Termination agreement (VSO)
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WHAT IS A TERMINATION AGREEMENT (VSO)?
When both employer and employee mutually decide to terminate the employment contract, we call this mutual agreement severance. This is usually done through a termination agreement. This agreement is often called a VSO.
The meaning of VSO is settlement agreement. A VSO is a legally binding agreement in which arrangements are agreed upon for the termination of the employment contract by mutual consent.
Settlement agreements are also used for legally binding agreements on other topics but on this page, we will only cover dismissal by VSO. Below we will discuss the key points of a settlement agreement and explain what should be included in a VSO.
USE CASE
The choice to use a settlement agreement can have several reasons. For example, there may be a mismatch between employee and employer, an employment conflict, a position becoming redundant, or severance after 2 years of sick leave. Also, settlement agreements are sometimes proposed after a company takeover, merger, reorganization or a social plan. It can also happen that an employee wants to leave early with the intention of an early retirement or because someone simply wants to work somewhere else. Finally, it occasionally happens that someone is offered a settlement agreement by their employer during their reintegration process. Although we always recommend having a settlement agreement reviewed, this is a must during a reintegration process because it will have very serious consequences.
SETTLEMENT AGREEMENT OR COURT?
A severance procedure through court or the UWV costs time, money and is sometimes not possible at all. An employer can therefore save a lot when an employee agrees to a settlement agreement. This is a good reason for negotiating for a settlement agreement and, if necessary, calling in an expert.
WW UNEMPLOYMENT BENEFITS
The most important thing in a settlement agreement is to secure your unemployment benefits. This requires that you cannot become culpably unemployed. This means that the settlement agreement must show that the initiative for the settlement agreement came from the employer. The agreement must also show that there is no reason for dismissal, that your employer reasonable could go to court for. There also needs to be stated that there is no reasonable possibility for redeployment to another workplace or position. In addition, a valid reason for offering the settlement agreement must be included.
SICKNESS OR PREGNANCY
If you are sick or pregnant, we strongly advise that you do not agree to a settlement agreement. In that case, not only will you lose your unemployment benefits, but you will also be denied sickness benefits. After all, in that case you are not available for work, unable to fulfill your obligation to apply for jobs, and you were also still entitled to wages from your employer during the first two years of illness. The exception to this may be situational disability. However, because this is a risky situation, we strongly advise you to get appropriate advice from an expert on a possible settlement agreement. Click here for more information on situational disability.
TERM OF NOTICE
Can a settlement agreement deviate from the legal notice period?
You can, but this may have negative consequences.
When determining the date of leaving employment, the notice period that the employer must apply must be considered. Only after the legal notice period has expired, you are entitled to unemployment benefits.
The notice period that employer must apply concerns:
• For employment of less than five years, one month.
• For employment of five to ten years, two months.
• For employment of ten years to fifteen years, three months.
• For employment of fifteen years or more, four months.
• For an employee who has already reached retirement age, 1 month.
You may have agreed a longer notice period with your employer. It is also possible that a longer or shorter notice period has been agreed upon in the collective employment agreement (CAO). When you have agreed a longer notice period with your employer, the notice period for your employer should always be twice as long as the notice period for you. When there is no notice period in your employment contract, but there is one in the collective employment agreement, the notice period in the collective employment agreement must be applied.
With VSO severance after 2 years of illness (three in some cases), the notice period for dismissal is not important, but it is still considered when calculating a transitional compensation.
TEMPORARY CONTRACT
If you have an employment contract for a fixed term, it is important to check whether it contains a clause allowing early termination. If it does not, you are only entitled to unemployment benefits from the moment the employment contract would have ended according to the employment contract. A timely amendment to the employment contract adding an early termination clause may suffice. Currently, this can even be added in the settlement agreement itself. However, we are waiting for the moment when the UWV will ask a judge to declare this as disadvantageous treatment. So be it a risk. So far there have been no court rulings on this matter yet.
REDUNDANCY/TRANSITION COMPENSATION
After signing a settlement agreement, you will no longer be entitled to transition compensation. Therefore, it is advised to come to an agreement on a severance payment in the settlement agreement. You and your employer are completely free to decide on the details of the severance payment, but it is often based on at least the amount of the otherwise mandatory transition compensation. Sometimes a higher severance payment is possible through a fair compensation for culpable acts or omissions of your employer. Occasionally, parts of the final paycheck are included in the severance payment. This can happen if, for example, there is disagreement about outstanding vacation hours or a possible bonus.
