In Dutch labour law, a termination agreement is also referred to as a settlement agreement or a seperation agreement. It all the same.
When to offer a termination agreement
If your employer proposes that the employment contract will be terminated, he can offer you a termination agreement. This document has been drawn up by their lawyer or their HR department, so it is always wise to let your own lawyer check this.
UWV procedure or a termination agreement?
For example, your employer may want to reorganize or has to cut costs and therefore fire employees. It could also be that you have been ill for 2 years or longer.
In both situations, an employer can request permission from the UWV to terminate the employment, but usually he first offers to terminate the employment by offering a termination agreement.
For the rest of the situations, such as if you don’t get along anymore, if you shouldn’t function properly, you call in sick too many times etc., your employer must go to court to request to end the contract. These cases cannot be handled by the UWV. But you can also offer a settlement agreement for these circumstances.
Fired on the spot
Even if your employer initially fired you with immediate effect, it is still possible to discuss whether the employer withdraws this and still offers a termination agreement.
Both parties can also decide in labour mediation that they do not want to continue the employment. This is also known as exit mediation. In this case, you can also simply draw a neutral settlement agreement for the both of you.
I am sick but still want to quit
If you have been ill for 2 years or more as an employee and there is no prospect of a full recovery in the next 6 months, you can simply sign a settlement agreement. It’s not prohibited to end the labour contract in that situation. In that case you are also entitled to the transition payment.
The most important circumstance under which you shouldn’t sign a termination agreement, is if you are sick when your labour contract ends. (Thus within the 2 years I mentioned above). Because then you have a great risk that you will not receive any unemployment benefit, nor will you receive a WIA, ZW or IOW (sickness) benefit! You are only entitled to unemployment benefits if you are fit for work at the end of the termination date. In other words, you must be able to go to work when your labour contract ends. If you are still sick, you cannot work. So you are not entitled to unemployment (or sickness) benefits.
But then I can still apply for ZW, WIA or IOW (sickness) benefits?
Unfortunately, you cannot apply. Because only a “healthy” employee is allowed to sign a termination agreement and still be entitled to unemployment benefits. But as a sick employee you are not allowed to sign a termination agreement. Otherwise you are committing a so-called prejudicial act (so called benadelingshandeling). The penalty for this is that you will not receive any benefits (except perhaps a minimum of social assistance benefits). This is a big risk and it is therefore a big problem.
Are there any exceptions if I’m a sick employee?
Suppose there is a disagreement with your employer which results in a labour conflict. This might have (also) caused a burnout. You sometimes get even more sick at the idea that you have to reintegrate with this same employer. If your recovery is threatened or limited because you remain employed with this employer, you might be able to sign in a settlement agreement. But never do this on your own, always consult a specialized employment lawyer in advance, because there is a huge risk that you will be denied any social benefits. In that situation you could also think about alternative solutions, such as a 2nd track reintegration (reintegration with another employer, while you still formally remain employed by the current employer). I wrote an article about this as well.
I am sick, but already reintegrating
It is best to keep working for this employer until you are fully recovered. Only when you are recoverd, then you can sign a termination agreement. But if you are almost completely reintegrated and have almost completely recovered, you could already participate in a settlement agreement under certain circumstances. Then there must be a very good chance that you will be completely better when your contract ends. You will have to discuss this with the company doctor or your specialist.
But do realize that if your planning was too optimistic and the recovery takes a little longer than you had anticipated and your contract ends while you are still sick, you are still not entitled to any unemployment of sickness (like WW/WIA, IOW or ZW) benefits. So the risk lies entirely with you as an employee! Therefore you should always discuss this with a specialized employment lawyer in advance. He will be able to advice you about the risks of your specific situation so you can make a good decision. You have a lot to lose.
The purpose of a termination agreement
Confirmation of what you agreed upon
A termination agreement has two purposes. On one hand, this contract contains all the clauses that you have agreed upon with your employer. So you know exactly what you both have to stick to. And if one of you does not hold up his end of the bargain, you can easily go to court and demand that the other will live up to the termination agreement.
On the other hand, you also need a termination agreement if you want to apply for an unemployment benefit. The UWV checks whether all requirements set out in the Unemployment Insurance Act have been met. After all, it is important that you will receive an unemployment benefit once your contract has ended.
I always explicitly point out to my clients that I can never give a guarantee about receiving an unemployment benefit. There is a very good chance that you will receive unemployment benefits if all the necessary conditions are listed in the settlement agreement. But I can never guarantee it, because the final decision lies with the UWV. I explain at the bottom of the document what must be listed to receive an unemployment benefit.
Which things are wise to list and mention in a termination agreement?
First of all, you must record the personal details of the employer and the employee, including the date you started your employment and your current salary. That is to avoid any discussions with your employer or the UWV about how much you must get paid. This amount is also the basis of the Transition Fee. Moreover, make sure that you do not forget the holiday allowance or a thirteenth month or all other kinds of bonuses.
