There are different ways in which a labour agreement could end in the Netherlands.
An example thereof is the settlement agreement, which is nowadays (even more) preferred by the Dutch courts to end a legal dispute between employers and employees. One benefit of the settlement agreement is that is (usually) less costly than a court procedure because parties can negotiate themselves on the terms of the ending of the labour agreement and/or let a lawyer review the contract.
But what is a settlement agreement exactly? How does the process work? And what should you look out for before signing it? In this blog we provide you with clear and concise answers to these questions.
What is a settlement agreement?
A settlement agreement is considered as a type of contract in the Netherlands. There are all sorts of settlement agreements, including one for the termination of labour agreements. A settlement agreement cannot always be concluded. It is, for example, not possible to agree upon future rights without an existing dispute, for instance: “employee waives all future rights to unemployment benefits” or “employee by means of a settlement agreement”. It is also legally not possible to conclude a settlement agreement about rights that do not belong to the parties themselves. For example, pension rights administered by a pension fund cannot be waived or altered in a settlement agreement by an employee and an employer.
How do parties come to a settlement agreement?
In most cases, the employer will take the initiative and send a proposal for a settlement agreement. When the proposal has been sent, the employee has the opportunity to react and propose their own terms. Negotiations can go back and forth until parties agree upon the terms and conditions in the settlement agreement. When an agreement has been reached definitively, both parties are legally bound by it. In the event you want to draft a settlement agreement, our lawyers at Amice Advocaten can assist you in that regard. Our lawyers can also review the settlement agreement and support you in the negotiations.
What are the advantages of a settlement agreement in comparison with a (legal) dismissal procedure?
- Control Over the Terms of Departure
The employee and the employer have the opportunity to negotiate the terms of the termination, including financial compensation, the termination date, and additional benefits such as outplacement services or a reference letter.
- Avoidance of Unilateral Dismissal
Entering into a settlement agreement allows you as an employee to avoid being dismissed unilaterally, which can often be more confrontational and lead to (costly) legal proceedings.
- Eligibility for Unemployment Benefits (WW-uitkering)
If the settlement agreement is carefully drafted — explicitly stating that the termination occurred at the employer’s initiative and not due to employee fault — the employee remains eligible for unemployment benefits (WW) from the Dutch Employee Insurance Agency (UWV).
- Possibility of Additional Compensation
Beyond the statutory transition payment, you may negotiate an extra severance payment or other financial arrangements.
- Preservation of Reputation and References
A settlement agreement typically includes agreements on the content of reference letters and the way in which the employer will communicate the departure internally and externally, thereby protecting the employee’s reputation.
- Legal Certainty and Closure
By mutually agreeing on the end of the employment relationship, both parties avoid further disputes. This provides the employee with legal certainty and a clear path forward, including the option to focus on new employment opportunities.
- Possibility to Involve Legal Counsel
It is common, and often encouraged, for the employee to seek independent legal advice before signing the agreement. In many cases, the employer agrees to reimburse (part of) the employee’s legal costs.
Can I refuse to sign a settlement agreement?
Yes, as an employee, you may refuse to sign. The reason is because a settlement agreement is first and foremost a contract under that falls under the general civils laws of the Netherlands. Concluding a contract is based on the principle of freedom of contract.
What are the caveats?
As an employee, there are several points of attention that you must consider before signing a settlement agreement. If you want to be eligible for unemployment benefits, it is important that there is no urgent reason for a summary dismissal on the employee’s side. Besides that, there are other points that must be addressed properly in the settlement agreement if you want to successfully apply for unemployment benefits. For the purposes of this blog post, we will not discuss them further but we will inform you of two other caveats which are relevant for knowledge migrants.
If you are a knowledge migrant and you sign a settlement agreement, you would lose your rights under the 30%-ruling in case you are on garden leave starting from the signing date of the settlement agreement. Lastly, it is important to be aware of the expiry date of your residence permit if you are (in the process of) concluding a settlement agreement. We explain this by using the case of Mr. A as an example.
Mr A holds a highly skilled migrant visa which shall expire on 31 Dec 2025. However, both his employer and he have reached a settlement agreement to terminate the labor agreement. If the termination date of the labor agreement is:
- 31 July 2025: Mr. A will have three-month search period until 31 Oct 2025
- 30 Nov 2025: Mr. A will only have one-month search period as his visa ends on 31 Dec 2025
- 31 Dec 2025: Mr. A will have no search period at all.
As such, a settlement agreement may be the favoured approach by the Dutch courts (and the parties) in dismissal procedures but it does require expert knowledge and a good understanding of your legal interests as an employee. It is therefore recommended to assign a legal professional when you receive a settlement proposal from your employer.
A settlement agreement is a legal way in which parties can terminate a labour agreement, without involving the court and/or the UWV. It is a preferred method by the Dutch courts to end a legal dispute between an employer and an employee. This type of settlement agreements is concluded on the basis of Dutch Contract Law and Dutch Labour Law. Our team of legal professionals at Amice Advocaten has up-to-date knowledge on and experience with both legal areas. If you received a settlement proposal or if you want help with drafting one, please do not hesitate to contact our law firm.
You can reach us on our telephone number 030 2300 230 or via our e-mail at: info@amice-advocaten.nl