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Create Settlement Agreement in 5 Steps

Do you want to dismiss an employee and does he agree? Then you must record the dismissal in writing in a settlement agreement. Follow this step-by-step plan.

If you dismiss an employee, you prefer to do that with as little hassle as possible. Legal proceedings are time-consuming and cost a lot of money and effort.

You can save yourself and your employee from going to court by deciding, in good mutual consultation, to terminate the employment contract. This is called dismissal with mutual consent .

Does your employee agree? Then you're required to record your agreements regarding the termination of the employment contract in writing. You do this in the so-called settlement agreement (also known as the termination agreement ).

Settlement agreement, what is that?

A settlement agreement is a contract whereby you and your employee terminate the employment voluntarily and with mutual consent. It's then no longer necessary to apply for a dismissal permit. If you do everything in accordance with the rules, your employee will simply retain his entitlement to unemployment benefits.

Drawing up conditions for an agreement

An important condition for being able to draw up a settlement agreement is that you as the employer take the initiative for the dismissal.

Create settlement agreement

If you and your employee agree on a dismissal by mutual consent, you can proceed to drawing up the settlement agreement. Use this step-by-step plan for this:

Step 1. Check whether your employee really agrees with dismissal

Before you put just one letter on paper, you must check again with your employee whether he agrees with the dismissal. As an employer, you have an obligation to investigate this .

You must investigate whether your employee really wants this and his consent must be unambiguous and unambiguous. Therefore don't settle for an oral commitment, but ask for a written confirmation, for example in an email or app.

Step 2. Inform your employee about the consequences of the dismissal

In addition to the obligation to investigate, you're also obliged to inform your employee of the possible consequences of his dismissal. He must, for example, know that by his dismissal by mutual consent he renounces the protection that the right of dismissal offers him. The agreements in the settlement agreement will apply instead.


Advise your employee to seek legal advice about his dismissal. He can do this in the cooling-off period to which he is entitled (see at Step 5). During this period he can properly assess the consequences. This also emphasizes that he isn't obliged to agree to the dismissal.

Step 3. Draw up a draft settlement agreement

It's not convenient to draft the agreement with your employee. It's better to first create a concept yourself and send it to your employee. On that basis you can then continue to negotiate. This way you avoid unnecessary discussions that only take time.

The question is: what do you put in it?

There are of course many things that you could make agreements with your employee about. Some settlement agreements therefore have the size of a small book.

In this step-by-step plan, we limit ourselves to the most important substantive issues that are almost always part of a settlement agreement. Those are:

- Date on which the employment contract expires. Take the cancellation period into account, otherwise your employee will not be entitled to a subsequent unemployment benefit.
- Possible exemption from work.
- Transfer of activities.
- Continued payment of wages.
- Final settlement of the wage, such as salary, holiday pay, vacation days, 13th month and / or bonus.
- Severance pay. That may be the transition payment, but you may also agree a higher amount with your employee.

Pay attention:

If the severance payment is so high that your employee falls (in part) in the highest tax rate, then he can get an additional tax assessment from the tax authorities.

Therefore, when paying the severance pay, use the highest tax rate. As a good employer you must also point out to the employee the possible financial consequences of receiving a severance payment .

Handing in company property. Arrange when your employee must hand in his mobile phone, computer and lease car.

Confidentiality of confidential information. For example, specify that your employee must keep sensitive business information or the content of the settlement agreement secret.

- Maintaining or canceling the non- competition clause and / or relationship clause.
- Certificate and references or positive recommendation on LinkedIn. vFinal discharge. This means that you agree with your employee that you can no longer demand or claim anything from each other, except what is stated in the settlement agreement.
- Contribution to the costs of legal assistance of the employee (except in the case of legal assistance by a legal assistance insurer).
- The statutory reflection period of two weeks.

In addition, state the following in the settlement agreement:

- Name and address of yourself and your employee.
- Indicate that you take the initiative for the dismissal.
- State the reason for the dismissal and indicate that there is no urgent reason.
- State that this is a dismissal with mutual consent.
- The agreement that you make a final statement on the end date of the employment contract.
- The date and place where you and your employee sign the settlement agreement.

Step 4. Negotiate with your employee

Give your employee ample time, for example a week, to properly study the draft settlement agreement. He will undoubtedly come up with suggestions for changes. Talk to him about this.

Your employee may want to get the most out of it, because he isn't obliged to agree to the dismissal. Listen carefully and negotiate in such a way that the result is acceptable to both of you. Offer him something extra if necessary, such as a reimbursement for an outplacement process or training.

Once the negotiations have been completed satisfactorily, you incorporate the new agreements into the draft settlement agreement and finalize it.

Step 5. Sign the settlement agreement

The final step is the signature of the settlement agreement, stating the date and place of signature. The agreement is only valid if you and your employee have both signed your document.

After the signature agreement has been signed, your employee still has two weeks to change his mind. As an employer, you're legally obliged to inform your employee about this reflection period.

The reflection period is exactly 14 days and starts after the conclusion of the agreement. You must explicitly include the reflection time in the settlement agreement. If you don't do this, the period will be extended to three weeks.

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