Why both sides choose it

For the employer, a settlement agreement is fast. It often takes weeks, where a formal procedure takes months. The outcome is certain from the start, and the arrangement stays private. There is also a clear end date to plan around.

For the employee, there is room to negotiate the amount, the end date, the references and how the departure is communicated. If the agreement is drafted correctly, the employee also keeps the right to unemployment benefit. For most employees, this is the most important point.

The most important clause

Unemployment benefit is withheld if the employee is considered culpably unemployed. To keep the entitlement, the settlement agreement must show three things. The initiative came from the employer. The reason is neutral, such as economic circumstances or a difference of insight, and it leaves the employee's conduct out of it. The statutory notice period is observed when the end date is set.

If the agreement describes culpable conduct, or ends the employment sooner than the notice period allows, the employee loses months of benefit. For this reason, the employee's lawyer checks this point before discussing the amount. If you draft it correctly from the start, you negotiate from a better position.

The two-week reflection period

An employee may withdraw from a signed settlement agreement within fourteen days, for any reason. The agreement must state this right. If that statement is missing, the period is three weeks. After a withdrawal, the employment continues exactly as it was before the agreement.

In practice, the arrangement becomes final two weeks after signing, at the end of the reflection period. For this reason, employers usually confirm a replacement only after that point.

What belongs in the agreement

  • End date, set with the statutory notice period observed.
  • Severance amount, with the transition payment as the natural reference point.
  • Final settlement: outstanding holiday, accrued holiday allowance, any bonus.
  • Release from work and how salary continues until the end date.
  • Company property: laptop, telephone, car, access.
  • Restrictive covenants: whether a non-competition or non-solicitation clause is maintained, limited or released.
  • Reference and communication: what the employer will say and how the departure is announced.
  • Final discharge: both parties confirm that all claims are settled.
  • Reflection period: the fourteen-day right, stated explicitly.

What it costs in practice

Most amounts are close to the transition payment. Amounts are usually higher if the employer’s file is weak, if the employee has long service, or if the employee is close to retirement. They are also higher if the reason lies more with the employer than with the employee. A contribution to the employee’s legal costs is customary and modest. The process is then faster, because the employee can take advice.

The transition payment is free of social insurance contributions and is taxed as income. The structure of the payment affects the net amount. Check this before you agree the figure.

When the formal procedure is better

In three situations, the formal procedure is the better choice. If the employee refuses any reasonable arrangement, the employer normally needs the formal procedure to end the employment. If conduct is seriously at issue, an employer may prefer a court finding to a neutral form of words. If a group is affected, the usual procedure is a collective process through the UWV (the Dutch employee insurance agency) with a social plan. See the formal dismissal procedure.

A Dutch BV with staff or a director on the payroll has to file every month. We do the payslips, the payroll tax return and the yearly forms. See payroll and administration for a Dutch BV.

Non-compete clauses in the negotiation

Restrictive covenants are a standard item in the negotiation. If the employer releases or narrows a non-competition clause, the parties often agree on the amount more quickly. The value of the clause depends on whether a court would uphold it. See non-compete clauses in the Netherlands.