Settlement Agreements in the Netherlands and the Duty to Provide Information: Speedy Terminations Can Be Costly

A settlement agreement (vaststellingsovereenkomst; VSO) is often an efficient way for employers to terminate an employment relationship. It may prevent involvment with the Dutch Employee Insurance Agency (UWV) or proceedings before the Subdistrict Court, but that speed also carries legal risks. An employer must provide an employee with sufficient information about the consequences of signing, especially when the employee is sick and/or summary dismissal is at issue.

A recent decision by the Appellate Court of The Hague (ECLI:NL:GHDHA:2026:374) shows that rashly terminating an employment contract through a settlement agreement can be costly for the employer.

The case

The employee was incapacitated for work due to back problems. The employer had doubts about the severity of the impairment and had an investigation carried out, which revealed that the employee behaved differently in the office than he did elsewhere. For example, he had difficulties walking in the office and used a crutch, whereas he walked normally when out of sight of the office and traveled independently by public transport.

The employer confronted the employee with these findings during a meeting and claimed that he had systematically exaggerated his complaints, thereby misleading the employer, the occupational physician and other experts. The employee was summarily dismissed and was immediately presented with a settlement agreement. The employer indicated that it would withdraw the summary dismissal if the employee did not rescind the settlement agreement within the statutory reflection period. The employer also confirmed in writing that the employee was entitled to unemployment benefits.

The employee did not obtain legal advice and signed the settlement agreement immediately. When UWV rejected his application for unemployment benefits, the employee sought to have the settlement agreement annulled on the grounds of error and also claimed fair compensation, a transition payment and other payments. The Subdistrict Court denied his claims, but the Appellate Court was more critical of the employer.

The Appellate Court's opinion

The Appellate Court annulled the settlement agreement on the grounds of error, partly because the employee had been on long-term sick leave, the rehabilitation process had stalled and during just a single meeting he had been confronted with serious accusations, summary dismissal and a settlement agreement that he was to sign on the spot. The employer should have exercised extra care in those circumstances.

The Appellate Court ruled that the employer should have explicitly informed the employee of the risk that he would not be entitled to benefits. The employer knew, or should have known, that a sick employee is not generally entitled to unemployment benefits and that termination via a settlement agreement might also affect any sickness benefits. A general provision stating that any uncertainty about unemployment benefits would be for the employee’s account was insufficient, all the more so because the employer had specifically confirmed in writing (not in the settlement agreement) that the employee was entitled to unemployment benefits.

The Appellate Court also ruled that the employer could not unilaterally withdraw the summary dismissal, as this required the employee's consent. Since that consent was lacking, it was necessary to determine whether the dismissal was legally valid. According to the Appellate Court, it was not. The occupational physician had identified impairments and the employer was not permitted to independently draw a different conclusion about the employee's incapacity for work. The findings from the investigation did not change this. Less drastic measures, such as further medical examination, suspension of pay or an expert opinion, would have been more logical.

The Appellate Court awarded the employee gross fair compensation of €32,782.97 and a gross transition payment of €7,427.59.

Takeaways for employers

• Actively and specifically inform the employee about the consequences of a settlement agreement, especially in the event of sickness;
• Give the employee a genuine opportunity to seek legal advice; 
• Explicitly record any consent to the withdrawal of summary dismissal (not in the settlement agreement); 
• Leave any medical evaluations to the occupational physician or UWV; and 
• Before considering summary dismissal, choose less-drastic measures first.