Annulment of Settlement Agreement because of Error?

An employer had terminated the employment contract with a labour incapacitated employee by means of a settlement agreement. In summary proceedings, the Court of Appeal ruled that it would be plausible that the Court dealing with the proceedings on the merits will annul the settlement agreement because of an error or abuse of the circumstances. That was the reason why the claims for payment of the wages and for permission to perform the agreed work were awarded.

A 62-year-old employee who had been employed by an employer since 1989, reported ill for her work in September 2020. According to the occupational physician, there were no reintegration opportunities at the time. Following the advice of the occupational physician an expert examination was carried out. Based on this examination, the occupational physician recommended treatment by a psychologist. This advice, however, caused so much stress to the employee that she had to be transported to a hospital by ambulance due to suspected heart disease. There it turned out that she had an inflammation in the stomach, caused by stress. The employee then declared that she did not want to receive the treatment by the psychologist.
Subsequently, the employer and the employee had a meeting, in which they discussed the recommended treatment, but also the option of terminating the employment contract by means of a settlement agreement.
The employer then sent the employee a settlement agreement and allowed the employee four days for a response. On the last day of this term (12 August, 2021), the employer’s management secretary visited the employee at her home to have the settlement agreement signed. The employee then signed the agreement. Thus, the employment contract ended on 16 November, 2021. The employer paid the transitional allowance and an amount of approximately eleven gross monthly salaries.
As was agreed, the employee submitted a recovery notification.

In October 2021, on behalf of the employee, a meanwhile engaged lawyer dissolved the settlement agreement due to a failure on the part of the employee to correctly determine her will on entering into the agreement. The employee also reported sick again, but the occupational physician considered her fully capacitated for work.
The employee then claimed in proceedings that the employer should pick up his reintegration obligation again or, if the employee is would be considered labour capacitated, that the employer should allow her to resume work again. She also claimed wage payment.
The Sub-district Court rejected the claims because granting the claims would require more investigation than summary proceedings allow. In particular, the Sub-district Court considered it of importance whether the employee was still labour incapacitated when she signed the settlement agreement and whether the employer had sufficiently informed her about her legal position as a sick employee.

When, however, the employee lodged an appeal, the Court of Appeal appeared to have a different view. The Court of Appeal agreed that, in the context of summary proceedings, it was not possible to determine whether the employee had been able to determine her will on the settlement agreement. Nevertheless, the Court of Appeal held the opinion that it was sufficiently plausible that the Court might grant the employee's claims in proceedings on the merits. The Court of Appeal referred to the circumstances under which the agreement had been concluded:
• The employee had been employed for 32 years and was 62 years old.
• She had gone through difficult times and had already been labour incapacitated for eleven months.
• The employee had to follow a treatment program that she did not want, which caused enormous stress for her.
• The employer was aware of the stress complaints and also knew their cause.
• The employer had informed the employee that, the wage payment would be discontinued if the treatment program was not followed.
• The proposal to terminate the employment contract was made by the employer.
• The employee was fully incapacitated for work at the time.
• Due to the fact that the treatment program would be conducted by a psychologist, the employer knew that the employee had psychological complaints.
• The employer did not inform the employee about her position as a sick employee (prohibition of termination during illness; having to look for other work while she was incapacitated for work; refusal of the Sickness Benefits for committing an unlawful act, the reason for the required recovery notification).
• The employer has not mapped out the financial consequences of the settlement agreement for the employee.

The Court of Appeal declared to understand that the employer had announced the wage freeze for fear that, otherwise, the UWV might impose a wage sanction on the employer afterwards. Nevertheless, the Court held the opinion that the employer was premature in its threat to stop the wage payment in case the employee would not follow the recommended treatment. According to the Court, the possibility of a similar treatment by another therapist should have been investigated. The employer should also have complied with the occupational physician’s advice to request an UWV expert opinion on her own reintegration efforts.
The employer had stated that, in a phone call, the occupational physician had declared that the employee had already failed to carry out the occupational physician’s advice for eleven months and that the employee actually could reintegrate, but this statement was not apparent from the occupational physician’s advice. If the occupational physician had really said so, the Court found it a very serious matter, but it would not have relieved the employer of the requirement to point it out to the employee first before drawing the conclusions.

The Court held the opinion that the employee could annul the settlement agreement because of error or abuse of the circumstances. In particular, the Court of Appeal indicated in this respect that the employee was given the impression that the wage payment would have to be discontinued if she would not follow the treatment program and that this was the reason why she agreed to termination of the employment contract. Even if in proceedings on the merits it would be decided that the settlement agreement cannot be annulled, the Court of Appeal considered it plausible that the Court dealing with the proceedings on the merits will rule that invoking the settlement agreement is unacceptable according to standards of reasonableness and fairness.
Since, meanwhile, the employee was deemed to be labour capacitated, the claim to resume reintegration was rejected. The claim for admission to resume work and the claim for wages, however, were granted.

Terminating an employment contract with a labour incapacitated employee by mutual consent is very attractive for an employer, because it releases the employer from the obligations to continue the sick pay and the reintegration. Usually, employers are willing to pay a considerable amount to make it happen. However, it is hardly ever feasible in practice. If the employee is not properly informed about the consequences of the termination of the employment contract, the employee can annul the concluded agreement afterwards, as happened in the above case. And if the consequences are presented to the employee, he/she will usually not be willing to cooperate in the termination of his/her employment contract.