There are different ways in which a labor 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 labor 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 labor agreements. A settlement agreement cannot be concluded for interim matters during the employment. 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 a 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 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 à Mr. A will have three-month search period until 31 Oct 2025
30 Nov 2025 à Mr. A will only have one-month search period as his visa ends on 31 Dec 2025
31 Dec 2025 à Mr. A will have no search period at all.
As such, a settlement agreement may be the favored 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.
Conclusion
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