If an employer and employee want to agree that the employment contract will be terminated by mutual consent, this is recorded in a Settlement Agreement (VSO). It is important for both parties that the agreements are clear and complete. What must at least be included?
End date
When determining the end date, the fictional notice period must be taken into account. This is the notice period that the employer must observe. For the employee, this is relevant because a potential unemployment benefit can only be paid after this notice period has been observed. The further the end date is in the future, it may also be useful to make arrangements for the possible situation where the employee may already be able to start working elsewhere beforehand.
Severance pay
Since 2015, we have had a compensation determined by law: the transition compensation. This usually forms the basis for an agreed compensation. However, it can also be the case that a Collective Labor Agreement or Social Plan applies in which a different compensation is specified. The circumstance that there is insufficient good reason for dismissal can also lead to higher compensation.
Exemption from work
The employee will want to continue receiving their salary at least until the end of the employment contract. It is good to agree on what is expected in return. Must the work continue until the end, or does the employee get time off earlier? And what does this mean for the vacation days? Will they still be paid out or not?
Final settlement
No later than the month following the termination date, the employer prepares a final settlement in which what the employee is still owed is paid out. This is usually the accrued holiday pay, but may also include compensation for unused vacation days, a (pro rata) bonus, or 13th month, etc. Non-competition and non-solicitation clause
Conditions
Contrary to popular belief, an employee generally remains bound by a non-compete clause even after termination by mutual consent, and this can affect finding a new job. Therefore, consideration must also be given to the binding nature of a non-compete clause, non-solicitation clause, confidentiality clause, etc.
Certificate and references
Providing a neutral certificate is legally mandatory, but an employee benefits more from a positive certificate when applying for jobs. It is usually also agreed that positive references will be provided.
Contribution to legal costs
For both employer and employee, it is important that the settlement agreement is complete and clear and that the employee understands what they are signing. It is therefore common for the employee to be able to receive advice on this from an employment law attorney, and the costs of this are reimbursed by the employer. A maximum amount for this is then included in the settlement agreement.
Returning company property
Returning company property
Cooling-off period
New in the law since 2015 is that the employee can reconsider within 14 days after the agreement has been concluded. This right must be included in the VSO.
Final discharge
At the end of the settlement agreement, it is always recorded that both parties have no further claims against each other. So be sure to check carefully whether everything is arranged in the settlement agreement.
These are the most common provisions in a termination agreement. Depending on the further circumstances, provisions regarding outplacement can also be considered. Training, study cost arrangements, takeover of car or phone, option/share schemes, and communication about departure. We still very often experience that certain matters are not arranged or are unclear, resulting in disputes. So always make sure to get proper advice about the content of a termination agreement.
These are the most common provisions in a termination agreement. Depending on the further circumstances, provisions regarding outplacement can also be considered. Training, study cost arrangements, takeover of car or phone, option/share schemes, and communication about departure. We still very often experience that certain matters are not arranged or are unclear, resulting in disputes. So always make sure to get proper advice about the content of a termination agreement.
