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Threats of Summary Dismissal May Lead to Invalid Settlement Agreements

Submitted By Firm: Boekel

Contact(s): Epke Spijkerman


Hester Uhlenbroek and Charlotte Buijsman

Date Published: 1/22/2014

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When under Dutch law an employment contract is terminated by mutual consent, the arrangements that are made are normally set out in a settlement agreement. In principle, the employer and the employee are bound by these arrangements. The situation can be different if it is established, after the event, that the employee was put under some pressure to sign the settlement agreement. 

This newsletter examines a judgment issued by the Court of Appeal for Arnhem-Leeuwarden, in which a settlement agreement was annulled by the employee due to an abuse of circumstances. The employer had threatened summary dismissal when it knew or ought to have known that a summary dismissal would be unlikely to be upheld in court proceedings.

Employer’s duty to investigate / lack of consensus
An employer should not too readily rely on the fact that an employee agrees to a voluntary termination of his employment. According to Dutch law, any such agreement must be evident from a clear and unambiguous statement by the employee. In certain circumstances, the employer may even be faced with a duty to investigate whether the employee truly intended to agree to the termination. If a settlement agreement is signed, there is – as a rule – no doubt of the fact that both parties have the intent to terminate the employment contract. If, however, the agreement is finalised under the influence of any threat, deception or abuse of circumstances, it may be annulled. The result of this is that the employment contract remains in force and wages must continue to be paid (with retrospective effect).   

Threats of summary dismissal
The Court of Appeal for Arnhem-Leeuwarden held on 23 July 2013 that the threat of summary dismissal might in certain cases amount to an abuse of circumstances. What was the background here? The employer had charged the employee with having committed fraud with her time records. She had allegedly not worked on 16 April 2010, although that day was entered into the time records as a working day. The employer had confronted the employee with this fraud on 2 June and then offered her a settlement agreement a couple of days later, on Friday 4 June. The employee was encouraged to sign the agreement, since otherwise she would be summarily dismissed. The employee signed the settlement agreement after the weekend, on Monday 7 June. Some time later, the employee reversed her decision. In so doing, she relied upon the voidability of the agreement due to abuse of circumstances by her employer. 

The Sub-District Court sided with the employee. The employer raised an appeal and stated that it did not know and need not have known that the employee had felt moved to sign the settlement agreement by special circumstances – such as for instance dependence, inexperience or an abnormal psychological condition – so that it should have refrained from allowing her to do so. The employer stated that the employee knew full well what the charge against her was and that she had therefore made a duly considered choice to agree to the settlement agreement that she was offered. The employee denied, however, that the employer had made the charges against her clear.

The Court of Appeal’s opinion: no basis for summary dismissal 
In the view of the Court of Appeal, there were no grounds for summarily dismissing the employee. After all, the employee had continued working for the employer for two days after the meeting on 2 June. Furthermore, the consequences of summary dismissal were too grave for her. According to the Court of Appeal, the employer had abused the employee’s dependent position by encouraging her to sign the settlement agreement with the threat of summary dismissal. The employer ought to have known that a summary dismissal was unlikely to be upheld in court. It made no difference that the employee had been accompanied by her partner on Monday 7 June, and that the partner had asked for the draft agreement to be altered. This was because the employer had not asserted that the employee and/or her partner was/were skilled or experienced in the field of employment law. Furthermore, the employer had not allowed the employee enough time to obtain information about her legal position. There was just one weekend between 4 and 7 June; the employee could not have obtained adequate legal advice during that period.

Make a realistic assessment and give the employee enough time to obtain legal advice
The situation that arose in this case occurs quite often in practice. The employer considers that some conduct on the part of the employee cannot be tolerated and wants him or her to leave as quickly as possible. The case illustrates that it is important for an employer to make a realistic assessment of whether there are adequate grounds for summary dismissal. Summary dismissal is subject to stringent requirements; after all, the consequences of summary dismissal are grave. An employee who is faced with this will no longer be entitled to wages and will not qualify for unemployment benefits. 

If there is an incorrect threat of summary dismissal, and if the employee agrees to termination of his employment with that threat hanging over him, then this can end up being an expensive mistake for the employer – as is clear from the Court of Appeal’s judgment. After all, there is a risk that the employee may successfully invoke the voidability of the settlement agreement, after the event, so that wages will have to be paid up to date (with retroactive effect). 

If there are good reasons for summary dismissal, it may be advisable to go ahead and do this, even if the employer would prefer a settlement, for instance for procedural economic reasons. Generally, the employee will then obtain legal advice. Depending on the discussions that then take place, it may always be possible to attempt to secure an amicable settlement. In any event, the employee will be doing this after having duly considered the situation and after having obtained some advice, so that he will not then be in a position to backtrack on any settlement. 

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