Settlement Agreement and Employer Insolvency: What Can You Still Claim?

Settlement agreement in the event of employer insolvency

If your employer becomes insolvent while a settlement agreement is on the table or has already been signed, a great deal can change suddenly. The rules surrounding a settlement agreement do not simply apply where there is insolvency. That does not mean, however, that you are left empty-handed: there are concrete steps you can take to salvage what can be salvaged.

What changes when your employer becomes insolvent

As soon as the court declares insolvency, a liquidator is appointed. The liquidator takes over from your employer. The liquidator decides whether ongoing employment contracts are continued or terminated. In most cases, the liquidator opts for swift termination of all employment contracts, even where arrangements had already been made in a settlement agreement.

It is important to understand that insolvency takes precedence in practice over the individual arrangements you had made with your employer. Does your settlement agreement include a severance payment or transition payment? That claim then becomes part of the insolvency estate, and payment is far from certain.

Transition payment in the event of insolvency – how the law works

Article 7:673c paragraph 1 of the Dutch Civil Code regulates this explicitly: where an employer has been declared insolvent, the transition payment is no longer owed. The same applies in the case of a suspension of payments. The liquidator may therefore dismiss you without paying a statutory transition payment.

Have you already signed a settlement agreement prior to the insolvency, containing an agreed payment? In that case the situation is more nuanced. A previously concluded settlement agreement does not automatically fall within the scope of Article 7:673c of the Dutch Civil Code. The payment obligation remains in principle, but whether that payment will actually be made depends on what remains in the estate. Your claim will then have concurrent (unsecured) status, meaning that preferential creditors such as the Tax Authority and wage claims take priority.

What does the UWV wage guarantee scheme cover

Here there is good news: you are not entirely on your own. The UWV has a wage guarantee scheme for employees whose employer has become insolvent. Through this scheme, the UWV takes over a portion of the financial obligations that the employer can no longer meet.

Specifically, the wage guarantee scheme covers the following items:

• Arrears of wages for a maximum of the last 13 weeks prior to dismissal
• Wages during the notice period, up to a maximum of six weeks
• Outstanding holiday pay and accrued holiday days over a maximum of the last year
• Pension contributions over a maximum of the past year

What the UWV expressly does not pay under the wage guarantee scheme is the transition payment or any previously agreed severance payment from a settlement agreement. For those, you are relegated to the position of an unsecured creditor and must look to the liquidator.

Settlement agreement signed before the bankruptcy – what now

It can happen that you have already signed a settlement agreement and that your employer subsequently runs into financial difficulties. In that case, the agreed payment remains in principle an enforceable claim. However, because this is an unsecured claim, creditors with preferential status – such as the Tax Authority – take priority. In practice, little remains for unsecured creditors after a bankruptcy has been wound up.

It is nonetheless always worthwhile to formally submit your claim to the liquidator. Do this in writing and by recorded delivery, so that your entitlement is officially on record. The chance of payment may be small, but if you submit nothing, the chance is zero.

Impending bankruptcy and a settlement agreement offered – what should you do

Sometimes an employer offers a settlement agreement while the company is not yet officially insolvent but is in serious financial difficulty. In such a situation, caution is advisable. Signing a settlement agreement when insolvency is looming does not automatically provide greater security. In such circumstances you can also simply wait for the insolvency to occur and make a claim under the UWV wage guarantee scheme.

Has a company not yet formally filed for bankruptcy, but is it under threat? If so, there are materially different options available compared with a situation where the court has already appointed a liquidator. In such circumstances, always seek advice before signing anything.

Practical steps if your employer goes bankrupt

Not sure where to begin? This checklist will help you get started:

• Check the insolvency register (rechtspraak.nl) to confirm whether the bankruptcy has been officially declared and to find out who the liquidator is
• Gather all your documents straight away: your employment contract, pay slips, the settlement agreement, and any emails relating to agreements that were made
• Submit a recorded-delivery letter of wage claim to the liquidator, setting out all the amounts to which you are still entitled
• Apply to the UWV for your bankruptcy benefit in good time, preferably within one week of your employment contract being terminated
• If necessary, also apply for unemployment benefit (WW) once the insolvency benefit payments stop
• Have an employment lawyer review your case if there is any uncertainty about your rights or if the liquidator disputes what you are still owed

When is legal assistance truly necessary

In most insolvency situations, the steps outlined above will be sufficient. However, there are circumstances in which legal advice is not a luxury but a necessity. Consider cases where your settlement agreement (VSO) was concluded before the insolvency and the liquidator disputes the payment. Or situations where you suspect that the insolvency was deliberately engineered to avoid paying the transition payment. Abuse of insolvency law is not permitted, and in such cases additional claims may be possible.

Even if UWV does not take over your claim in full or at all, it is advisable to have your legal position assessed before simply agreeing to a lower amount.

Why Employment Lawyer Eindhoven

At Arbeidsjurist Eindhoven we know the local labour market and understand exactly how to make the most of your position in an insolvency situation. Whether you signed a settlement agreement (VSO) before the insolvency, are in the middle of an ongoing procedure, or simply want to know where you stand: we are happy to think things through with you. Contact us without obligation for an initial consultation. Together we will quickly map out your situation.

Frequently asked questions

Am I still entitled to the transition payment if my employer goes insolvent?

No, Article 7:673c paragraph 1 of the Dutch Civil Code explicitly provides that the transition payment is not owed if the employer has been declared insolvent. This also applies in the case of a suspension of payments (surseance van betaling). You may, however, make a claim under UWV's wage guarantee scheme for arrears of pay, holiday pay, and pension contributions.

I have already signed a settlement agreement (VSO) and my employer subsequently becomes insolvent. What happens to the agreed payment?

A previously concluded settlement agreement (vaststellingsovereenkomst) does not automatically fall within the exception under Article 7:673c of the Dutch Civil Code. The payment obligation remains in principle, but your payment becomes an unsecured claim against the insolvency estate. This means that creditors with a higher-ranking claim, such as the Tax Authority, are paid first. Always submit your claim in writing and by registered post to the liquidator.

What does UWV pay under the wage guarantee scheme in the event of insolvency?

Under the wage guarantee scheme, UWV takes over arrears of pay for the final 13 weeks, pay during the notice period (up to a maximum of six weeks), arrears of holiday pay and outstanding holiday days over the past year, and pension contributions for the past year. The transition payment or an agreed severance payment from a settlement agreement (VSO) is expressly not covered by this scheme.

My employer is threatening to become insolvent and is offering me a settlement agreement (VSO). Should I sign it?

Exercise caution and never sign immediately. When insolvency is threatened but has not yet been formally declared, your rights and risks are materially different from those that apply once insolvency has been completed. Signing a settlement agreement (VSO) can sometimes be advantageous, but it can also work against you if the insolvency subsequently follows. Always have your situation assessed by an employment lawyer before signing anything.

Can I still apply for unemployment benefit (WW) if I lose my job as a result of an insolvency?

Yes, that is possible. If the liquidator has terminated your employment contract, you are in principle entitled to unemployment benefit (WW), provided you meet the standard conditions such as the weeks-worked requirement. The fact that you have become unemployed as a result of a bankruptcy is not regarded as culpable unemployment. Preferably apply for unemployment benefit (WW) no later than one week after the end of your notice period.

We are happy to think along with you. For advice tailored to your situation, we would be glad to talk. No rights can be derived from the content of this page and it may contain inaccuracies.