Settlement agreement

When an employer and employee wish to terminate an employment contract by mutual agreement, arrangements must be made. These arrangements are recorded in a settlement agreement, also known as a termination agreement. What should you pay attention to when negotiating a settlement agreement, and what can GMW lawyers do for you?

What is a settlement agreement?

A settlement agreement is a legal document in which the reasons and conditions for the dismissal are recorded. This includes aspects such as the end date, the severance payment, and other arrangements, such as exemption from work, taking vacation days, and reimbursement for legal costs. Often, agreements regarding a reference letter, confidentiality, and the return of company property are also documented. Finally, a settlement agreement usually contains a clause about full and final discharge, meaning that both parties have no further claims against each other after the agreement is executed.

When is a settlement agreement appropriate?

A settlement agreement is only suitable when the employer and employee agree on the dismissal. The employment contract then ends by mutual consent, for example, in cases of reorganization, two years of incapacity for work, or a difference of opinion. The latter can relate to various situations, such as work related conflicts, underperformance, or misconduct by the employee.

If the employer and employee do not agree on the dismissal, a settlement agreement cannot be used. In practice, negotiations often occur, for example, if the employee agrees to the dismissal on the condition of a higher severance payment or a longer notice period. If the parties cannot reach an agreement, the employer may approach the UWV (Employee Insurance Agency) or the court for dismissal.

A settlement agreement is also not necessary if the employee resigns voluntarily.

What should you pay attention to?

It is important to pay attention to several matters. If the employee wishes to claim unemployment benefits, the reason for the dismissal must be included in the agreement. There should be no urgent reason or dismissal prohibition, and this must also be documented in the settlement agreement. Additionally, it is crucial that the correct notice period is observed, as the employee is only entitled to benefits after this period has elapsed. This is also known as the “fictitious notice period.”

Another important point is that the employee has a fourteen-day reflection period after signing the settlement agreement. The employer must inform the employee of this. Therefore, it is wise to include this period in the agreement.

Furthermore, it is essential that all agreements between the employer and employee are included in the settlement agreement. This prevents the need for changes later, which may require further negotiations.

What can GMW lawyers do for you?

GMW lawyers have extensive experience in drafting and reviewing settlement agreements, both for employers and employees. We can advise you on your situation and, if desired, negotiate on your behalf regarding the content of the agreement. Our experience shows that many dismissal cases can be resolved by mutual consent. Usually, a settlement agreement is the most efficient and cost-effective way to end a dispute and focus on the future.

For advice and custom solutions you can contact one of the labor lawyers at GMW at +31 (0)70 3615048.