Transition payment and settlement agreement in Dutch outplacement

In Dutch employment law, the transition payment is the statutory severance employees are usually entitled to when the employer ends the contract. A settlement agreement (vaststellingsovereenkomst or VSO) is a written agreement in which employer and employee record the conditions of that termination instead of going through UWV or the court. Together, these two elements determine how much financial space there is for outplacement and for a realistic transition to new work. This article explains how they interact and how to use them consciously within an outplacement context.

What is the Dutch transition payment?

The transition payment (transitievergoeding) is a statutory compensation that most employees in the Netherlands receive when their employment is terminated on the initiative of the employer. It is regulated in the Dutch Civil Code and is meant to support the transition to a new job or other future perspective. The amount is based on the monthly salary and the length of service, using a fixed calculation method laid down in law.

The right to a transition payment exists regardless of the dismissal ground, as long as the employer takes the initiative and there is no serious culpable behaviour on the part of the employee. Whether the reason is reorganization, long-term dysfunction or a disturbed working relationship, the basic rule for the payment remains the same. In practice, discussions often focus on the correct calculation, for example with variable pay or changing working hours.

Many employers use (part of) the transition payment to finance an outplacement programme. This fits the original purpose of the law: supporting a smooth transition to new work. Part of the money can be allocated to guidance, another part can be paid out in cash to the employee, depending on what is agreed.

• The transition payment is a statutory entitlement in Dutch labour law.
• The amount depends on monthly salary and length of service.
• The employer must have taken the initiative to terminate or not renew.
• The payment is meant to facilitate the employee’s transition to other work.
• Part of it can be used for outplacement or training.

What is a settlement agreement (VSO) in the Netherlands?

A settlement agreement (vaststellingsovereenkomst, often shortened to VSO) is a written agreement in which employer and employee lay down the conditions under which the employment ends. It replaces a formal dismissal procedure via UWV (the Dutch Employee Insurance Agency) or the subdistrict court. The employee must agree voluntarily and must have had sufficient time to consider the proposal.

The VSO sets out the end date, the reason for termination, the transition payment, any additional compensation and arrangements about outplacement, confidentiality, non-compete clauses and more. The legal meaning of a settlement agreement is that both parties are bound by it once they have signed. Reopening or undoing the agreement is only possible in exceptional cases.

For unemployment benefits (WW), UWV checks the content of the VSO carefully. The reason for dismissal must not be the employee’s fault, and the (fictitious) notice period must be respected. That is why many employees have their VSO reviewed by a legal expert or union representative and combine this with career advice or outplacement support.

• A VSO is a mutually agreed termination agreement.
• It replaces a formal UWV or court procedure.
• The content must meet UWV requirements for unemployment benefits.
• Transition payment, end date and notice period are recorded in detail.
• Outplacement can be included explicitly as a support measure.

How do transition payment and settlement agreement interact?

In a negotiated termination with a VSO, the legal transition payment is usually the financial starting point. Employer and employee first calculate what the statutory amount would be if the case went to UWV or the court. That figure then serves as a reference for negotiations: they can agree on exactly that amount, on a higher package, or – with clear justification – on something below the statutory level.

The combination of transition payment and settlement agreement is therefore not a separate legal concept but the outcome of negotiations within a legal framework. Under Dutch law, employees are in principle entitled to at least the statutory transition payment, unless there are strong legal arguments to deviate. In many real-life situations, parties end up with a higher total package, for instance because the employer values a quick and amicable solution.

Outplacement arrangements are often part of that overall package. Sometimes the employer pays the costs of an outplacement programme directly to the provider. In other cases, the employee receives the full amount of the transition payment and decides to invest part of it in guidance. Both options are possible, as long as the VSO describes them clearly.

• The statutory transition payment is the usual negotiation baseline.
• The VSO can set a higher or lower amount, within legal limits.
• The total package may include money and outplacement support.
• Clear wording prevents later disputes with UWV or the tax authorities.
• The combination shapes how much room there is for a good transition.

Using the transition payment for outplacement

Dutch law does not dictate exactly how the employee must spend the transition payment. It only states that the payment is intended to ease the transition to other work. Outplacement is a concrete way to do this: structured guidance in finding a new job, reorienting your career or moving to a different role or sector.

Care4Careers often sees employers and employees choose to earmark part of the transition payment for an outplacement programme linked to a VSO. The employer pays the invoice directly to the provider, so the employee does not have to worry about managing the money and can focus on the future. This approach offers clarity and usually increases the chances of a successful move into a new role.

