Termination of the employment contract by mutual consent and entitlement to severance pay.

August 22, 2025

Introduction

On June 4, 2025, the Aruban Court issued an interesting ruling in a severance pay (in Dutch: Cessantia) case. In short, the Social Insurance Bank (“SVB“) was ordered to pay severance payments to this employee.

What was the situation in this case?

Due to business reasons, a settlement agreement was reached between the employer and the employee in January 2019, whereby the employment relationship was terminated by mutual consent as of February 1, 2019. The employer remained liable to the employee for payment of wages, including severance pay.

After May 2019, the employer made no further payments on the amount of wages due to the employee. At the beginning of June 2019, the employer filed for bankruptcy, which was granted in the same month.

The employee then claimed a one-off severance payment from the SVB. This request was rejected by the SVB. The SVB stated as its reason that the employment relationship had been terminated by mutual consent, which means that the requirement that the employment relationship must have been terminated other than through the fault of the employee or as a result of circumstances attributable to the employee had not been met. If this requirement is not met, no severance pay is due.

Dispute

In appeal, the employee argued that the SVB’s reasoning did not support its decision because his employer had stopped paying the agreed amount of wages before bankruptcy was declared and thus the relationship was not terminated due to circumstances attributable to the employee.

Judgment

The Court ruled that the business reasons of the employer are a risk that have manifested within his sphere of influence. The mere fact that the employee agreed to terminate the employment contract in connection with these reason does not automatically entail that the employment relationship ended through the fault of the employee or as a result of circumstances attributable to him. After all, an employee cannot be expected to resort to legal proceedings in order not to forfeit his right to severance pay.

The SVB was therefore required to take a new decision.

Significance of this ruling for employers

There is a general misconception about termination by mutual consent. Many employees and employers believe that the termination of an employment contract by mutual consent automatically means that the employee forfeits his right to severance pay and that the employer is released from this obligation. This view is incorrect, according to case law on this point.[1]

What does this ruling mean for other jurisdictions?

Since the Severance Pay Regulation[2] was adopted at the time of the Netherlands Antilles and the text of the relevant provisions has hardly been amended since then, the legal rules formulated may also apply to the other Caribbean parts of the Kingdom, namely Curaçao, Sint Maarten and the Caribbean Netherlands based on the principle of concordance of case law.

How can we assist you?

HBN Law & Tax has experienced lawyers who can accurately assess the severance pay obligations applicable to your organization. Whether you’re an employee entitled to severance pay or an employer responsible for paying it, HBN Law & Tax can assist. Our lawyers ensure your obligations are clear, and our tax advisors guide you through the tax implications—so you stay compliant and informed.

[1] See, for example, ECLI:NL:OGEAA:2015:314.

[2] In Curaçao and Sint Maarten, the Cessantia-landsverordening (Cessantia Ordinance) and in the Caribbean Netherlands, the Cessantiawet BES (Cessantia Act BES).