Settlement agreements: 10 things to think about to ensure you receive a fair deal

settle_your_differencesIt can be a daunting prospect to be faced with being offered a settlement agreement by your employer. There are a number of considerations you need to think about with your lawyer to ensure the best possible deal.

A settlement agreement is a legally binding document setting out the terms and conditions surrounding the termination of your employment. By signing such a document you are agreeing to effectively waive any claims you may have arising out of your employment and the termination thereof. Given the legal effect of a settlement agreement, is important therefore to try to negotiate the best deal possible for you.

At iLaw we have over 20 years of experience negotiating settlement agreements (previously known as compromise agreements) on behalf of clients.

Here are our top 10 considerations we identify to clients to ensure they get a fair deal:

1.THE COMPENSATION AMOUNT

You should try as far as possible to maximise the financial terms of the settlement. With this in mind, the amount of money you are being offered under the settlement agreement as an ex gratia sum as compensation for loss of employment ought to reflect the likely value of the potential legal claims you may have arising out of your employment and its termination.

As part of the advice your independent adviser ought to give when taking you through the terms and effect of your settlement agreement they ought to identify any claims you may have against your employer arising out of your employment and their (respective) value(s).

Since you will be effectively be waiving any such claims by signing a settlement agreement, it is important to ensure you are adequately compensated for doing so.

If you are unhappy with the ex gratia amount being offered compared to the value of your potential claims arising out of your employment and the termination thereof you can seek to try and negotiate a higher figure. Your independent adviser can assist in carrying out this negotiation on your behalf and pass on the cost by seeking a higher cost contribution from your employer for advising under the agreement.

Your employer though is not obliged to agree this request and indeed it may not be in their interests to do so. In such circumstances you would remain responsible for any additional legal costs.

2. TAX LIABILITY

 Where a payment is made on termination of employment (including any redundancy payment) and expressed as compensation for loss of employment, the first £30,000 will be treated as exempt from tax up to £30,000. Any excess will be subject to income tax deductions in the normal way.

If the termination date is close to the end of the tax year you may find it tax efficient to move the termination date into the next tax year or to stagger payments under the settlement agreement into the next tax year.

3. PAYMENT IN LIEU OF NOTICE

 Where your employer does not require you to work your notice period, then you ought to be entitled to receive payment in lieu of notice (commonly referred to as ‘PILON’).

You ought to refer to your contract of employment in the first instance for the length of your notice entitlement. Where your contractual notice entitlement is relatively short and you have been working for your employer for a number of years it may be that statute will intervene to provide you with a longer notice entitlement. Legal advice ought to be obtained in this regard.

Where there is no PILON clause in your contract of employment and your employer does not typically pay its employees PILON on termination of employment, a sum representing the equivalent of the notice period can often be paid tax free up to £30,000.

Where your contract of employment contains specific PILON provisions though whereby your employer reserves the right to pay you money in lieu of notice rather than making you work your notice period then payment of your PILON is regarded as contractual. Even where there is no PILON clause in your contract of employment itself, where your employer typically pays its employees PILON on termination as a matter of custom and practice then HMRC may regard this entitlement as an implied contractual PILON (or auto PILON as it is often referred to) and therefore taxable. In both circumstances, HMRC will expect your employer to specifically refer to this payment being made in the settlement agreement and to make appropriate deductions for tax.

Sometimes employers attempt to include PILON as part of the ex gratia lump sum under a settlement agreement. Where there is a PILON clause in your contract of employment or an auto PILON situation arises in your case, if HMRC investigates the payment as they are entitled to do, you may find yourself personally liable to pay the necessary deductions yourself whether under any tax indemnity contained in your settlement agreement or otherwise.

4. HOLIDAY PAY

 We always insist that the number of days untaken paid holiday entitlement which you have accrued up to and including the date of termination of employment is specified in the settlement agreement to avoid any misunderstandings or disputes later on.

It is particularly important to specify the amount of untaken holiday entitlement you have accrued in the agreement itself as you will be unable to take any action to claim additional untaken paid holiday entitlement after signing the settlement agreement because you will have waived your right to do so under the agreement.

If you are receiving payment in lieu of having to work your notice period, then, strictly speaking, you are not entitled to compensation for any period of paid holiday entitlement that would have accrued to you during your notice period.

5. BONUS

 Some contracts of employment specify that entitlement to bonus is discretionary and where employment ends or where notice is served before bonus is due to be paid out, entitlement to bonus is lost. This does not prevent you though from still seeking to argue that you ought to be entitled to bonus.

Where you would ordinarily be entitled to receive a bonus, have worked for a significant proportion of your bonus year and the bonus amounts are readily quantifiable you can ask your employer to pay a pro-rata sum in respect of bonus under your settlement agreement.

As with all payments you consider you ought to be entitled to on termination of employment, you must ensure your settlement agreement expressly provides for bonus entitlement including the amount due. Unless your settlement agreement does so you are unlikely to receive any bonus payment you will be unable to take any action to claim bonus after signing the settlement agreement because you will have waived your right to do so under the agreement.

6. TERMINATION DATE

 The termination date contained in the settlement agreement ought to be reasonably contemporaneous with the date you and your employer both signed it.

If the settlement agreement is entered into a number of months before the termination date then this may put in jeopardy the tax free status of any ex gratia payment.

