Settlement agreement: what should you pay attention to?

Tips for assessing your settlement agreement for social security benefits. Is your settlement agreement "ww proof" and do you qualify for unemployment law benefits?

Before signing a settlement agreement, it is always important to check whether the aspects mentioned in the agreement are in accordance with the applicable rules. For example, it may be the case that there is no entitlement to unemployment benefit or sickness benefit if certain aspects are missing. This blog will give various tips on what to look out for when an employee is offered a settlement agreement.

Employer dismissal initiative

It is important that the settlement agreement includes a clause stating that the initiative for the termination lies entirely with the employer. If this is not included, the UWV may suspect that you are culpably unemployed. If you are culpably unemployed, you may lose the right to unemployment benefits.Therefore, always check whether it has been recorded in any way that the initiative for the termination lies with the employer. The text below is often used in the settlement agreement.

“The parties have decided to terminate the employment contract as of 1 June 2022, whereby the initiative for termination lies with the employer”;
“Employer states that the termination of the employment contract is not attributable to employee”;
“The employer has proposed the dismissal by means of this settlement agreement”.

If the settlement agreement clearly states that the initiative came from the employer, there is, in principle, a right to unemployment benefit. Our specialist can assess whether the agreement is “WW proof”.

The amount of the transition payment

In a settlement agreement, it is common for compensation to be offered by the employer. This is offered to make the transition to other work easier. Often the reduced income over a period of time that a lower unemployment benefit (70-75%) or a lower income with another employer is received is considered.

A good indication of this severance payment, is the transition payment. This is the compensation to which you are entitled when the UWV grants a dismissal permit or the subdistrict court gives permission for the employer to unilaterally terminate the employment contract. The amount depends on the length of the employment contract and the amount of the salary. The longer the employment and the higher the salary, the higher the transitional compensation.

The transitional compensation does not have to be paid when a settlement agreement is reached. However, this can be an indication of the amount of severance pay. If the employer and employee do not reach an agreement by means of a settlement agreement, dismissal will have to take place via the UWV or the subdistrict court. Then there is a right to the transitional compensation. If you and the employer cannot agree on the severance payment and the company still wants to get rid of you, you are entitled to the transitional compensation.

It is therefore wise not to agree to severance pay until it amounts to at least the transitional compensation. Various online tools can be used to calculate your severance pay, including our page on severance pay.

Non-competition or relationship clause

Often, a settlement agreement includes a clause that prohibits you from working for competitors within a certain period of time. This is done with the goal of preventing unfair competition. If you go to work for a competitor of your ex-employee immediately after you have finished your work, you may pass the trade secrets to the competitor. This can put the ex-employee at a great disadvantage.

In principle, it is possible to include this non-competition clause in a settlement agreement. It is also form-free, so the company may determine the conditions itself. For example, you may be allowed to work for a competitor, but not to sign up customers of the ex-employee with your new employer (non-solicitation clause).

The fact that the clause is formally free does not mean that the employer may include anything he wants. According to the law, such a clause must be reasonable. When it is reasonable is up to the judge. A non-competition clause for six months in the same city is reasonable, but for ten years that applies to the whole of the Netherlands is not reasonable. The judge will have to look at this on a case-by-case basis. If it is determined that the clause is unreasonable, it may be wholly or partially nullified.

In addition, the non-competition clause must have been agreed with an adult employee in the case of an employment contract for an indefinite period. A clause may be included in a contract for a definite period, but only if there are substantial business or service interests.

If the proposed settlement includes a non-competition clause and you are not sure whether it is reasonable, Adviesgroep Eindhoven is ready to assist and advise you.

Reason for dismissal

A settlement agreement must always include the reason for submitting it. This could be, for example, a difference of opinion or a business economic reason. There may not be an urgent reason, such as theft or discrimination. If it turns out that this is the reason for the settlement agreement, the UWV may determine that you are culpably unemployed. This may result in the loss of the right to unemployment benefits.

Exemption from work or continued employment

When a settlement agreement is offered, there are two options in performing work until the end date of the employment contract.

These are the following two:

You continue to work: the employer expects you to continue to perform the work within the company until the end of the employment contract.
You are exempted from work: you do not have to come to the company from the moment the vso is signed until the end date of the employment contract. You are therefore exempt from the work you normally perform.

It is important to always check what has been agreed in the settlement agreement, so that there are no surprises. If you are released from work, but your leave days are deemed to have been taken at the end of the employment contract, there is room for negotiation here. We are ready to negotiate for you in order to reach the most suitable settlement agreement. Please feel free to contact our office for this.

Length of statutory notice period

In the event of dismissal, the employer must take the statutory period of notice into account. If the employment contract is terminated by means of a settlement agreement, this notice period does not formally apply. However, the UWV states that the “fictitious notice period” should be taken into account for the right to unemployment benefits. During this period, you are entitled to continued payment of wages.

In order to be entitled to unemployment benefit, the employer must observe the fictitious notice period. The length of the period is shown below:

Lenght employment Notice period
Less then 5 years 1 months
5 to 10 years 2 months
10 to 15 year 3 months
More then 15 years 4 months

It is possible to deviate from this fictitious notice period by mutual agreement with the employer. The reason for agreeing on a shorter notice period is, for example, when you think you will find a job sooner. You can also be employed by a new employer after the notice period has expired.

Be careful then! The right to unemployment benefits only exists after the above mentioned period. Suppose that you have a notice period of four months, but that you shorten this period to two months by mutual agreement. Then the right to WW benefit will only exist after the four months, not after the two months. Always check whether the agreed notice period is correct.

Employment Disability

When you are sick and you want to get rid of your job, signing a settlement agreement seems like an easy solution. But: never sign a settlement agreement if you are unfit for work. This could mean that your entitlement to sickness benefit lapses. In fact, the employer can only dissolve an employment contract because of illness, if the employee has been ill for two years.

If a settlement agreement is signed before those two years have elapsed, you will lose your salary. The UWV can then state that this is an ‘act of prejudice’, and that you are culpably unemployed. This may void your entitlement to ZW benefits. Make sure that you are 100% fit for work before you sign a settlement agreement.

Reflection period

A settlement agreement must always include a cooling-off period. This means that within fourteen days of signing the settlement agreement, you have the option of dissolving the agreement. This can be done without giving any reasons.

The purpose of this is to be able to obtain legal assistance even after signing the agreement. If you sign the settlement agreement without legal assistance, this could be to your disadvantage. You do not always know exactly what you have signed and whether everything is correct. It could also happen that you become unfit for work after signing. In that case you can dissolve the settlement agreement within fourteen days, again without giving any reasons.

The cooling-off period is therefore at least fourteen days and must be included in the settlement agreement. If it is not included, a notice period of 21 days applies. So even though this period is not included in the agreement, it (fictitiously) does exist. It is therefore always worth checking whether the cooling-off period is included in the agreement.

Fixed term

Finally, the settlement agreement for a fixed-term employment contract. In principle, the fixed-term employment contract cannot be terminated and the right to unemployment benefit only arises on the date on which the employment contract would end.

An exception to this rule is if a so-called ‘interim termination clause’ has been agreed. If the employment contract states that it may be terminated prematurely, it is possible to end the employment contract by means of a settlement agreement.

However, there are solutions to get out of an employment contract without an early termination clause. If you are in a similar situation, the lawyers of Arbeidsjurist Eindhoven are ready to advise you in this legal matter.

Need advice on the settlement agreement?

Need advice on the settlement agreement? Send your question to Arbeidsjurist Eindhoven for a free check. If we can be of added value, we will be happy to go to work for you and show you how we can make a difference. Please contact us.

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