Final discharge in settlement agreement: meaning & example

Final discharge is a legal term meaning that you and your employer definitively renounce all possible claims against each other. In practice, it means nothing more than that you draw a thick line through your employment relationship and all agreements you have previously made.

In practice, it means that if you have agreed to a settlement agreement (VSO) which includes a final discharge, you cannot go back on the following points after dismissal:

• Financial receivables: think of salary you were owed, outstanding holidays, bonuses you are still entitled to
• Claims: think for example of a claim for damages because of and industrial accident
• Future claims: such as an undistributed 13th month
• Unknown claims: claims you don't even know exist now

Sometimes you can also agree a partial discharge with your employer. This means that you only cover agreements set out in your VSO. Final discharge thus goes much further: it covers everything, including things you may not have thought about.

Although in our legal practice we mainly see final discharges in agreements, it may happen that we insist on a partial discharge. This is especially the case if, for example, there are still different interpretations of certain matters for our clients. By doing so, we cover the risk of problems arising at a later stage.

The legal basis for final discharge can be found in Article 7:900 of the Civil Code. This article is about the settlement agreement, in which parties end a dispute.

In court cases, the interpretation on the final discharge between employer and employee can be quite different. In such cases, Dutch courts use the so-called Haviltex criterion. They then look at:

1. The literal text of the agreement
2. The intention of both parties
3. The circumstances during the conclusion of the agreement
4. What the parties could reasonably expect from each other

Let us look at some interesting judgments of the Supreme Court in the Netherlands (the highest court in our country). This will give us an insight into exactly how final discharge should be interpreted.

The Supreme Court has made it clear in several judgments that final discharge should be interpreted very broadly.

This means that a final discharge basically covers all claims to both employer and employee, unless explicitly agreed otherwise.

For example, a key judgment in this regard is HR 20 May 2005 (Art v Condea). He was laid off from the company in 1997 and complained in the year 2000 that his arms had become sore. Causing this pain was the previous work he had done for employer.

In it, the employee indicated that his previous employer had not taken good care of him. The judges then had to decide: "is this complaint too late or can there still be a claim towards the employer?" 

If employee had signed a final discharge settlement agreement in the above case, the question would be:

• Did he know about his complaints at signing?

• Could the employerredly expect that the complaints would be covered by the discharge?

• Was there any concealment or unknown circumstances?

This case thus highlights the importance of clear agreements on occupational diseases in settlement agreements. Especially since these occupational diseases are sometimes only discovered years later by an employee.

There are important exceptions where final discharge does not hold legally, even if we take it to court like the previous example:

For the following defects of will, you can annul the final discharge:

• Error: You were not aware of important facts and circumstances that should have been disclosed in the settlement agreement
• Cheating: Your employer deliberately lied or withheld information in such a capacity as to put you at a disadvantage
• Threat: You have been pressured to sign
• Abuse of circumstances: You were in a weak position when you signed the settlement agreement

You sign the final discharge settlement agreement for a work-related context. That means it can only concern claims related to the employment relationship. It does not include other claims, such as, for example, a personal loan between you and your employer.

As discussed above, an employer cannot be held responsible for unforeseen future damages. Consider:

• Occupational diseases that do not appear until years later and cannot be said with certainty to have been caused by working conditions
• Psychological damage from bullying at work that does not occur until later years
• Health damage from exposure to hazardous substances that your employer did not have sufficient knowledge of

Final discharge cannot waive rights that cannot be waived under the law, such as:

• Entitlement to the statutory minimum wage
• Protection against discrimination
• Other labour protection rights

A saleswoman was employed as an account manager by employer. She signed a settlement agreement in which commission rights (bonus) were expressly excluded from final discharge. 

The VSO included verbatim: "From this general and final discharge shall be excluded only the entitlement that employee believes he has to commission."

The employer then indicated that there was a final discharge and the employee was no longer entitled to commission after the settlement agreement was concluded.

However, the court ruled that the commission claim was not covered by the final discharge because it was explicitly excepted (view verdict).

An employee concluded a VSO due to disrupted working relationship. After leaving, he was found to have embezzled money. The court ruled that fraud was not covered by the final discharge because the employer did not know about it (view verdict).

A properly and legally correct final discharge clause contains the following elements:

1. Clear description of what is covered by the discharge
2. Explicit use of the term "final discharge"
3. Mention that it concerns known and unknown claims
4. Date from when the discharge applies
5. Possible exceptions specifically appointed

The difficulty in the final discharge clause lies mainly in naming and predicting any exceptions that should not be covered by the final discharge. This is always highly dependent on the personal situation.

A sample formulation as applied by our lawyers in our legal practice:

"The parties declare that they hereby mutually grant each other final discharge in respect of all claims which they have or may have against each other by virtue of the employment contract, its execution and termination, as well as on any other account, both for currently known and currently unknown claims."

Pay attention to these 'red flags' when reading through the final discharge of a settlement agreement: 

• Formulations too vague
• Uncertainty about when to discharge
• No reporting of unknown claims
• Lack of mutuality (e.g. only a final discharge for employer or employee is discussed)

Challenging final discharge is possible, but the bar is high based on our experience. After all, you have to be able to prove that there was a will or other ground for annulment.

The success rate therefore depends heavily on:

• The quality of your evidence
• The severity of the lack of will
• Your employer's attitude
• Judge's interpretation

Our figures show that about 20% of challenges are successful, especially in cases of clear evidence of fraud or abuse of circumstances.

Many employees sign right away under pressure. However, you are legally entitled to 14-day cooling-off period. Use this time to:

• Study the settlement agreement carefully
• Advice to be sought
• Listing your rights

Employees often forget:

• Overtime they worked months ago
• Small expense allowances, such as home office allowance or lunch allowance
• Unused holidays
• Study costs to be reimbursed

If you have health complaints that may be work-related, report it before signing your settlement agreement. After final discharge, it is often already too late. So unless your employer could reasonably know that you could suffer health problems from work.

A check of your settlement agreement can save thousands of euros. Yet many people fail to do so out of cost considerations. With us, an audit of your settlement agreement is completely free and without obligation. Throughout the entire dismissal process. 

Final discharge in a settlement agreement is a legal clause that many employees are quick to read over when signing their settlement agreement.

But by signing, you basically give up all current and future claims against your employer. This may be wise if you are getting good compensation and want clarity quickly, but it may also mean giving up important rights.

My advice? Always have your settlement agreement checked by a professional before you sign. The cost of a check usually far outweighs the risk of giving up too many rights. Above all, use your statutory 14-day reflection period to make an informed decision.

Do you still have questions about final discharge or want to have your settlement agreement reviewed? Then contact one of our lawyers for a free initial consultation. We will be happy to help you make the right choice.