Should you sign a settlement agreement during sickness?

Is your employer suggesting ending your employment by signing a settlement agreement during a period of sickness? Be careful; termination of your employment under these circumstances may jeopardise your right to social security benefits. Noordam Advocaten explains.

Employee protection during sickness

Employee sickness causes problems for both the employee and the employer. Employers struggle, not only from the employee being absent, but also from the financial impact and the Dutch statutory requirements to reintegrate the employee back into work.

To minimise the burden, employers sometimes attempt to end the employment. The sick employee is, however, protected against dismissal. In most situations, this protection will impede the employer from asking the UWV, a Dutch Employee Insurance Agency, to grant a dismissal permit to give notice or to ask the court to dissolve the employment agreement.

The sick employee benefits from such protection during the first two years of illness. If the employee happens to be fit for work during intervals shorter than four weeks, these intervals are ignored when calculating the two years of inability to work. If the employer does not comply with the statutory reintegration obligations, the period of two years can be extended by the UWV.

The protection is, however, not unlimited; exceptions occur, for example, in cases of business closure or in situations where summary dismissal can be justified.

Settlement Agreement during sickness

A method of circumventing employee protection during sickness is arranging for the employment to be terminated on the basis of mutual consent - the terms and conditions are often included in a so-called Settlement Agreement or Termination Agreement.

Accepting the termination during sickness and signing a Settlement Agreement / Termination Agreement may, however, adversely affect the employee’s entitlement to sickness benefits and / or unemployment benefits from the Dutch government.

Sickness benefits from national insurance fund UWV

For the first two years of an employee’s sickness, employers need to continue paying at least a certain percentage of the employee’s salary (if not full salary). Once the employment has ended, the salary is no longer due.

According to the Dutch Civil Code, the employer should pay at least 70 percent of the regular salary of the sick employee. However, if the regular salary exceeds the statutory "maximum daily wage" of 4.975,53 euros per month (2022), 70 percent of 4.975,53 euros gross per month, i.e. 3.482,87 euros, will suffice according to the Dutch statutory rules. Contractual arrangements are often more generous; it is often agreed that the employer pays, for example, 100 percent or 90 percent of the regular salary during the first year of illness and 70 percent during the second year of illness.  

If a person is unemployed and not able to work due to sickness such a person is, in principle, entitled to sickness benefits from the UWV. However, if a sick person can be blamed for causing or accepting the termination of their employment, this person may not be eligible to receive sickness benefits from the UWV. The UWV is reluctant to pay benefits, arguing that the employee should not have accepted the termination of their employment and that the employer remains responsible for paying the employee during the first two years of sickness.

Accordingly, signing a settlement agreement may jeopardise the employee’s eligibility to receive sickness benefits upon termination of employment. This will not be the case if the employee could not reasonably be expected to continue their employment, for example in case of serious and culpable acts or omissions on the employer’s part (e.g. in cases of harassment).

Depending on the circumstances, it may be difficult for the employee to convince the UWV that continuing employment could not be expected and that the UWV should pay sickness benefits even though the employee accepted the termination of their employment.

Unemployment benefits

To receive unemployment benefits, the employee must be available to work and apply for jobs. During illness, the employee is usually unable to work or apply for jobs and will therefore not be eligible for unemployment benefits.

An exception may arise where the employee’s illness is related to the specific working conditions or a conflict situation, a so-called “situational incapacity for work”. If the employee expects to be able to work elsewhere and apply for jobs the employee may still be entitled to unemployment benefits after signing a settlement agreement.

Please also note that to be eligible for unemployment benefits, the settlement agreement must include that the termination is the employer’s initiative and that the employee cannot be blamed for the termination.

If you have any questions regarding this matter please do not hesitate to contact Noordam Advocaten by using their contact form, by telephone: +31 (0) 20 - 68 98 123 or by e-mail: [email protected].