Since March 2020, employment practitioners have seen an influx in instructions from employees and employers relating to settlement agreements.
With fast-paced changes necessary, due to the ongoing effects of the pandemic, never before has it been more crucial to find a solution to ensure the continuing viability of a business with immediacy.
Downsizing the workforce and reductions of headcounts are often the first step taken to try and save a business in financial difficulty. A settlement agreement allows employees an opportunity to terminate their employment on amicable terms and waive their right to bring any claims in the future. It can be a stressful time for Employee’s who have never been through anything like this before and this is where our team of specialist Settlement Agreement Solicitors are here to help.
What legal conditions have to be satisfied?
There are conditions which must be satisfied in order for a Settlement Agreement to be legally binding? These are:
- The agreement must be in writing
- Employees must have received legal advice from an independent legal adviser on the terms and effect of the agreement.
Does the employer have to pay the legal fees?
It is usual for an employer to pay a sum towards legal costs for receiving advice on the terms of the Settlement Agreement (not costs associated with any additional negotiations), although this is not a legal requirement. In most cases we are able to successfully negotiate your employer paying all legal fees incurred, including any additional fees for negotiating on the terms on your behalf.
Is the settlement agreement the only option?
A settlement offer, usually including financial compensation, will be in return for you giving up your right to bring a claim against your employer. You do not have to enter into a settlement agreement and quite often the terms can be negotiated although there is no guarantee that an employer will engage in negotiations. If you believe you have a claim against your employer/employee, really think before you sign, as there is no going back.
What is included in a settlement agreement?
Here is a brief overview of what you should expect to see included in a Settlement Agreement:
- Date of Termination / Arrangements for last day at work / Garden Lave;
- Payment of accrued untaken annual leave to the Date of Termination;
- Payment of all Salary and Contractual Benefits to Date of Termination;
- Provision for payment of any due / outstanding bonus or commission payments;
- Notice Period – whether worked or being paid in lieu of notice (PILON);
- Payment In Lieu of Benefits (during notice period) (PILOB);
- Specification of Compensation (amount, statutory redundancy pay element, instalments if any and when payment will be made)
- Repayment provisions in event of breaches
- Clarification that the first £30,000 of any compensation element is usually payable without tax and national insurance deductions from the employee. There is likely to be an indemnity required by the employer from the employee for any future /further tax or national insurance liabilities on the sum.
- Return of company property (including any agreed retention of laptops / mobile phones / mobile phone numbers)
- References ( in agreed format)
- Departure announcement (in agreed format)
- Provision regarding any shares / share options / schemes
- Waiver of claims against your employer with the following exclusions:
- Claims in respect of accrued pension entitlements
- Claim to enforce the settlement agreement
- Personal injury claims which you are not aware of and could not reasonably be expected to be aware of at the date of the agreement.
- Legal Fees
- Confidentiality and Post Termination Restrictions
- Confirmation that there is compliance with the conditions which regulate settlement agreements under the law.
Top Tips
- Do not feel pressured into accepting or signing, you do not have to!
- Don’t tell anyone about the agreement. It is almost always a term of the agreement that no party will discuss that it even exists, let alone the terms themselves.
- HMRC treats payments made direct into pension schemes as separate from the £30,000 exemption, meaning they are not subject to tax, so long as you comply with the rules about getting tax relief on payments into your pension.
- Wages are taxable as they are when they are part of your standard earnings. The same rules apply for any holiday pay. You cannot shift a bonus payment due on termination into the tax-free exemption by referring to it as part of your settlement payment.
- A Settlement Agreement is only enforceable if the adviser signs to confirm that an insured practising solicitor has provided you with legal advice where necessary and they are independent (not associated with or have not acted for the employer).
- A Settlement Agreement is not only offered on termination of employment.
- A Reaffirmation Agreement may have to be signed if there is a big gap between you signing the first agreement and your termination date.
- You can ask for things in a settlement agreement that a tribunal would not have jurisdiction to order, for example an agreed reference, departure announcement.
There are a group of us being offered Settlement Agreements, can you help us together?
Our employment team are experienced in advising groups of employees from the same organisation who have been offered settlement agreements to govern the termination of their employment, quite often after a collective redundancy consultation exercise.
Is it essential that each individual in the group of employees receives independent legal advice in order to make the Settlement Agreement legally valid.
Is there a group of employees being offered a settlement agreement?
If a number of employees (usually four or more) will be seeking independent legal advice on their settlement agreements then we can offer a group advising exercise.
Our employment team has a wealth of experience in providing independent legal advice and have managed numerous large volume settlement agreement exercises, many within tight timeframes – in some cases with only a few days’ notice. We’ve provided some of our tips to help the process run as smoothly as possible whilst taking care of your employees:
- Technology can be your friend (and covid secure!). We are able to advise groups of employees over the telephone or arrange video calls such as Zoom, or Microsoft Teams. Being able to electronically sign settlement agreements makes for a faster and safer process especially in light of the current restrictions due to the pandemic.
- Parties should agree to a deadline and stick to it to ensure an expedited process.
- A term sheet or proposal outline is helpful to provide a breakdown of the compensation package itself. A clear concise list will save time later on as it will prevent lots of back and forth in queries.
- Agree a template agreement. We will ensure that we work with the other side to agree a template settlement agreement which has core terms agreed which ensures a seamless advising process.
- Clock shouldn’t be ticking too fast.The ACAS coderequires that employees are given a ‘reasonable’ timeframe to seek legal advice and recommends 10 calendar days.
- Preparation is key.We will work with you to ensure that all preparations are undertaken at a preliminary stage to avoid protracted negotiations after the settlement agreements have been prepared and independent advice has been given.
For further information on any employment related matters please contact Kaajal Nathwani on 0808 164 8443.
