What is a termination agreement? Explanation and use

What is a termination agreement? It is the written agreement in which the employer and employee stipulate that the employment contract ends by mutual consent, without the permission of the UWV (Dutch Unemployment Insurance Agency) and without the intervention of the subdistrict court. The legal basis is found in Article 7:670b of the Dutch Civil Code: the agreement must be in writing, and the employee has a fourteen-day cooling-off period thereafter. The text regulates the end date, any compensation, the settlement of vacation days, and the final discharge. The main goal for both parties is an orderly termination in which the employee retains their right to unemployment benefits.

The short answer

• What: Written agreement terminating the employment contract by mutual consent (Art. 7:670b BW).
• Form: written is a validity requirement; an oral agreement is not sufficient.
• Cooling-off period: the employee may withdraw within 14 days without giving a reason, and within 21 days if the agreement does not mention that right.
• Unemployment benefit: remains in effect in the event of a neutral ground, initiative by the employer, and respect for the notice period.
• Compensation: the transition payment is not automatically due under this route, but in practice serves as a minimum.
• Final settlement: final discharge, with explicit exceptions for what you still wish to arrange.

What is a termination agreement under the law?

An employer cannot unilaterally terminate an employment contract. In the case of economic reasons or long-term disability, the process goes through the UWV; in the case of poor performance or a strained working relationship, it goes through the subdistrict court. Both routes take time and carry a real risk of rejection.

Article 7:670b of the Dutch Civil Code offers a third way: the parties agree together that the employment relationship will end. The law imposes a strict formal requirement in this regard. The agreement must be entered into in writing. An agreement by telephone or during a conversation is therefore not sufficient. A signed document or a written confirmation of an email exchange from which consent is unequivocally evident is. Without written documentation, the employer runs the risk that the employment relationship will simply continue, including the continued payment of wages.

Because it involves mutual consent, the prohibitions against termination do not apply. Formally, therefore, a sick employee can sign. However, it is usually not advisable, as that employee generally loses their right to benefits by doing so.

Difference with a settlement agreement

In practice, both terms are used interchangeably, but legally they differ. The termination agreement is the employment law instrument of Article 7:670b of the Dutch Civil Code: the termination of the employment contract by mutual consent. The settlement agreement is the general instrument of Article 7:900 of the Dutch Civil Code, by which parties definitively settle a dispute or uncertainty. This can concern dismissal, but just as easily an unpaid invoice or a neighborhood dispute.

In the event of dismissal, they often coincide: the document is called a settlement agreement and simultaneously terminates the employment contract. The legislator has addressed this overlap. The cooling-off period also applies when the termination of the employment contract is formalized in a settlement agreement (Article 7:900, paragraph 4 of the Dutch Civil Code). Therefore, an employer cannot evade the cooling-off period by giving the document a different name.

Practical difference: if there is a genuine dispute, for example regarding a wage claim or a non-competition clause, the settlement form is appropriate because it also resolves the disagreement. If it merely concerns an amicable separation without conflict, a pure termination agreement is clearer.

The 14-day cooling-off period

The employee may terminate the agreement in writing within fourteen days of its conclusion, without cause and without cost. The dismissal is thereby taken off the table, and the employment continues as if nothing had happened.

The employer must inform the employee of this right in the agreement itself. If this provision is missing, the period is extended to three weeks. This is not a theoretical point: it concerns an extra week of uncertainty, precisely during the period when a replacement has often already been arranged. Therefore, always include the cooling-off period explicitly.

If the employee revokes and the parties conclude another termination agreement regarding the same employment relationship within six months, he is not granted a new cooling-off period. Furthermore, the time limit is mandatory: waiver is not possible, even if the employee wishes to do so.

Unemployment insurance safety: what it's really about

An employee signs only if he retains his benefit. The UWV assesses whether he became unemployed through his own fault. Three points in the text are decisive for this.

• Neutral grounds for dismissal. There is no urgent cause and no blame on the part of the employee. State the cause in a matter-of-fact way, for example, a eliminated position or a difference of opinion, and state that the employee is not to blame.
• Initiative lies with the employer. The agreement states that the employer wishes to terminate the employment and that the employee agrees to this. Wording such as dismissal at one's own request or resignation costs the employee their unemployment benefits.
• Respect the notice period. The end date must be at least the applicable notice period after the date of the agreement. If this is not done, UWV will take the fictitious notice period into account and the benefit will commence later, resulting in an income gap.

Furthermore, it applies that a sick employee who signs generally loses both sick pay and unemployment benefits. In the event of illness, this route is rarely the right one.

Compensation, vacation days and final discharge

The transition payment under Article 7:673 of the Dutch Civil Code is mandatory for dismissal via the UWV (Dutch Social Security Agency) or the court, but not in the case of mutual agreement. However, it does serve as a benchmark in negotiations: one-third of a monthly salary per year worked, pro rata for fractions of years. In practice, anyone requesting cooperation offers that amount or more.

Furthermore, accrued vacation days, holiday pay, any bonus, and the final settlement are arranged, plus the question of whether the non-compete and non-solicitation clauses remain in effect. The final discharge concludes the process: the parties declare that they have no further claims against each other. Anything you still wish to receive or retain must be explicitly excluded from this. A forgotten bonus or pension issue is virtually impossible to recover after signing.

An example from the SME sector

An installation company with eighteen employees wants to part ways with a work planner whose position will largely become redundant following a software change. Instead of a UWV (Dutch unemployment agency) process, the employer proposes a termination agreement: an end date in two months to ensure the notice period is correct, neutral grounds, the statutory transition payment plus an additional half-month, exemption from work during the final month, and a contribution towards the costs of legal advice. The employee has the text reviewed, signs it, and retains their unemployment benefits. The entire process takes three weeks instead of three months.

Honest recommendation

You do not need a lawyer to decide that you want to take this route. That is a business choice, not a legal one. In a simple case—a healthy employee, an undisputed reason, a short period of service, and standard compensation—a sound model will get you far. You can also easily fill in the usual components yourself, such as vacation days, the return of company assets, and a certificate of employment.

Do seek a review when something unusual is at play: illness or impending absence, a non-compete or non-solicitation clause you wish to enforce, a statutory director, high or variable remuneration, a repayment scheme for study costs, or an employee who has already engaged a lawyer. In any case, have a one-time check performed to ensure that the three unemployment benefit points and the cooling-off period are set correctly. This is where things go wrong in practice, and that is precisely the component that results in missed benefits or continued employment.

Arrange it or read on: termination agreement, write it yourself via draft termination agreement or outsource via have termination agreement drafted.

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