Dos and don'ts for settlement agreements

A good settlement agreement is concrete, complete, and tailored: define clear goals, describe rights and obligations unambiguously, take tax implications into account, and have the agreement reviewed by a lawyer. A settlement agreement establishes how parties definitively resolve a dispute or relationship—in employment cases, often the termination of employment. Vague wording, overlooked details, and blind reliance on templates are the biggest pitfalls. Below are the most important do's and don'ts.

What is a settlement agreement?

A settlement agreement is an agreement in which parties definitively resolve an uncertainty or dispute to prevent or end legal proceedings. It is widely used to settle business conflicts and—very often—to terminate an employment contract by mutual consent. The unique aspect is that parties bind themselves to what they agree upon, even if this later deviates from the legal situation. Precisely for this reason, the content requires careful attention.

The do's: how to set up a strong VSO

Do: define clear objectives

Clear, concrete goals are the first step. Ensure that they cover all relevant aspects of the dispute and the desired outcome. This strengthens the intent of the agreement and defines the scope of the negotiations. To this end, carefully analyze what each party wishes to achieve.

Do: make rights and obligations concrete

Describe precisely who does what, when, and under what conditions. If a fee has been agreed upon, specify the amount, the payment method, the timeframe, and any conditions that must be met first. The more concrete, the smaller the chance of misunderstandings during execution.

Do: ensure that the VSO complies with the law

Take into account contract law and other relevant areas of law, such as employment law and tax law. A settlement agreement that does not comply with the law can have unintended negative consequences—in employment cases, for example, regarding the right to unemployment benefits. Have the settlement agreement reviewed to ensure it is valid.

Do: seek guidance from a lawyer

A legal expert not only assists with the wording but also advises on the negotiation and legal validity. This ensures the agreement is both legally sound and strategically well thought out.

The don'ts: these mistakes will cost you money

Don't: use vague formulations

Open language, open to multiple interpretations, is a source of new disputes. Use specific, unambiguous wording—not only for rights and obligations, but also for the consequences if someone fails to comply.

Don't: overlook important details

Forgotten topics lead to problems later. Consider future rights and obligations, a final discharge clause, confidentiality, any non-compete or non-solicitation clause, and tax implications. Analyze each component for all possible consequences.

Don't: rush to draw

Haste leads to unfavorable conditions. Take your time, consult with all parties involved, and seek legal and tax advice. A settlement agreement must be right not only for the present but also for the long term.

Don't: rely blindly on a template

A standard template is at most a starting point. Adapt each clause to your situation and add provisions that specifically cover your dispute. A custom-made settlement agreement serves the interests of all parties much better.

Frequently asked questions about the settlement agreement

Do I have a cooling-off period for an employment-based special education?

Yes. Upon termination of an employment contract via a settlement agreement, the employee has a statutory cooling-off period of fourteen days to revoke the agreement without giving reasons. If the employer does not point out this right in writing, the period is extended. Always include this cooling-off period in the settlement agreement.

Do I retain my unemployment benefits with a special secondary education?

That is possible, but only if the settlement agreement is drafted in a “WW-safe” manner. The UWV checks, among other things, whether the initiative lay with the employer, whether there is no urgent cause, and whether the notice period has been observed. An incorrectly formulated settlement agreement can jeopardize your right to unemployment benefits — so have it checked.

Is a settlement agreement binding?

Yes. As soon as both parties sign (and any cooling-off period has expired), the agreements are binding. That is why it is so important to check everything thoroughly before signing; getting out of the agreement afterwards is difficult.

Have a settlement agreement drafted or reviewed

A settlement agreement requires careful attention: one awkward clause can have major consequences. The legal experts at MKB Juristen draft your settlement agreement, negotiate on your behalf, or review a submitted draft. View our assistance with drafting and negotiating a settlement agreement or schedule a no-obligation intake.