Settlement agreement: the 6 most important aspects to include

Employment can end in a variety of ways. Often a dismissal by mutual agreement is chosen. The parties then come to a termination by mutual agreement, and the agreements made are recorded in a settlement agreement (also called a termination agreement). Such an arrangement gives parties the freedom to determine together what arrangements they agree upon. Consequently, the content of a settlement agreement varies from situation to situation. However, there are provisions that must be included, regardless of the situation:

1. Termination ground in settlement agreement

The settlement agreement should state the reason for the dismissal. This could be a business reason or a difference of opinion on how the work should be performed. It should also state that the initiative for termination lies with the employer and that the employee is not to blame. The latter is important if the employee is to be entitled to WW benefits. After all, the employee may not be culpably unemployed.

2. End date

The notice period may be taken into account when determining the end date. If this is not taken into account, the employee may not be eligible for WW benefits until the end of the applicable notice period. It should also be established whether the employee is excused from work until the end date and/or unused vacation days are deemed to have been taken.

3. Final statement

At the end of employment, a final statement is usually sent to the employee. This includes the salary, vacation pay, unused vacation days, and severance pay. Please note that severance pay (also known as transition compensation) is not mandatory in a mutual agreement dismissal. However, this can play a role in negotiations.

4. Terms

Various stipulations may apply even after termination of employment. The parties should make agreements as to whether or not these clauses should be upheld. For example, a non-competition and non-solicitation clause and a related penalty clause become important after termination of the employment relationship. The settlement agreement should therefore include a clause stating that these clauses will either remain in force or be null and void.

5. Grace period

Since July 1, 2015, a statutory reflection period has applied after entering into a settlement agreement. An employee has the opportunity to go back on the agreed upon arrangements within 2 weeks. This period is extended to 3 weeks if the employer has not informed the employee of the cooling-off period. It is therefore recommended to include the reflection period in the settlement agreement.

6. Final discharge

The standard final provision is that the parties grant each other final discharge. This means that parties have nothing more to claim from each other, apart from what is included in the settlement agreement. It is therefore important to check whether all matters that need to be settled are included in the settlement agreement.

To avoid subsequent discussion, a good settlement agreement requires careful wording and a complete representation of the agreements made. If you would like to have your settlement agreement reviewed or need help negotiating, please contact your Labor and Health Advisor.