A fixed-term employment contract cannot be terminated before reaching the end date without an interim termination clause. The interim termination clause must be agreed upon in writing in the employment contract or in the collective labour agreement.
It regularly occurs that an interim termination clause in a fixed-term employment contract is missing, while the employee and employer want to terminate the employment contract prematurely. If aninterim termination clause has not been agreed upon, the termination is not legally valid. The terminating party, both employer and employee, can then become liable for compensation. In addition, this jeopardises the entitlement to unemployment benefits; the UWV (Employee Insurance Agency) wants to prevent dismissed employees from relying unnecessarily on unemployment benefits and can therefore refuse the application.
But what if the employer and employee agree on the termination and make mutual agreements in that regard ? The employment contract is then terminated by mutual consent with a termination agreement, and there is no formal notice of termination. The parties are therefore not obliged to take the notice period into account. Also in these situations, it is a risk for the employee to agree to the termination of its employment contract for a definite period. If no written interim termination clause has been agreed upon, the UWV only grants the employee unemployment benefits from the end date of the original fixed-term employment contract.
Freedom of contract
There seems to be a solution to this problem in case law, so that the employee who agrees to premature termination of their contract can still receive unemployment benefits.
An employee was employed on the basis of a fixed-term employment contract up to and including May 6, 2020. At some point, the parties entered into a termination agreement. In the termination agreement, they agreed that the employment contract would end on December 31, 2019. Initially, the employment contract did not include an interim termination clause.
The employee then applied for unemployment benefits. The UWV decided that the employee could not receive unemployment benefits until 6 May 2020, because the parties had a fixed-term employment contract which could not be prematurely terminated. According to the UWV, the right to unemployment benefits would also not start earlier if the parties include a termination clause in the employment contract when the employment contract is terminated.
The court ruled in favour of the employee. An employment contract – including those for a definite period of time – can be adjusted gradually, for example by including an interim termination clause. According to the court, agreeing an interim termination clause upon termination of the employment contract does not preclude unemployment benefits. The employer and employee have freedom of contract.
To be certain, include it in the employment contract
In the above ruling, the court ruled in favour of the employee. Despite the fact that an early termination option had not been agreed in the employment contract, this did not stand in the way of unemployment benefits, according to the court. This can be a solution for the situation in which you have not agreed an interim termination clause, but still want to terminate the employment contract earlier. However, not including an interim termination clause in the fixed-term employment contract is still risky. The ruling discussed is ‘only’ a ruling and is open to appeal. The outcome could be different in an appeal procedure.
To avoid unnecessary discussions, it is advisable to include an interim termination clause in a fixed-term employment contract just to be on safe side, even if you think you have found a suitable employee.
If there is no interim termination option included, we advise to see whether consultation is possible and include an interim termination clause in the termination agreement.
Do you have a question? Please feel free to contact me.
Amsterdam District Court 11 August 2021, ECLI (abbreviated): 4295.
This article previously appeared in Rendement.