Calculation
The transition compensation and thus the baseline for severance pay is calculated as follows:
• 1/3 month's salary per year of employment
• This amount proportionally if no full year of employment
Components of the salary for calculating the transition compensation are also shift supplements, overtime pay, bonuses, profit distributions and a thirteenth month or year-end bonus. In case of illness, the salary before you became ill is used for calculation. A reduction in salary due to illness therefore does not lead to lower transition compensation.
Maximum transitional compensation
If your annual salary is below 94,000 euros, the transition compensation can amount to a maximum of 94,000 euros. If your annual salary is higher, the maximum is one annual salary. These maximum amounts are adjusted every year.
Alternatives to the transition compensation
In the case of severance for economic reasons, a substitute rule may be used in the collective employment agreement in place of transition compensation. This rule must be intended to curtail unemployment and does not necessarily have to be a financial compensation.
One example of such a rule is a top-up payment. This is a payment that often tops the unemployment and or sickness benefits up to a certain percentage of the salary. In addition, there are top-up benefits that extend the maximum duration of an unemployment benefit to three years. With an above-statutory benefit, you sometimes must choose whether you want this benefit or the transition compensation. In that case, it is important to assess which is more beneficial in your situation.
Deductible expenses
Costs incurred by your employer for outplacement or training aimed at work in another position or with another employer can be deducted from the transition compensation. Costs incurred to improve performance in your own job are not. Deductible costs may not relate to mandatory reintegration in the first or second year of sick leave. They must be sufficiently clear, and you must have given your prior written consent. These costs may not be reclaimable from you through a study expense clause or any other means.
Reduction of contractual hours
Even if you permanently reduce work by at least 20% due to, for example, business economic reasons or incapacity for work, without entering into a settlement agreement, you are entitled to a transition payment in proportion to the loss of working hours.
Payment arrangement
If your employer cannot pay your severance pay all at once, it may be paid in a maximum of six terms and statutory interest is owed.
No entitlement to transitional compensation
If you resign from your job yourself, are dismissed with immediate effect for a legal reason, are seriously culpable, are underage, have reached the age of retirement or your employer has gone bankrupt, you may not be entitled to transition compensation. Contact us for more information.
LEAVE HOURS
A settlement agreement usually includes an article declaring that it is deemed that all leave hours have been taken upon leaving employment. This means that they cannot be claimed after signing. It is therefore recommended that you ask for a vacation statement with additions and subtractions and carefully map out how many vacation hours are left. You can then agree that they will be compensated with time off from work for a certain period or that they will be paid out.
The value of a leave hour is equal to the value a work hour would have had if it had been worked. When you work, you not only get your hourly wage, but you also get vacation allowance, shift bonus, irregularity payment, possibly a bonus, profit distribution, year-end bonus and retirement benefits. Therefore, these components are all part of the value of a vacation hour. Simply put, an employer may not take advantage of an employee's inability to take vacation hours. When one these allowances cannot be clearly determined, the average of a mutually reasonable period is taken for calculation. Travel and expense allowances are not part of these salary components because these expenses are not incurred. In the past, some judges considered pension benefits as a salary component of a vacation hour, but currently judges often do not grant this part. As a result, there is a high risk, that the expenses to make to claim this will be lost. Therefore, in most cases, we choose to not include this part for the calculation of the value of a leave hour.
The value of a legal or above-legal leave hour is exactly the same. This does not apply to ADV and ATV days. These are exceptional leave days meant to be used for extra time off. The collective employment agreement or employment contract specifies what they can be used for and whether they can be paid out. When they can be paid out, they usually do not have the same value as regular leave hours.
FINAL BALANCE
The final paycheck includes the final salary. All regular salary components are added to this salary. Also remaining outstanding leave hours, vacation money, a bonus, thirteenth month or profit distribution is added to this. Sometimes the severance compensation as described above is also already included here. The final payment must be made within one month after leaving employment. If it is not paid in time, three waiting days (working days) apply. From day 4 interest is due. The first 4 days this is 5% daily and after that 1% daily. This can add up to a maximum of 50% of the amount owed. Payment of interest is excluded if your employer can prove that the late payment is not his fault.
