The settlement agreement in employment law
Although a settlement agreement (also known as a termination agreement) can be applied to various legal relationships (e.g. the termination of Commercial Contracts), the settlement agreement for the termination of an employment contract is probably the most well-known.
By means of a settlement agreement, an employment contract can be terminated in consultation between the employer and employee (also referred to as termination by mutual consent). When the employer and employee have reached an agreement on the terms and conditions of the termination of the employment, these terms and conditions are laid down in a settlement agreement. The settlement agreement includes agreements on the termination date of the employment contract, the amount of any termination payment, whether or not to maintain the non-competition and non-retaliation clause, the payment of holidays, the exemption from work and the return of any company property belonging to the employer.
Important points of attention
Some important points to consider when concluding a settlement agreement are:
- The settlement agreement must always be entered into in writing;
- The employee has a legal right of withdrawal. This means that after signing the settlement agreement, the employee can dissolve the agreement, without reason, within 14 days. Is there nothing included in the settlement agreement about the right of withdrawal? Then the employee has a right of withdrawal with a period of 21 days after signing the settlement agreement; and
- In order to safeguard the employee's possible entitlement to WW benefit, the settlement agreement must meet certain requirements. After all, the employee may not be regarded as 'culpably unemployed'.
Termination payment
The parties may agree that the employee is entitled to compensation. What would be reasonable compensation in a specific case depends on the facts and circumstances of the case. It is in any case important what the actual grounds for dismissal are and whether the employer has sufficient reasons and evidence to terminate the employment contract. On this basis, it can be assessed what could be a reasonable severance payment. The starting point for the amount of the compensation is usually the level of the statutory transitional compensation. On the basis of the actual situation, it then has to be assessed whether there are reasons to agree on a (much) lower or (much) higher compensation. It is often very difficult for the parties themselves to assess their negotiating position. It is therefore recommended to consult a specialised lawyer.
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