Settlement agreement

The situation as of 1 July 2015

Starting 1 July 2015, the possibility to terminate the employment contract with a settlement agreement has been specifically laid down in the law. However, there are two statutory requirements:

1. The settlement agreement is not yet final after signature. During 14 days after the day that the settlement agreement was reached (the date on which employer and employee signed the settlement agreement), there is a statutory period to reconsider for the employee. During that period the employee can, in writing and without having to state his reasons, renege on the settlement agreement. In that case the settlement agreement will be terminated and the employment contract remains in effect.
2. The employer is obliged to inform the employee, in the actual settlement agreement, of his right to terminate the settlement agreement within a period of 14 days after signing. If the employer fails to do so, the statutory period to reconsider is extended to 3 weeks.

Given the period to reconsider for the employee, the employer is certain whether the employment contract has in fact terminated after 2 (or 3) weeks after the settlement agreement has been signed.

There are two situations where the statutory period to reconsider does not apply:

1. An employee can invoke the statutory period to reconsider once every 6 months. For instance, if an employee enters into a settlement agreement, changes his mind and enters into another settlement agreement within 6 months, the statutory period to reconsider does not apply.
2. An employee who is a(n appointed) board member is not entitled to a statutory period to reconsider.

The former situation (legislation prior to 1 July 2015)

Under previous law, no reconsider period existed. After the settlement agreement was signed, neither party was entitled to renege on those agreements, except if the settlement agreement was reached by vitiated consent (e.g. error or deception).

Negotiating on the severance pay

Normally an employee is entitled to a transition payment when his employment contract terminates if the employment contract lasted for at least 24 months and the employment contract terminated on the initiative of the employer. The transition payment is not required when parties agree upon a settlement agreement. It is expected that this could lead to the situation in which the employee will not be keen to agree to a settlement agreement if the offered compensation is lower than the transition payment. Hence, an employer must bear in mind that the transition payment to which the employee would have been entitled if the employment contract was not terminated by settlement agreement but by giving notice or dissolution, will be part of the negotiations on the settlement agreement.

Practical pointers

• Adjust the model for the settlement agreement by already including the legal cooling-off period.
• Offer the settlement agreement in the first week of the month, so that, if the employee reneges on the agreement, there is enough time to make an arrangement before the end of the same month.