Wednesday 25 November 2020

Settlement agreements and your rights – what you need to know

As more and more companies move towards reorganisations and redundancies, voluntary departure programmes and settlement agreements are becoming a common topic of conversation. So what should you do if you are offered a settlement agreement? Is it worthwhile accepting, and what are the consequences? Here are some essential considerations.

When a company reorganises, this generally results in some jobs becoming redundant. As a result, the employer will have to lay off those employees. However, in the Netherlands, an employer cannot simply decide to dismiss their employees unilaterally.

Two options for employers

Employers in this situation have only two legal options: obtain upfront permission from the Employee Insurance Agency (UWV) to dismiss the employee, or get the employee to agree voluntarily to the dismissal. In both scenarios, employers must comply with the legal requirements.

The process to dismiss via the UWV can be time-consuming and costly, so many employers opt for the second option: dismissal via mutual consent. To achieve this, the employer offers the employee(s) a financial incentive to leave the company voluntarily in the form of a settlement agreement.

The role of the voluntary departure programme

Employers may therefore announce a voluntary departure programme. In this programme, employers ask their employees if they are willing to leave the company voluntarily in exchange for a predefined settlement agreement.

Employees who indicate interest in the company’s voluntary departure programme can then be offered a settlement agreement.

In this way, employers can minimise forced redundancies. However, if too few employees accept the voluntary departure offer, the employer may still have to initiate redundancy through the UWV.

What is a settlement agreement?

A settlement agreement is a written offer from your employer that includes specific conditions under which you agree to give up your job and leave the company voluntarily. Critically, these conditions can deviate from standard Dutch employment law.

Such conditions can include (but are not limited to) agreements about: the date your employment contract will end, what will happen regarding holiday pay, vacation days, payment of outstanding salary, confidentiality and non-competition clauses, as well as any additional severance pay that the employer may offer.

If you are in the Netherlands as a highly skilled migrant, consider including arrangements about the job search period and garden leave in a settlement agreement to protect your future residence rights.

An employer cannot force you to sign a settlement agreement; it is always your choice.

What happens if you accept a settlement agreement?

If you choose to accept the settlement agreement, you will sign it and commit to the conditions of the agreement. On the agreed date, your employment will end, and your employer will pay you any agreed compensation. You will most probably retain your existing right to unemployment benefits.

If you change your mind after you have signed a settlement agreement, you have 14 days to withdraw your consent. You do not have to give a reason for your decision.

For expats, losing your job can also have consequences for your residence rights.

If you are in the Netherlands as a highly skilled migrant, you will need to find a new job that fullfils the requirements for your residence permit within a certain period of time: the job search period. The job search period can be a maximum of three months – but it can be shorter. If you do not find another suitable job in time and you cannot reside in the Netherlands on another basis, you will have to leave the country. This in turn will cause a residence gap, which you should avoid; there is seldom a cure.

What happens if you reject a settlement agreement?

You have the right to reject a settlement agreement. If you do so, your employment will be unchanged. Rejecting a settlement agreement does not change your rights, with the exception that you lose the right to that offer.

If you are considering rejecting a settlement offer, it’s worthwhile to remember that your employer may still proceed to make your position redundant, and that dismissal via UWV may not be in your best interests.

Option 3: negotiate

You may accept or reject a settlement offer – or you could choose to negotiate the conditions. For instance, if your employer released you from your non-competition clause, it may make it substantially easier for you to find a new job. Likewise, changing your end date may allow you to accept a job with an earlier start date. The key is to know what you need to negotiate.

Should I accept a settlement agreement?

Unfortunately, there is no simple answer; this depends on your situation and on what is offered in the settlement agreement.

If you are unsure about the contents of your settlement agreement or the consequences for your situation, it is worthwhile consulting a lawyer. For this reason, employers may include an allowance for legal fees in the settlement agreement.

A lawyer can review your settlement agreement and the related documents (your employment contract, the redundancy scheme, salary slips, etc.) and, based on that, give you expert advice.

Legal advice about a settlement agreement can help you understand:

  • Your rights if you accept the settlement agreement (what it will mean for you)
  • Any risks, warning signals or special precautions you should know
  • Suggestions on how you could change the conditions for a better outcome
  • If you are entitled to a transitional allowance, and if so, how much
  • And, if you are an expat, any potential impact on your residence rights

Get help

A settlement agreement is a legal contract, and as such, signing it will affect your rights. Therefore, you would be wise to ensure you understand exactly what it means for you and your future rights before making a decision.

If you are unsure if the settlement agreement is right for you, get legal advice.

If you need help with this or a related topic, our team of English-speaking lawyers is ready to help.

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