The date when the employment contract will end is very important. The notice must be given by the end of the month and the employer must hold on to the notice period that applies. This means that if an agreement were reached on, for example, March 3 and a notice period of 2 months applies, the employment could have ended on June 1 at the earliest possible date. If you were to leave the employment earlier, you would not receive unemployment benefits until 1 June. If you want to know which notice period is correct, read this in my article about the notice period. You can of course negotiate about the notice period, so that you can stay employed longer.
The Transition fee is also referred to as a termination payment or severance payment. The Transition fee is the legal minimum of 1/3 monthly gross salary for each year you worked there. If you would agree upon a different amount, this is called a termination fee.
If the employer terminates the employment, as an employee are entitled to the legal minimum transition fee. You can of course agree upon a different amount than the transition fee in a termination agreement. Which means in theory that you can settle for a lower amount, but usually you have to think of a higher amount. But to be quite frank, normally you will only receive the minimum legal amount, not a penny more.
And when will you receive the compensation? Is that immediately when the employment ends, or only a month later?
Leave the company sooner than the notice period
Sometimes you are lucky and you’ll find another job sooner than you anticipated. You might even still be employed by your old employer. And of course you just want to quit your job, but still receive your transition fee. And maybe even (part of) the salary you would otherwise have received. You can also negotiate about this. An example.
Suppose you sign the settlement agreement on March 18. And would retire on July 1. You will be exempted from work as of 1 April. What if you would find another job as of May 1. In that case, you can already agree in the settlement agreement that you will still receive part of your salary AND your transition allowance for the months in which you leave employment earlier. In this example, you would then receive part of your salary for the months of May and June, in addition to your full transition fee.
Please realize that you will be taxed on the severance fee in the highest tax range, so you will have to pay almost 50% tax on it. Unfortunately, you cannot prevent that.
Assume that if there is an objective reason for termination, the employer will usually offer the normal transition fee. Because if he would offer less, it would be better for you to go to the UWV or go to court. Your employer wants to prevent this, because it costs extra time and therefore money. That is why the transition payment is almost always offered. This could be different if the employer believes that the employee can be blamed for his behaviour.
You can also negotiate to see if you can get a higher transition fee yourself or you can let me negotiate for you. Unfortunately, this is almost impossible. Especially if there is a major reorganization with a Social Plan (that has been approved by the trade union). Then the offer applies to everyone and is the same for everyone. And employers are not easily prepared to make an exception for some employees. But in all other cases, you can always ask. Nothing ventured, nothing gained.
Let a lawyer negotiate
My experience is that if an employee tries to negotiate himself, it rarely pays off. Once the name of a lawyer appears under your counter proposal, this can open some opportunities. Why is this? We can often put our finger on the legal sore spot and negotiate a better deal. This of course depends on the circumstances of your situation, how long have you been employed and what is going on.
You can imagine that it’s harder to negotiate if you have been working somewhere for only 6 months than if you have been working there for 20 years. And also the circumstances and reasons are very important why the employer wants to terminate the employment. Is it going to be easy for your employer to proof that your contract should be terminated (f.E. you are sick and all the legal rules have been applied, economic necessity is clear)? Or will your employers case probably not hold it in court? Together with you, I will make an assessment of your position and what a realistic (counter)proposal is.
Continue to work or be exempted from work (garden leave)?
You can also negotiate about whether you must continue working until the end of your employment or whether you will get garden leave for a couple of weeks or months. If you continue to receive your salary in the meantime, while you do not have to work, then this is in fact a kind of a severance payment. Garden leave might be very helpful if you want to look for another job while you are still working somewhere. Garden leave is not standard, nor is it a right, but this usually occurs in the event of a disrupted relationship, loss of work due to a reorganization or a higher (management or board) position.
You also talk about the paynment of unused holiday hours. Is your employer going to pay it completely, partially or not at all? This is directly related to the previous point. When you are on garden leave for a long time, it is customary to agree that holiday hours will be cancelled or only partially paid. Also please realize that you have to pay almost 50% tax on these hours.
The consequences of a non-competition clause can be very serious. And extremely limiting you when you are trying to find a new job. Many employees think that if the employer terminates the employment contract, the non-competition clause will automatically be null and void. Nothing is further from the truth. The non-competition clause remains. If you would want the clause to be deleted or limited in time or space, it is important that you start negotiating about it. You could also, for example, ask to convert the non-competition clause into a non-solicitation clause. If you want to read more about this, you can do so in my article.
Other minor points you can sort out include the return of the company property. For example, when does the laptop, phone or keys have to be returned? Or can you keep it, if you’ll pay for it? You can also make the same agreements about the extended use or buying of the lease car. Do you hand it over immediately when you sign the settlement agreement, or when you leave your employment? And what do you agree on about the maximum number of kilometers you are allowed to drive? And who pays any fine if the lease car is returned before the contract date ends? Or do you want to take over the car and for what amount? These can all be negotiating points. But please realize that this always will be far more expensive than you expect.
