6 Things to Consider Before Signing A Settlement Agreement in The Netherlands

Special thanks to GMW Lawyers for writing this article. Definitely give them a call if you are discussing a settlement agreement with your employer

Under Dutch employment law, terminating an employment contract is not easily permitted. If it does happen and your employer intends to dismiss you, they often offer a settlement agreement to terminate the employment contract. In such circumstances, consider the following points before signing this settlement agreement.

Termination Notice

In the event of dismissal, the employer must comply with the statutory notice period, or the notice period specified in the employment contract. Failure to do so will result in the employer being liable for a fixed compensation. This compensation is calculated based on the period the employment contract would have continued if the correct notice period had been followed.

Redundancy Payment

If the employer takes the initiative for dismissal or non-renewal of the employment contract, the employee typically has a right to a redundancy payment. This payment is intended to assist an employee financially in transitioning to a new job. The amount of the redundancy payment is calculated based on the length of service and the gross monthly salary. You are entitled to 1/3 of your gross monthly salary for each year of service, starting from the first day of employment. The gross monthly salary includes fixed and variable salary components, such as the statutory holiday allowance. A bonus may partially be included in the calculation. This does not apply to pension contributions or travel allowances. Before signing a settlement agreement, always verify whether your employer includes redundancy payment in the settlement agreement.

Prohibition of Dismissal During Illness

Employees are protected against dismissal when they are on sick leave. An employer is not permitted to terminate the employment contract while the employee is incapacitated for work, provided that this period has not exceeded two years. There are exceptions to this regulation: the prohibition of dismissal does not apply in cases of a complete company shut down due to a reorganization or if the employee’s fixed-term contract is set to expire. Nonetheless, the fundamental principle remains that an unwell employee is protected. If your employer offers you a settlement agreement while you are ill, refrain from signing it immediately, as doing so may result in the forfeiture of your entitlement to unemployment or illness benefits. A GMW lawyer can offer you advice regarding this issue.

Entitlement to Unemployment Benefits

If you lose your job and meet the conditions set by the UWV, you can apply for unemployment benefits. The primary requirement for receiving benefits is that you do not become unemployed through your intention. The settlement agreement should, therefore, include a neutral reason for dismissal. A settlement agreement often indicates that the employer initiated the termination of the employment contract. Additionally, you must not be ill, and the notice period must be respected. Failure to adhere to these rules in the settlement agreement will result in the UWV rejecting the application for unemployment benefits, either fully or partially.

30% Ruling

The 30% ruling is a Dutch tax advantage for highly skilled migrants. If you meet the various conditions, your employer can pay 30% of your salary as a tax-free allowance for 60 months (or five years) if you commence employment before January 1, 2024. If you began employment after January 1, 2024, your employer can pay 30% of your salary as a tax-free allowance for the first 20 months, 20% for the following 20 months, and 10% for the last 20 months. Additionally, as of January 1, 2024, the tax benefit is limited to an annually adjusted maximum salary amount.

If an employee is exempted from work, this tax benefit ceases to apply. Therefore, signing a settlement agreement that includes a period of exemption from work can be detrimental. A lawyer from GMW can provide guidance on this matter.

Visa

If employees with a visa for highly skilled migrants become unemployed, they have up to three months to find a new job that meets the criteria. If your residence permit expires sooner, you have less than the three months’ time. The period for finding a job starts on the day your contract was terminated. If you can’t find new employment that meet the visa requirements before that date, the IND may revoke your residence permit. In this regard, the termination date of the employment contract arising from the settlement agreement is crucial. We can provide guidance on this issue.

Conclusion

When signing a settlement agreement, several aspects are crucial. An employee typically has the right to a severance payment. The employee is also safeguarded from dismissal during illness. It is essential to respect the notice period. Compliance with the regulations is vital for the employee’s eligibility for unemployment benefits. Signing a settlement agreement can also impact the 30% tax benefit and the period a highly skilled migrant has to secure a new job.

If you have inquiries regarding the aforementioned points, leave or salary matters, or are seeking an employment law attorney in The Hague area, please do not hesitate to contact me.

This article is written by Anja Blijham, from GMW Lawyers