OUTPLACEMENT BUDGET
If you wish, you can agree with your employer on an outplacement budget. This makes sense if you are not yet so sure what you want to do next. An outplacement budget is intended for support in finding your next job. This can be used for a specialized outplacement agency, a coach or career advice. An outplacement budget may come at the expense of (part of) your transition or severance payment because employers may deduct it from the transition payment. However, an outplacement compensation is fiscally more favorable for your employer than transition or severance payment. This is because an outplacement payment may be paid by your employer directly to the outplacement agency and is tax deductible for your employer. As a result, your employer may be able or willing to award a higher compensation in this way than if it were a transition or severance payment. If you want an outplacement payment, it is wise to acquire several proposals from outplacement agencies prior to negotiations.
COMPETITION/RELATIONSHIP CLAUSE
It is wise to include in the negotiations for a settlement agreement, what happens to any relationship and or non-compete clause. When you receive a high severance payment, it may not be a big deal if you cannot work elsewhere for 6 to 12 months. Yet in many cases, it is. Therefore, in some cases, elimination such a clause is worth more than high compensation. If employer does not want to let go of the clause, higher severance pay may be possible.
COMPANY PROPERTY
Usually, the settlement agreement will include when company property such as a laptop, phone or possibly a lease car must be returned.
LEGAL FEES
To ensure that your unemployment benefits are secured and to get the most out of a settlement agreement, it is extremely important to have it legally checked. Since this is also very common, an article is usually included in the settlement agreement that describes that a certain amount of money will be made available for legal assistance. If this article is not in the settlement agreement, this is the first thing you should ask about. The amounts usually made available for this purpose range between 500 and 2000 euros.
REFERENCE/TESTIMONIAL
You may wish to include in the settlement agreement that you will receive a positive or neutral reference or attestation from your employer.
OBLIGATION TO NOTIFY
There is usually a provision in the settlement agreement that if, at the time of signing, you have a reasonable prospect of getting a new job, you must notify your employer. If you neglect to do so then, there is the possibility for your employer to reclaim the severance payment paid by employer. This is because in the case of vso severance, your employer is not obliged to pay a transition compensation and your employer, had it known about this prospect of new work, might have offered a lesser compensation.
CONFIDENTIALITY CLAUSE
In the settlement agreement, there is usually an article prohibiting you from discussing its contents with third parties. Be sure that this is drafted so that you cannot be held accountable for it, if you discuss the contents at home and with persons, with whom it is reasonably necessary for you to do so.
FINAL DISCHARGE
A settlement agreement always includes a final discharge. A final discharge is an article that describes that after signing, parties cannot demand anything further from each other besides what was agreed in the settlement agreement. If you find out later that your salary has been underpaid for some time, that supplements, vacation money or hours of leave have not been paid in full, this can no longer be claimed. This makes it even more important that you seek professional advice when entering into a settlement agreement. Therefore, if you decide to use our services to negotiate your settlement agreement, this will always be accompanied by an extensive salary check.
REFLECTION PERIOD
After signing a settlement agreement, by law you have 14 days for reflection. Within those 14 days, you may terminate the settlement agreement without giving any reason. This must be stated in the settlement agreement. If it is not stated in the settlement agreement, the period is 21 days. Please be aware that if you use this reflection period and then sign another settlement agreement, you will not have this reflection period, again for the second settlement agreement.
DECLARE THE SETTLEMENT AGREEMENT, NOT VALID
In the event of abuse of circumstances, lack of authority, to reasonably sign under pressure from the employer, it may still be possible to declare the settlement agreement, as not valid later.
HAVE THE AGREEMENT CHECKED / NEGOTIATED
As stated, several times in this article, signing a settlement agreement comes with enormous risks and we must strongly advise against signing without having sought advice from an expert in the field of employment law.
This may mean that you will be left without income for a long period of time, that you will miss out on retirement benefits, that you will not be paid leave days, allowances or other compensation to which you may have been entitled, or that a possibly necessary too low classification is not accepted. Therefore, always engage an expert in the field of employment law as soon as you have received a proposal for a settlement agreement and clearly indicate to your employer that you will have this checked.
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