always a termination agreement, a termination agreement is not by definition a settlement agreement. In daily practice these terms are often incorrectly used interchangeably. Since it can make a substantial difference (in case of disputes, afterwards) whether the parties have entered into a settlement agreement or an “ordinary” termination agreement, the parties would be well advised to consider carefully how they wish to qualify the agreement and to record this properly.
The temporary employment agreement
Unless the parties have agreed an early termination option in the employment contract for a definite period, the employer cannot terminate the employment contract prematurely. If in such a case the employee agrees to the termination of the employment contract by mutual agreement, the UWV considers this to be an act of detriment (benadelingshandeling). An unemployment benefit will then be refused.
Thanks to the freedom of contract, such an early termination option can be agreed not only at the start of the employment contract, but also at a later date. In its judgment of 11 August 2021, the administrative court of the Amsterdam District Court ruled that such a clause can even be agreed in the termination agreement.
The sick employee
During the first 104 weeks of the employee’s illness, the employer is prohibited from giving notice. During that period, the employee is not free to agree to the termination of the employment agreement. If he does, that qualifies as an act of detriment (benadelingshandeling) towards the UWV. For that reason, unemployment or sickness benefits will be refused. As a result, an employee cannot agree to the termination of the employment agreement during the first 104 weeks of his illness, even if he wanted to.
Frequently, at any time, it can be stated with the necessary certainty when the employee will have recovered. In those cases, it is regularly agreed to terminate the employment agreement as of that date (or shortly afterwards). It is then important for the employee that he actually reports recovered prior to the end date.
Under the law, government employers and employers in education are self-insurers with regard to the unemployment benefits (WW). As self-insurer for unemployment benefits, these employers pay the costs of unemployment benefits themselves when their employees become unemployed. The employee will then receive the benefit from the UWV, but the UWV will pass on the associated costs to the employer. On the other hand, these employers do not have to pay unemployment insurance contributions to the UWV prior to the termination date (ie during the term of the employment contract).
It is of little use to such employers to terminate the employment contract if the employee subsequently claims unemployment benefits. After all, then the employer’s costs will remain substantial, while there are no longer any activities of the employee (wage value) in return. For that reason, these employers sometimes try to get the employee to waive his entitlement to unemployment benefits in exchange for a higher severance payment. In other cases they try to transfer the unemployment benefits to the UWV by having the employee temporarily employed by a “regular” employer. Both trajectories can certainly contain benefits for the employee, but he must always be well aware of the associated risks.
Do you have an employee with whom you want to terminate the employment agreement? Or has your employer communicated that he wishes to terminate the employment contract with you? Our lawyers specialized in employment law have a lot of experience in drafting and checking termination agreements. They are happy to discuss with you what they can help you with.