Interim termination clause in settlement agreement: unemployment benefit?
19 October 2021
The Unemployment Insurance Act (in Dutch: Werkloosheidswet) stipulates that if a fixed-term employment contract is terminated by mutual consent, without an interim termination clause, the employee is not entitled to unemployment benefit. However, the District Court of Amsterdam recently ruled that an interim termination clause may still be included in a settlement agreement that is terminating the employment contract. This allows the employee to retain his entitlement to unemployment benefit.
The employee had been employed by the employer since 6 May 2019, on the basis of a fixed-term employment contract. During the employment contract, the parties entered into a settlement agreement which stipulated that the employment contract would end on 31 December 2019. Initially, the employment contract did not include an interim termination clause. However, when concluding the settlement agreement, the parties did include an interim termination clause.
The employee then applied to the UWV for unemployment benefit. The UWV rejected the application, as the employee had an employment contract until 6 June 2020 that could not be terminated prematurely. According to the UWV, on the basis of Section 19(4) of the Unemployment Insurance Act, the employee is only entitled to unemployment benefit after 6 June 2020 if the fixed-term employment contract is terminated by mutual consent without an early termination clause.
The court’s judgment
The court ruled as follows.
- Section 19(4) of the Unemployment Insurance Act does not require that at the time of the application for unemployment benefit, the provisions of the employment contract at the start of the contract must be taken into account. An employment contract, even if concluded for a fixed term, can be amended over time, for example by including an interim termination clause in the settlement agreement;
- The interim termination clause in the settlement contract meets the written requirement for an interim termination clause;
- The Unemployment Act does not require that a certain period of time should have elapsed between the inclusion of the interim termination clause and the termination of the employment contract.
As a result of the above, the right to unemployment benefit can in this case not be excluded by Art. 19 (4) of the Unemployment Insurance Act. After all, the fixed-term employment contract contained an interim termination clause when the contract ended and the employee became unemployed. According to the court, the UWV wrongfully refused the employee unemployment benefit.
In view of the ruling, it seems possible to agree on an interim termination clause (in the settlement agreement) when terminating a fixed-term employment contract by mutual consent. In that case, the employee retains the right to unemployment benefit. However, it is possible that the Court of Appeal will come to a different conclusion in case the UWV appeals against this judgment. Therefore, it remains important to, if desired, include an interim termination clause when entering into a fixed-term employment contract.
Read the judgment of the District Court of Amsterdam here (only in Dutch).