Alternatively, the employee can receive the full transition payment and then purchase guidance independently. This offers flexibility but requires more initiative and knowledge of the market. Especially employees who are declared redundant after a reorganization and feel uncertain about their profile often benefit from a provider that understands both the labour market and the emotional impact of job loss.

• The transition payment can be used partly or fully for outplacement.
• Employers can pay the provider directly or leave the decision to the employee.
• Outplacement helps with applications, positioning and career decisions.
• Guidance shortens the period without work and improves job match quality.
• Clear terms in the VSO avoid misunderstandings about financing.

Legal and tax aspects to consider

Under Dutch dismissal law, the employer generally owes the transition payment when they initiate termination. A VSO cannot simply waive this right to the employee’s detriment. A much lower payment than the statutory norm can be problematic, especially if the employee was not properly informed about their rights.

For unemployment benefits, UWV focuses mainly on the reason for dismissal, the question of fault and the correct notice period. Differences in the amount of the transition payment alone do not automatically block benefits, but they must fit the overall picture. A carefully drafted VSO that respects the fictitious or actual notice period is therefore essential.

Tax treatment is another important element. In most cases, the transition payment is taxed as income from former employment. If the employer pays an outplacement programme linked to a VSO directly, these costs often qualify as tax-efficient training or employability expenses. This can be more attractive than paying everything as a taxable lump sum to the employee, who then pays for outplacement from net income.

• Deviating from the statutory amount requires clear justification and consent.
• UWV mainly checks dismissal reason, fault and notice period.
• The transition payment is usually taxable; outplacement costs can be efficient.
• Careful drafting in the VSO protects both WW rights and tax position.
• Legal advice is advisable in complex or high-stakes cases.

Examples of practical arrangements

Imagine an employee who has worked ten years for a company and becomes redundant due to reorganization. The statutory transition payment is calculated. In the settlement agreement, employer and employee agree that this full amount will be paid, plus a separate budget for outplacement. The employer pays the outplacement provider directly, allowing the employee to concentrate on exploring new options.

Another example: employer and employee wish to end a long-standing but strained working relationship without a court case. The employee values time to recover and then gradually re-enter the labour market. They agree on a slightly higher transition payment in the VSO and keep outplacement optional. The employee can later decide to use part of the money for guidance or to invest in training.

There are also situations where the transition payment is relatively modest, for instance after a short employment. In such cases, a compact outplacement programme may be appropriate, focused on a strong CV, an up-to-date LinkedIn profile and targeted interview practice. Care4Careers’ experience is that even short, focused guidance can significantly boost confidence and job search effectiveness.

• Full statutory payment plus a separately funded outplacement programme.
• Higher transition payment with optional, self-funded career guidance.
• Compact support in cases of lower payments or short service.
• Phased programmes: orientation first, intensive applications later.
• Agreements that outplacement starts during or right after the notice period.

Reorganization, transition payment and outplacement

During reorganizations, a group of employees often becomes redundant at the same time. They lose their positions not through personal fault but because the organization changes. In these situations, the transition payment is a key financial safeguard, while dismissal due to reorganization almost always requires structured support in finding new work.

Employers frequently combine a collective social plan with individual VSOs. The social plan sets minimum standards for the transition payment, sometimes with extra percentages or fixed top-ups. It can also stipulate that an outplacement provider will support affected employees in their search for new roles.

For each individual employee, it is crucial to understand how the social plan translates into their personal settlement agreement. The basic payment may be the same, but details such as the precise outplacement set-up, release from duties and notice period can differ. Open dialogue about expectations, health and career goals helps to create realistic and workable arrangements.

• Reorganizations often use social plans plus individual VSOs.
• The transition payment is usually defined collectively in the plan.
• Outplacement is a key instrument to limit long-term unemployment.
• Individual needs determine the depth and focus of guidance.
• Clear communication reduces uncertainty and resistance.

Conclusion: using transition payment and VSO as a springboard

The way in which transition payment and settlement agreement are combined has a major impact on how employees experience dismissal and on their chances in the labour market. The statutory rules on the transition payment and UWV requirements form the legal foundation. Within that framework, there is ample room to link financial arrangements to meaningful outplacement support.

Those who view the transition payment only as a lump sum risk missing opportunities. By explicitly including guidance, training and a well-designed outplacement programme in the VSO, the dismissal package becomes a springboard rather than just compensation. This requires clear agreements, sound information and support from professionals who understand both the legal and the human side of dismissal and reintegration.

Care4Careers operates exactly at that intersection: between rights and perspective, between financial arrangements and sustainable career development. By consciously connecting the transition payment to outplacement, employees gain more stability, direction and realistic confidence in building a new, fitting career path.