Logo Arbeidsjurist Eindhoven


Settlement agreement during illness

Settlement agreement during illness
Settlement agreement while on sick leave? Read what to watch out for here.

If the employee is sick for more than 104 weeks (2 years) and return is no longer possible within 26 weeks, the employer can apply to the Employee Insurance agency (UWV) for a dismissal permit due to long-term illness. A settlement agreement can also be concluded. In this article, we inform about the settlement agreement in case of illness.

Settlement agreement in case of illness

If the employee signs a settlement agreement during the first 104 weeks (2 years) of illness, this may be seen as an act of prejudice by the Employee Insurance Agency. As a result, the employee may receive lower or no (sickness law) benefits at all. A settlement agreement can only be entered into in case of so-called situational disability.

What is situational disability? The specific job at this employer makes you unable to work. Outside this position with this employer, you are 100% fit for work. Often, situational incapacity for work has disagreements with a colleague or manager and the 'situation' is resolved by terminating the employment contract with a settlement agreement. 

Dismissal permit via Employee Insurance Agency (UWV) or settlement agreement

When the notice agreement expires after 104 weeks of illness, the employer can opt for a settlement agreement. This instead of the dismissal permit due to long-term illness. This saves the employer a lot of paperwork. The settlement agreement will set out the arrangements under which the employment contract ends. You will also be entitled to at least the transitional allowance. Sometimes employers give a little extra because the Employee Insurance Agency procedure is saved which of course costs extra time (and money). Consider a budget for outplacement and reimbursement of legal advice costs.

Dormant employment: transitional allowance

Sometimes, employers let the employment contract continue in order to avoid having to pay the transition fee to the long-term sick employee. When there is absolutely no more prospect of reintegration with the employer, the employee can force the dismissal (Supreme Court, 8 November 2019, ECLI:NL:HR:2019:1734). In this way, the employee still obtains compensation in the form of the transitional allowance. 

Compensation transitional allowance for long-term illness

After 2 years of illness, the employer can apply for a dismissal permit from the Employee Insurance Agency: this creates the right to the transitional allowance. The Compensation Transitional Allowance Scheme allows the employer to recover the transitional allowance paid. Parties may also choose to conclude a settlement agreement. The settlement agreement must then show that the long-term illness is the reason for the dismissal. We then often see the following provision in the settlement agreement:

  • that the Gatekeeper's Test has established that the Employee has been unfit for work for 104 weeks for the work agreed upon, that the Employer and the Employee, unfortunately without result, have made sufficient reintegration efforts and that reintegration of the Employee in adapted or suitable work in the company is not possible within the foreseeable future. With effect from 30 August 2021, the Employer's obligation to continue paying wages lapsed;


The compensation applies retroactively to 1 July 2015. The application must be submitted to the Employee Insurance Agency (UWV) within six months of payment.

Need advice?

Discover our recent blog articles