Drawing up a settlement agreement

What is a settlement agreement?

In a settlement agreement (also known as a termination agreement. ‘vaststellingsovereenkomst’ in Dutch) you and your employee both agree to end the employment contract. So, you do not dismiss the employee on the spot (immediate dismissal). You only draw up a settlement agreement when you yourself propose to terminate the employment agreement. Not when your employee resigns.

Proposal for dismissal

Clearly document that the proposal for dismissal comes from you. If you do not, your employee may not be entitled to unemployment benefits.

What is recorded in a settlement agreement?

In the agreement, you establish the conditions under which you can terminate the employment contract. This prevents a dismissal process through the Employee Insurance Agency (Uitvoeringsinstituut Werknemersverzekeringen, UWV). Also going to the subdistrict court is not necessary with a termination agreement.

You determine the content of the settlement agreement together with the employee. In any case, you must record this information:

• the name and address of the employer and the employee
• that you have proposed to terminate the employment contract, and what the reason is
• that there is no urgent reason for dismissal
• that it is a termination by mutual consent
• the date on which the employment contract ends
• the date on which you make a final settlement
• location and when you and the employee signed the agreement
• that the employee has a 2-week reflection period

If necessary, you and your employee can record additional agreements in the settlement agreement. You can find an example of an agreement (in Dutch) on UWV.nl.

Transition payment with settlement agreement

Is it your proposal to terminate the employment contract? If so, your employee may receive a transition allowance after the dismissal. In a settlement agreement, you agree on financial compensation together.

Settlement agreement during illness

There are situations in which you may not dismiss your employee. For example, when your employee is ill. You have a notice prohibition and your employee then has extra dismissal protection.

Pay attention to the notice period

You have recorded a notice period in the employment contract. This also applies when you end the working relationship with a settlement agreement. Take this into account when determining the end date.

Your employee has a 2-week reflection period

After signing, does your employee disagree with the made agreements or with the dismissal? Then they can change their mind. They must notify you in writing within 2 weeks. You can agree on a longer reflection period. You must record this 2-week reflection period in the settlement agreement. If you do not, the reflection period will be 3 weeks. A shorter refection period (or a cooling-off period) is not allowed.

Your employee does not have to agree

Your employee does not have to agree to your proposal. In that case, your employee will remain in your employment or you will start proceedings to dismiss your employee.