Difference between a settlement agreement and a termination agreement in an employment dispute

Settlement agreement and termination agreement: the difference

Bij een arbeidsconflict komen twee begrippen regelmatig voor: de settlement agreement en de beëindigingsovereenkomst. Veel mensen gebruiken ze door elkaar, maar er zijn juridische verschillen die direct gevolgen kunnen hebben voor jouw positie. Weten wat je tekent, is daarom essentieel.

Two terms, but what exactly do they mean?

In practice, both terms are often used interchangeably, and that is understandable. Nevertheless, there is a legal distinction worth knowing.

What is a termination agreement?

A termination agreement is a broader term: it is any written arrangement in which you and your employer jointly decide to end the employment contract. The emphasis is on the ending of the employment itself. The agreement sets out when the contract ends, what the notice period is, and what payment you will receive.

What is a settlement agreement?

A settlement agreement (VSO) is, in legal terms, a more specific agreement based on Article 7:900 of the Dutch Civil Code. In it, the parties record not only the end of the employment, but also all arrangements regarding uncertainties and points of dispute arising around that dismissal. Think of a conflict over outstanding wages, a dispute about a non-compete clause, or lack of clarity about the reason for leaving.

In everyday speech almost everyone calls both documents a 'settlement agreement', but strictly speaking a settlement agreement always contains an element of 'settling' points that are in dispute.

Why does it matter in an employment dispute?

In an employment dispute, there are usually several points on which the employer and employee disagree. It is precisely in such situations that choosing the correct legal form is important.

A termination agreement that purely governs the end of the employment may leave room for later disputes about outstanding matters. A settlement agreement better closes off that risk, because all points of dispute are explicitly addressed and resolved.

If you sign something that only governs the ending but fail to make arrangements regarding, for example, a bonus, travel expenses, or an outstanding wage dispute, you may find yourself facing unpleasant surprises at a later stage.

What is typically included in such an agreement in the event of a dispute?

Whether it is formally called a VSO or a termination agreement, in an employment dispute the agreement must in any case cover the following matters:

• The end date of the employment
• The reason for dismissal (preferably worded neutrally for the purposes of your unemployment benefit (WW) entitlements)
• The amount of the transition payment or any other payment
• Full and final settlement: this means that after signing, neither party can submit any further claims
• Arrangements regarding outstanding holiday days and wages
• The status of any ancillary arrangements, such as a non-compete clause or confidentiality provision
• The fourteen-day cooling-off period after signing

If any of these points is missing, that can cause problems later, particularly in connection with a WW benefit claim or any other benefit entitlement.

What name appears on the document you receive?

In practice, you will often receive a document from your employer with the title 'settlement agreement', even when the dispute is still fresh and further negotiation is genuinely required. The title therefore does not tell you everything about the content.

Always read the contents critically, regardless of the title at the top of the document. What matters is what has been agreed, not what it is called. Check that all loose ends have been tied up and that the wording at every point protects your interests.

Practical tips when you receive an agreement

• Never sign immediately: always take the fourteen-day cooling-off period seriously and use it to seek advice.
• Compare the contents with what was discussed verbally: are all the agreements actually included?
• Check the reason for dismissal: is it worded neutrally so that your entitlement to WW benefit is not at risk?
• Pay attention to the final discharge clause: make sure you understand what you are giving up before you sign.
• Ask an employment lawyer to go through the agreement, even if the document looks 'standard'.

Settlement agreement and the broader context of your rights

Whether you are dealing with a termination agreement or a settlement agreement: in both cases your rights as an employee are central. Would you like to know more about how best to protect your position in a dispute with your employer? Read more on the overview page Settlement agreement in a conflict situation: your rights and approach.

Why Employment Lawyer Eindhoven

At Arbeidsjurist Eindhoven we help employees in Eindhoven and the rest of Brabant to understand exactly what they are signing and what it means for their situation. We look not only at the name of the document, but at every clause that affects your future.

Have you received an agreement or are you in the middle of a dispute? Contact us without obligation and we will look together at what the best step is for you.

Frequently asked questions

Is a settlement agreement the same as a termination agreement?

In everyday practice the two terms are often used interchangeably, but strictly speaking a settlement agreement is more specific. A settlement agreement also resolves disputed points surrounding the dismissal, whereas a termination agreement in essence only records the end of the employment relationship.

Which agreement is better in an employment dispute?

In a dispute involving several issues, a settlement agreement offers greater certainty. All outstanding matters are explicitly settled within it, so that no disagreement about them can arise at a later stage. Have an employment lawyer assess which form is most appropriate for your situation.

Can I negotiate the content of the agreement?

Yes, absolutely. The document you receive from your employer is a proposal, not a final agreement. You can and may negotiate on the payment, the reason for dismissal, the non-compete clause, and other provisions. An employment lawyer can assist you with this.

What happens if I sign the agreement without having all points resolved?

The full and final discharge clause that is included in virtually every such agreement means you lose the right to bring any further claims at a later stage. It is therefore important that everything of concern to you is recorded before you sign. Always have the agreement reviewed if you have any doubts.

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.