Settlement agreement (employment exit agreement) according to Dutch Law
A settlement agreement terminates a Dutch employment agreement. Our Dutch lawyers Labour and Employment Law in Amsterdam, The Netherlands, are specialist employment solicitor, advising foreign employees and expats on Dutch Labour Law and settlement agreements:
- Compromise Agreement,
- Employment Exit Agreement,
- Employment Separation Agreement or Termination Agreement).
Amsterdam Law firm WS specializes in Labour and Employment law.
The Amsterdam team of specialist Dutch Employment Law Solicitors have a vast amount of experience in advising expats on all Dutch (redundancy) situations.
Settlement agreement, termination agreement or exit agreement in Amsterdam
In many cases a mutual agreement to end the employment relationship with a termination agreement (exit package or compromise agreement) or court settlement is reached in or out of court.
A settlement agreement means that both parties have reached an amicable end to the working relationship. It is a legally binding agreement between employer and employee. The termination of employment relationships by a termination agreement is required to be in written form to be valid.
Settlement agreements are offered in The Netherlands to employees when they are being made redundant and in case of involuntarily unemployment.
The settlement agreement outlines the terms of the deal. Our independent Amsterdam Employment Solicitor (attorney) can assist you with your termination agreement to terminate your employment agreement by mutual consent.
Unemployment benefits according to Dutch Labour Law
In order to receive unemployment benefits under the Dutch Unemployment Insurance Act (WW), the employee must be involuntarily unemployed. Since 2006, the unemployment benefits will be granted by the Employee Insurance Agency of The Netherlands, UWV (Employee Insurance Agency), as long as the employment agreement is:
- not terminated based on urgent reasons (if the employee is grossly to blame for the dismissal)
- on request of the employer.
We recommend that employer and employee lay down their mutual consent about the termination in a valid settlement agreement to obtain unemployment benefits. A provision is a.o. that the settlement agreement is drafted properly, and that the correct notice time applicable for the employer is taken into consideration.
Dutch Employment Law and statutory notice period in The Netherlands
The employer must observe the applicable notice period when terminating the employment relationship. If not, problems may arise if the employee applies for Dutch unemployment benefits. The period of notice depends on the duration of the employee’s employment and is as follows:
- 1 month if the employment lasted less than 5 years;
- 2 months if the employment lasted 5 years or longer but shorter than 10 years;
- 3 months if the employment lasted 10 years or longer but shorter than 15 years;
- 4 months if the employment lasted 15 years or longer.
The duration of the period of notice is often stated in the labour agreement. In a written labour agreement the parties concerned can make an exception to the above rules.
The maximum duration of unemployment benefits (36 months) in The Netherlands will be gradually shortened between January 1, 2016 and April 1, 2019 up to a maximum of 24 months.
Transition compensation and severance payment in The Netherlands
An important provision in the Dutch settlement agreement relates to the so called transition compensation (statutory severance payment, redundancy compensation or dismissal compensation). The transition compensation should compensate employees for their loss of earnings and costs such as costs for scholing or outplacement. This is available to all employees who have an employment contract that lasted for two years ore more. The amount of a transition compensation is calculated using a formula based on:
- how long the employee has worked for the employer;
- monthly pay.
Maximum legal severance payment
The transition payment is calculated on the basis of the current gross monthly salary, length of service and age.The transition payment is capped at € 83,000, unless the employee’s salary exceeds that amount. Our Dutch attorney in Amsterdam can calculate your transition compensation (financial package).
If our legal expert advises that the money offered is insufficient, we will negotiate on your behalf to ensure a fair compensation is paid. The transition compensation is considered to be wage subject to wage tax/national insurance contributions and the income-related healthcare insurance contribution.
Settlement agreement solicitors: negotiations and legal advice on termination agreement for expats
Some employers will be prepared to pay more than just the statutory severance payment in case of a settlement agreement. This may vary depending on the individual circumstances of the case. Outplacement costs may be deducted from the transition compensation.
A termination agreement and/or a social plan can contain the following information:
- severance pay
- voluntary departure scheme
- date of termination
- continued payment of remuneration up to the end of the employment relationship
- release from work duties
- post-contractual items
Legal expenses and termination agreement
You are entitled to legal consultation regarding your settlement agreement in order to prevent subsequent discussions and legal proceedings.
The employee may at a later stage claim that he did not fully appreciate the legal consequences of the settlement agreement. To avoid later discussion about the mutual consent of the termination, most employers offer an allowance for legal expenses.
Our Amsterdam lawyers always try to cover our fees by seeking payment from your employer rather than from you.
After signing a settlement agreement
Once the agreement is signed, an employee can not bring any employment claims against the employer in connection with the employment or its termination.
The employer has the obligation to inform the employee in written of his right to rescind the agreement within14 days from signing, without specifying his reasons. If the employer does not comply with his obligation to inform the employee, the period is extended to three weeks.
Other provisions in settlement agreements
Other provisions may include:
- secrecy clauses,
A settlement agreement will be considered as the final arrangement of all the issues between the parties in relation to the employment, since the contract prevents or limits future disputes.
The agreement will ensure finality in the ending of the relationship and will avoid a future employment dispute in court. It is a legally binding contract enforceable in a court of law.
Sickness Benefits Act in The Netherlands for expats
We do not recommended to enter into a settlement agreement when you are sick (arbeidsongeschikt). Benefits under the Dutch Sickness Benefits Act are not possible in that case.
Legal advice for employees and expats in Amsterdam
You can have your termination agreement checked by our experienced Dutch solicitor (lawyer) Employment and Labour Law in Amsterdam. Our Amsterdam lawyers will advise you fully on all the implications of signing the Settlement Agreement.
Please contact our specialised and experienced lawyer Dutch Labour and Employment Law in Amsterdam, The Netherlands, for further information about settlement agreements and termination agreements: 0031 20 5221999.
What is dismissal with a settlement agreement (VSO)?
A settlement agreement or VSO is a dismissal agreement: a way to terminate an employment contract between employer and employee by mutual consent. This often happens after a reorganization or a dispute. The settlement agreement is legally regulated and contains all components of the dismissal scheme, such as offer a voluntary departure scheme, the termination date, severance pay and final settlement.
Am I always entitled to unemployment benefit if I sign a settlement agreement?
Only if the settlement agreement meets the requirements of the Dutch UWV, you are entitled to WW (unemployment benefit) in case of involuntary dismissal. You are not allowed to be culpably unemployed, nor are you allowed to push for dismissal yourself. Also in case of illness and in case of a temporary contract you have to be careful. Finally, you must have worked as an employee for a certain period of time, at least 26 weeks before the dismissal. So first get proper legal information before you agree to regular dismissal.
Am I always entitled to severance pay in the case of a settlement agreement?
A settlement agreement is free of form, so there are no rules for it. In practice, however, it is customary for the employer, depending on the reason for the dismissal, to pay at least a severance payment, such as the transition allowance. The amount of this compensation depends on what employer and employee negotiate or agree with each other.
Contact WS Lawyers Amsterdam for advice on settlement agreements