An employment contract for an indefinite period is still the basic principle in labor law. By law, an employment contract for an indefinite period of time can be terminated by the employee, subject to one month's notice. For the employer, a notice period depends on the duration of the employment contract. A collective bargaining agreement or employment contract can deviate from this main rule. But what about terminating a fixed-term employment contract?
The fixed-term employment contract can only be terminated prematurely if this has been agreed in the employment contract. This is called an early termination clause.
A fixed-term employment contract has a start and end date. Often, the contract is entered into for six months or a year. If the contract does not include an early termination clause, employer and employee are bound to each other for the agreed upon duration.
Should the employee then remain employed for the entire agreed upon duration?
Yes, you should. If one of the parties does terminate the agreement in the interim, there could be major consequences.
WW benefit
If an employee agrees to prematurely terminate a fixed-term employment contract without including an interim notice clause, any WW benefit does not start until the agreed upon end date of the employment contract. This can leave the employee without WW benefits for months.
Example
On January 1, 2022, the parties entered into an employment agreement for the duration of one year. The parties agree in a settlement agreement to part ways as early as October 1, 2022. Employee applies for unemployment benefits and submits the employment contract and the settlement agreement to the UWV. Employee then becomes eligible for WW benefit only on January 1, 2023.
Compensation obligation when terminating fixed-term employment contract
The party terminating without an interim notice clause is liable to pay compensation to the other party. The amount of that compensation is equal to the salary for the time the employment contract should have continued. The court may moderate this compensation, but not to less than three gross monthly salaries (Art. 7:672 paragraph 11 and Art. 7:677 paragraph 4 BW).
Example
On January 1, 2022, the parties entered into an employment agreement for a term of one year. Employee terminates the agreement by October 1, 2022. Employer can then claim compensation of three gross monthly salaries from employee, namely for the months October through December 2022, because the contract would not end until January 1, 2023.
Please note!
- It is always possible to terminate an employment contract (for a definite or indefinite period) immediately if there is an urgent reason for doing so, known as instant dismissal.
- If a valid probationary period clause is included in the fixed-term contract, it is of course possible to terminate during the probationary period, even if no interim notice clause is included.
- For an employer, termination is only possible with the approval of the subdistrict court, even if an interim notice clause is included.