Know your rights

Contracts ending the employment relationship
Sometimes there are situations, where both the employer and the employee agree to terminate the employment contract in mutual understanding. employment contracts.

Sometimes the reasons are individual, sometimes collective. Sometimes the employer is for example looking to diminish the labor force and offers contracts to those who would go willingly. Sometimes there may be a very difficult situation at the work place and the best solution may be to let an employee go with an ending contract.

However, there is a lot to consider when entering such an agreement. First of all, when an employer and an employee mutually agree to terminate the employment contract, the employee will not be eligible to receive unemployment benefits for the next 3 months. There is a “quarantine” period of 90 days for those employees, who resign from work. If they are laid off by the employer, they do not get the quarantine. However, entering into an agreement to terminate the employment contract is considered resigning on the employee’s behalf. Also, if there is a monetary compensation paid (which there usually is), the employee must be aware that the compensation which exceeds their 90 day’s salary, will be considered income and prohibit them from receiving unemployment benefits during that time. For example, if the employee gets a compensation that is worth their 6 month’s pay, they will be eligible to receive unemployment benefits after six months. The quarantine period will, however, also pass during this time.

There is a difference, whether the compensation is written out as salary or as, for example, damages in the contract. The different forms of compensation may receive different tax-treatment for example. Some of the compensation may not be treated as income and may not be taxed for that reason. But all the different forms of compensation will be evaluated and treated individually.

Often the contracts have a secrecy clause, which may mean the contract and its content must be kept secret for a couple of years, or possibly even indefinitely. There may also be a substantial fine in case the secrecy is violated.

There may also be several other clauses in the contracts that need to be well thought out. If the employer offers employee such a contract, the employee must always have enough time to read it through carefully and consider it for a reasonable amount of time. Employees may always show the contracts to for example trade union lawyers, who are bound by confidentiality, to get an understanding whether the contract is fair. Also sometimes a lawyer may help in these negotiations from the beginning.

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