Settlement Agreement

You get a settlement agreement when you and your employer agree on the dismissal. This is also called dismissal by “mutual agreement.” The terms of the dismissal are laid out in the settlement agreement. 90% of all dismissals are with a settlement agreement.

You can sign a settlement agreement if you are sick. However, you do run the risk of being ineligible for unemployment law benefits. If you are fit for work as of your termination date, there are options for entering into a settlement agreement. It is important to seek advice in advance before signing an agreement.

After 104 weeks of illness, the employer’s obligation to continue paying wages stops. In that case, the employer will also be able to choose to offer a settlement agreement. The alternative is to start a dismissal procedure with the UWV. Often parties mutually settle the dismissal after 104 weeks of illness with a settlement agreement.

Read more in the blog sick leave with a settlement agreement.

You can revoke a signed settlement agreement. You can do so within 14 days if the settlement agreement contains a cooling-off period. If the cooling-off period is absent from the settlement agreement, then by law you have a period of three weeks to revoke the settlement agreement.

Don’t agree to the settlement agreement? Then the employment contract will continue. You will have to perform the work and the employer will have to pay the salary. If the employer thinks he has a legitimate reason to dismiss you, for example because of dysfunction or due to bad economic circumstances, the employer may want to dismiss you unilaterally. If the UWV issues a dismissal permit or the subdistrict court grants permission then the employment contract may be terminated unilaterally. In that case, you will only be entitled to a transition allowance.

The statutory transition compensation is composed of three calculations.

• 1/3 monthly salary for all full years of service
• 1/36 monthly salary for the remaining full months of service
• 1/1095 monthly salary for the remaining days

With our calculation tool transition compensation you can easily calculate the legal transition compensation.

We always talk about gross severance pay. This is compensation including taxes. How much you will receive net -i.e. paid into your bank account- depends on the percentage of tax withheld by the employer. In principle, employers assume that your annual income is 12 times your monthly income + vacation allowance.

If this together is less than €69,398 (figures 2022), it will withhold 37.07% and if it is more than €69,398 it will withhold 49.5%. In 2023 the tax rate up to € 73,031 is a rate of 36.93% and above that 49.5%.

If the employer withholds too much or too little tax this will be reflected in the income tax return which will then result in a refund or an additional amount to be paid to the Tax Office. You can read all about the tax burden on severance pay in our blog.

You are entitled to Social Security benefits from the UWV under strict conditions if you sign a settlement agreement. If you apply for benefits, the UWV may ask for a copy of the settlement agreement. The settlement agreement must show that you are not culpably unemployed. In other words, the initiative for the dismissal must lie with the employer. It is also for this reason that the settlement agreement never includes the actual reason for the dismissal. It is often chosen to include a neutral ground for dismissal “difference of opinion about performance.” Such a ground ensures that the settlement agreement is “ww or UWV proof.”

In 80% of cases, we can achieve better terms and higher severance pay. In principle, it does not have to cost the employee anything because we will ask the employer to cover the costs. By the way, the first analysis is completely free. We can then determine together whether we can be of value.