- What is a Dutch settlement agreement
- What do I need to consider when signing a settlement agreement? Our Checklist
- Dismissal: employer’s initiative
- Neutral grounds for dismissal
- No urgent reason
- Notice period UWV
- Transitional compensation, severance pay
- Continued payment without obligation to work
- Non-competition or relationship clause
- Training costs
- Letter of recommendation
- Final discharge, final arrangement
- Reflection period
- The 30% ruling and tax
- Highly skilled migrants and residence rights
- Negotiate a better deal on your settlement agreement
- Questions about settlement agreements in The Netherlands?
What is a Dutch settlement agreement
According to Dutch Labour Law, a settlement agreement (‘vaststellingsovereenkomst’; section 7:900 of the DutchCivil Code) is the result of negotiation or a way of settling an employment dispute. A settlement agreement can also be offered in the event of redundancy or a reorganization. With a settlement agreement, the employee (or civil servant) in The Netherlands agrees to the dismissal and to terminate the employment agreement (job) by mutual consent. The employer and employee agree, by mutual consent, in the settlement agreement on how to separate. Permission from the Dutch subdistrict court (court procedure; unsatisfactory performance or conflict) or the UWV (economic reasons such as reorganizations or employee’s long-term incapacity to work) is then no longer necessary.
However, if the employee becomes unemployed, the UWV (Employee Insurance Agency; the employment and benefits authorities of The Netherlands) will assess the content of the settlement agreement with regard to Dutch unemployment benefits.
What do I need to consider when signing a settlement agreement? Our Checklist
Our Amsterdam lawyers are specializing in dismissal and settlement agreements. We receive lots of questions from employers and employees, such as expats residing in the Netherlands, about settlement agreements or termination agreements. Dutch law gives employees fairly extensive job security. Statutory rules apply to such agreements. So you need to record the terms of the dismissal in a contract: a written settlement agreement. What should a separation agreement contain when you give up your job? What are the terms of the dismissal?
Dismissal: employer’s initiative
The settlement agreement should be concluded at the initiative of your employer.
Neutral grounds for dismissal
Neutral grounds for the agreed exit from the business. The employer should indicate the reason for the dismissal. This reason must be formulated in such a way that it allows you to receive unemployment benefits. This could be, for example, business economics or a difference of opinion.
No urgent reason
The contract must not state that the employer dismisses you for an urgent reason.
Reason for dismissal: Is the reason for the dismissal a difference of opinion, long-term illness or economic reasons?
Notice period UWV
Compliance with the notice period (fictitious notice period). The contract must state that you will continue to be paid in full (salary and fixed components) during the notice period applicable to your employer. Even if you are exempted from work. This means that you do not have to work until the end of your employment contract. If the settlement agreement does not take into account the fictitious notice period, the UWV will decide that the employee will not receive any payment over the notice period. The minimal notice period is one month.
If you are ill, in most cases it is wise not to agree to the settlement agreement. If you do agree to the dismissal, the UWV will see it as a disadvantage and will not pay the sickness benefit. In that case, the unemployment benefit will also be refused.
Transitional compensation, severance pay
If you have worked for an employer you can negotiate a transition payment: transition payment, a statutory severance payment. An employee is entitled to the transitional compensation from the first day of employment.
Continued payment without obligation to work
The settlement agreement may state that you will be paid from the date of signing until the end of the applicable notice period without being obliged to work. This means that you are exempt from the work, so you do not have to work.
Non-competition or relationship clause
If your employment contract contains a non-competition clause, it is wise to have it recorded in your settlement agreement that you are no longer bound by it. This way you are not restricted when you start applying for new work.
No settlement of training costs. If you have received training at your boss’ expense and you have concluded a training agreement with your employer, which includes agreements on the repayment or settlement of training costs, have the settlement agreement include a statement that your employer will not receive any money back from you.
Letter of recommendation
Positive Recommendation Letter. Ask your employer for a positive certificate.
No negative statements about each other.
Accrual of pension. At the end of the employment contract, the accrual of pension stops. Sometimes you can still continue to accrue pension on a voluntary basis.
Final discharge, final arrangement
It can be agreed with the employer that after signing the settlement agreement, the parties can no longer demand anything from each other. It is therefore important that during the negotiations, clear agreements are made about the payment of, for example, salary and vacation days.
After signing the settlement agreement, the employee is granted a two week reflection period, during which the employee may retract his/her consent.
The 30% ruling and tax
For international employees: the 30% ruling (30% of wages tax-free) for extraterritorial costs ends when the employee is put on garden leave (before the termination date); the 30% ruling is only applicable during active months. The 30% ruling is not applicable to severance pay.
Employers may need to pay a lot of tax on a severance pay or options that an employee may still exercise or on severance pay that qualifies as pre-pension.
Highly skilled migrants and residence rights
A highly skilled migrant permit is a residence permit that is dependent on an employment situation. Dutch Immigration law provides for a three-month search period which allows an (highly skilled) expat to search for a new job, if the duration of the permit allows this. A settlement agreement does not mean culpable termination. An employer has to notify the Immigration and Naturalisation Services (IND) of a contract termination within four weeks. If an expat is not able to get a new job within three months (that matches the requirements of the permit) with another employer who is an IND recognized sponsor, the residence permit will be withdrawn.
Negotiate a better deal on your settlement agreement
Do you want to negotiate a better deal on your settlement agreement? Ask for a few days to think about the proposed severance package and obtain legal advice. The employer will almost always offer a financial contribution to the legal costs. Our dedicated Amsterdam employment solicitors are on hand to help.
Questions about settlement agreements in The Netherlands?
An employee ultimately does not have to agree and sign. Need assistance with a settlement negotiation or the agreement process? If you have any questions about settlement agreements, you can always contact Paul Snijders or Krystle Aaron-de Bies in Amsterdam, specialists in Dutch employment law and civil servants law. We will work within your employer’s contribution to legal fees so that you are not out of pocket.