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What should a termination agreement contain?

Publication date: 10 April 2018
The easiest way to terminate an employment contract is by mutual consent. The arrangements made will then be laid down in a settlement agreement. This blog contains a checklist of subjects that should be covered by a termination agreement, such as the expiry date of the employment, leave from work, taking or payment of holidays, severance pay, final financial statement, confidentiality, outplacement, social media clause, full and final settlement, statutory reflection period, etc.

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What does a termination agreement have to cover?

The most common matters to include in a termination agreement or settlement agreement are the following:

  1. Date of expiry of the employment contract
    This has to take into account the notional notice period. An employee is only entitled to unemployment benefits after the notice period specific to the employer.
  2. Exemption from work / garden leave
    Is the employer granted paid leave from work fully or partly to the expiry date?
  3. Holidays
    Do untaken holidays have to be paid or taken?
  4. Reimbursement of study costs
    Establish whether or not a regulation regarding the reimbursement study costs incurred will apply.
  5. Severance pay
    The employer is not required to pay the employee severance pay. However, such an offer will increase the likelihood of the employee’s agreement. Regarding the amount it is possible to follow transition compensation, however, the parties can derogate from this.
  6. Final financial statement
    Set the date for the final financial statement. The final financial statement provides an overview on what the employer has to pay the employee and what the employee is still owing the employer, such as outstanding wages, untaken holidays or excess holidays taken, holiday allowance, thirteenth month salary, bonus, advance payments on wages or holiday allowance. In view thereof set the date on which the employee has to present outstanding invoices.
  7. Pension accrual
    Pension accrual ceases upon the termination of the employment contract. Sometimes, employees can build up their pension on a voluntary basis.
  8. Use and return of company property
    Is the employee allowed to continue to use company resources and if so, until what date? What company property (for instance, access pass, laptop, mobile phone, lease car, etc.) does the employee have to return to the employer, and when?
  9. Post-contractual obligations
    Will a confidentiality obligation or non-competition and non-solicitation clause remain in full force and effect, or will they lapse or be restricted?
  10. Social media clause
    It may be established that the employee is not allowed to make unfavourable comments about the employer on the internet after the termination of the employment. And the employee can be required to unfriend professional contacts.
  11. Outplacement budget
    The employee may receive a budget for engaging outplacement services.
  12. Compensation for legal assistance
    The employer may offer the employee a budget for legal assistance.
  13. References
    Will the employee, upon request, receive a positive or neutral reference?
  14. Dismissal with immediate effect or death of employee
    It may be included that no rights can be derived from the termination agreement in case of dismissal or death of the employee between the signing and expiry date of the employment contract.
  15. Reflection period
    Within a period of two weeks after signing of the agreement the employee may, without giving any reason, withdraw the agreement in writing. The employer is required to point out to the employee this right of withdrawal. If he or she fails to do so the employee’s reflection period will be extended to three weeks.
  16. Full and final settlement
    Employer and employee may grant each other full and final settlement regarding potential claims on the basis of the (termination of) the employment agreement. This will prevent future legal disputes on matters that are not explicitly covered by the termination agreement.

Entitlement to unemployment benefits

The entitlement to unemployment benefits after the termination of het employment contract is important to employees. To ensure that an employee will be entitled dot unemployment benefits, the termination agreement the following must be included in the termination agreement:

  • The initiative for the termination of the employment agreement was taken by the employer.
  • The dismissal is not related to any urgent cause for dismissal (dismissal with immediate effect).

Annulment after reflection period

In exceptional cases, the settlement agreement may also be annulled after the reflection period, for instance, in cases of vitiated consent, such as error, fraud, or abuse of circumstances. In view of the nature of such an agreement, the Court will exercise utmost restraint when it comes to a request for annulment. For example, an employee cannot have an agreement annulled because of not having obtained legal advice.

If either of the parties fails to comply with the obligations contained in the settlement agreement, the Court may be asked to order performance or to terminate the settlement agreement in whole or in part. However, Courts have to be reserved with regard to such a request for termination.

More information

Would you like more information on settlement agreements? Do you need help drafting or assessing a settlement agreement? Or do you have any other questions concerning employment law and dismissal? Please contact Russell Advocaten:

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