Settlement agreements
Settlement agreements

Settlement agreements and redundancy

As businesses continue to reorganise, we see an increasing number of questions about settlement agreements and forced redundancy. Evaluating settlement agreements is more complex for internationals who, in addition to their employment must also consider the impact of redundancy on their residence rights. Here are some of the key points for attention and top tips.

Terminating an employment contract through the court/UWV is time-consuming and expensive for employers. Therefore, many employers who need to reorganise their company will try to minimise dismissals by using an alternative process called termination by mutual consent. This is where the settlement agreement comes in.

Termination by mutual consent

In this process, employers ask selected employees if they are willing to terminate their employment voluntarily in exchange for a predefined package: a settlement agreement. This package can deviate from standard employment law, and may offer additional pay or benefits.

Interested employees are offered the settlement agreement and if they accept the offer, their employment will be terminated by mutual consent. Employees who decline will continue their employment without change.

If insufficient employees accept, the employer may move to forced redundancy.

Forced redundancy

In a forced redundancy, your job ceases to exist. You therefore cannot choose to remain in your job (unless you can prove that the employer has not fulfilled their legal obligations or has not met the legal grounds for dismissal).

If the employer can prove that they indeed have economic reasons which make the reorganisation necessary, and they can prove that it is you who should be leaving and not someone else (due to the reflection principle) and they can also prove that you cannot be relocated within the company/group, then you are left with only two options:

1 – Take the settlement package and leave the company

2 – Be made redundant via UWV proceedings and dismissal via notice thereafter and leave the company.

If the employer offers you a settlement agreement during forced redundancy, your choices are to accept the offer and give up your job, or to decline and wait to be made redundant and dismissed according to standard employment law.

Critically, you cannot continue in your employment unless you can prove that a reorganisation is not necessary, and that it is not you but someone else who should be leaving (due to the reflection principle) and that there are actually other vacancies in which you could be relocated within the company/group.

Consent

While your choices may be limited, consent is key. Your employer cannot force you to accept a settlement agreement; as an employee, the choice is yours. However, you should be aware that if you reject the settlement agreement, the employer can still go to the courts and request termination, so you could still lose your job – but without any of the additional benefits detailed in the settlement package.
If your employer threatens, bullies, coerces or otherwise demands that you accept a settlement agreement for forced redundancy, contact a lawyer for legal advice.

Consider carefully

The settlement agreement (or termination agreement) is a legal contract which contains all the conditions for the dismissal/termination of employment. These can include the termination date, notice period, garden leave and post-contractual conditions such as confidentiality and non-competition clauses. It also contains the financial conditions, such as payment of outstanding salary, vacation days, company shares, options, bonuses and pensions, transitional allowance and/or any additional severance payments, golden handshakes, or other incentives that the employer is offering.

To make an informed decision, you need to thoroughly understand the contents of the settlement agreement. This means weighing up the benefits and risks of the company’s offer compared to redundancy via UWV proceedings, while taking into account what losing your job will mean for your residence rights.

Due to how complex this assessment is, many employers offer a budget to seek professional legal advice. An employment lawyer can assess how all these factors come together in your specific situation and provide customised advice.

Top tips

  1. If you want to negotiate a point in a settlement agreement, do so before signing. When you sign, you legally commit to all the conditions it contains.
  2. If you sign a settlement agreement and then change your mind, you can withdraw your consent within 14 days. You do not have to give a reason.
  3. If your employer offers a legal budget, use it to seek legal advice.

Have you been offered a settlement agreement?

Our team of employment law experts can assist and advise you in English. Call us on 070 3615048 or submit your question via our online form.