Training and outplacement
Some employers always offer this, with others you will have to ask for it if you want it. However, an employer does not have to pay for this. This may be in addition to the transition fee, but it may also be deducted from it. So discuss with your lawyer how important this is for you.
It is always advisable to let a lawyer check you termination agreement. Your lawyer can not only negotiate on your behalf, but can also explain to you which clauses are risky and what is missing. You need to know exactly what you are signing, so I always explain the content of a settlement agreement with my clients. Moreover, it is very important that you can apply for an unemployment benefit as a safety net. There shouldn’t be any risks. The legal fee – if a lawyer helps you – are almost always (partly) paid by the employer.
The compensation is usually between € 500 and € 2000 excl. VAT. This means that you usually have to pay little or nothing yourself for legal help. Also consult with your lawyer in advance whether he can give you an estimate for which he can help you. Then you will not be faced with unpleasant surprises afterwards.
Testimonials and references
You can also agree upon about a testimonial. According to the law you are entitled to a neutral testimonial, but you can of course ask for a positive testimonial. The same applies to references.
A very important last point is the final discharge. This stipulation means that the termination agreements contains all the clauses how to end your contract. You cannot claim anything if it’s not included in the termination agreement. So if you forgot to ask for something, you’re out of luck. You can’t ask or demand it after you signed it. Let’s give you an example.
Suppose you have not received an annual salary increase to which you are entitled to, or you have not talked about a thirteenth month or bonus, then you are no longer entitled to this once you signed the termination agreement. This also means for the employer that he may not deduct payments from the final statement if you didn’t agree upon this. It is a protection for both parties that everything that you know exactly what you are entitled to.
14 days reflection period
The termination agreement should state that you can withdraw a signed settlement agreement within fourteen days. Legally this is called the right to withdraw. You can simply do this in a mail or letter, even without giving a reason why. If you do this, the termination agreement will be null and void and the employment contract will continue to exist. Please realize that if you were on garden leave, your employer will deduct these days from your holidays, etc.
Suppose the employer did not explicitly mention this reflection period in the termination agreement, then you will get an extra long protection period, because in that case the reflection period will be extended with one week and will be a total of three weeks.
I have already started this article by explaining that a termination agreement has two purposes. The first reason is to write down all the clauses that both parties agree upon. The second reason is to apply for an unemployment benefit as a safety measurement. This requires a number of additional stipulations. These points are “translations” of requirements that are stated explicitly in the Dutch Unemployment Insurance Act. Because these points are often not entirely true to the actual circumstances, employees often ask me about this. That in itself does not matter, it is simply necessary to be able to apply for an unemployment benefit.
First of all, it must be explicitly stated that the employer takes the initiative to terminate the employment.
In addition, the reason why the employment contract is terminated must also be stated. You can think of, for example, economical reasons or a disturbed employment relationship that cannot be blamed (solely) on the employee. It is simply important that the UWV can check that you have not given an urgent reason as a result of which you actually caused the instant dismissal.
It must also state that there is no longer any possibility of reassignment within the company and that the parties have looked for a solution besides a termination agreement.
The correct notice period is of course important for you, but also for the UWV. Because if this wouldn’t be correct and you were to leave employment too early, your unemployment benefit would be reduced or would start later. I have already explained that above and in my article about this.
Fixed-term or temporary contract
Just one last comment. I have already warned about the risks if you are a sick employee, that in principle you should not cooperate in signing a termination agreement.
I issue a similar warning if you are employed on the basis of a fixed-term employment contract. If you want to know what this is, I explain it in this article.
The biggest advantage of a temporary contract is (for example for 1 year) that both parties have the certainty that it will last for this period (i.e. 1 year). You are not allowed to end it earlier (e.g. after 8 months). Because if you would do this nevertheless and you would leave your employment after 8 months with a termination agreement, you would have a major problem. In this example, you will not receive an unemployment benefit for 4 months! You are only entitled to an unemployment benefit if 1 year has passed and the temporary contract would have ended anyway.
Only one exception to this rule is possible. And that is if the fixed-term contract states that it can be terminated prematurely. If this is written down and agreed upon, you may end the contract earlier (e.g. with 8 months), but you still must observe the correct notice period.
I have tried to explain what should be written down in a settlement agreement. With something this important, I would ALWAYS advise you to consult a lawyer. You may otherwise miss out on money because we are very good at negotiating. It is also possible that important things are lacking in the agreement, which will cause you troubles later on. But it is also very important that you can apply for unemployment benefits just to be on the safe side. And for that you need an employment lawyer. Don’t be penny wise and pound foolish, especially because employers normally pay a (large) part of the costs.
If you nevertheless decide to sign a settlement agreement without obtaining legal advice from me as an employment lawyer, you cannot derive any rights from my article or base a claim on it. This piece is by no means intended to be complete. I just want to explain why certain clauses are written down in your termination agreement. So hopefully this can prepare you better if you will consult a specialised labour lawyer. The following disclaimer therefore applies fully to this article.