In such circumstances, HMRC may seek to argue that part or all of the termination payment represents an inducement for the employee to continue to perform services for the employer for the interim period between the date of signing the agreement and termination date and will treat it as taxable.

7. REASON FOR TERMINATION

 Often employers include wording that termination is ‘by mutual consent’. Such wording though may once again jeopardise the tax free status of any ex gratia settlement payment.

 The reason for termination specified in the settlement agreement may be relevant also if you have income protection insurance, for example as part of a house insurance policy. Some insurance policies only pay out if the reason for termination of employment is redundancy and will ask documentary evidence to be provided of this.

8. REFERENCE

 It is important that you are provided with a reference on termination of your employment to assist you with obtaining new employment and that you are satisfied with the content.

There is no legal obligation on an employer to provide a reference and employers are therefore entitled to refuse to provide references.

For this reason your settlement agreement ought to contain a term providing that your employer will respond to any request for a reference from a prospective employer in writing in accordance with the agreed form of reference attached and further that any verbal reference provided will be in no less favourable terms.

It is common practice for employers to provide short form references, which give little more information beyond your dates of employment and job title.

It may be possible to agree an improved form of reference which includes additional information about your duties and responsibilities, skills and capabilities and any milestones/ achievements in performing your role which casts you in a more positive light.

Be warned though that sometimes a more detailed reference can lead a prospective new employer to suspect that an agreed settlement was negotiated by lawyers in relation to your previous employment and lead to them asking questions regarding the precise circumstances surrounding termination thereof.

9. NON BAD MOUTHING PROVISIONS

 Your settlement agreement will typically include a restriction preventing you from making any adverse or derogatory remarks about your employer or do anything to bring them into disrepute

We always recommend ensuring the agreement includes reciprocal non bad mouthing provisions on your employer that it will use reasonable endeavors to ensure that its employees and officers do not make any adverse or derogatory remark about you or do anything to bring you into disrepute also.

10. RESTRICTIVE COVENANTS AND GARDEN LEAVE

 Restrictive covenants (or post-termination restrictions as they are sometimes called) are often included in a settlement agreement. These provisions are either specifically drafted for the purposes of the settlement agreement or reference is included that you will continue to be bound by your existing restrictions contained in your contract of employment.

Such post termination restrictions are only ever enforceable to the extent that they are necessary to protect the legitimate business interests of the employer.

Post termination restrictions also need to be closely defined in terms of duration and scope if they are to be enforceable.

Typical restrictions include:

  • Non-competition;
  • Non solicitation of clients/ customers;
  • Non dealing with clients/customers;
  • Non solicitation of key employees; and
  • Non-interference with suppliers

No compete restrictions are particularly draconian preventing you from working for a competitor for a period of time post termination of your current employment, effectively therefore amounting as a fetter on your ability to obtain alternative employment. In this context you need to look at the amount of compensation on offer under the settlement agreement compared with any period of time during which you will be constrained.

As part of a negotiation on a settlement agreement we always endeavor on our clients’ behalf to get any problematic post termination restrictions removed if at all possible or if not the ambit of the restriction in terms of time and scope reduced.

Also the settlement agreement should state that any post termination restrictions your employer wants to hold you to should be reduced by any period for which you are on garden leave as such a period will effectively already constrain you from working/ dealing with customers, employees and suppliers. See below for more on garden leave.

Where you employer has acted towards you in a manner which could be said to be in breach of contract it may be possible to argue,  by virtue of this breach, that any post termination restrictions fall away and are no longer effective.

 Your settlement agreement may provide that you are placed on a period of what is commonly referred to as ‘garden leave’ until the end of your employment.

This effectively means you are not being required to attend your employer’s offices and you may be restricted in the contact that you can have with clients/other staff.

Most employees are perfectly content to be put on garden leave (subject to the length of garden leave required of them) as they will continue to receive full salary and accrue paid holiday entitlement for this period without having to work.

In such circumstances, you still need to remember that whilst you are not required to attend work you remain an employee and are still subject to your employer’s authority, instructions, policies and procedures. So for example, if you are asked to cooperate with them on providing information as part of a work handover you are still obliged to do so. Also if you decide you want to go on holiday you should book time off in the normal way and obtain approval first.

NEXT STEPS

If you have been offered a settlement agreement you need to take independent legal advice on the agreement before it can be considered legally binding. Your employer normally agrees to contribute a fixed amount towards your legal fees for obtaining that advice under the terms of the settlement agreement.

At iLaw we do not charge more than the cost contribution provided by your employer for obtaining this advice. Call us today on 0207 489 2059 OR 07525618363 for a FREE initial consultation or to make an appointment. Also check out our specialist settlement agreement page .

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Top 5 strategies and tips for City executives suffering bullying and harassment in the workplace

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Introduction

Are you a City executive? Are you experiencing  bullying and harassment in the workplace?

Guest contributor George Duncan writes:

‘The City is a highly pressurised environment in which to work at the best of times. As an employee you are entitled to work in an environment free of unwarranted and unwelcome behaviour and benefit from precisely the same employment protections as other employees under UK law.  Many employers have anti harassment and bullying policies in place. Even where your business has such policies, it is impossible safeguard completely against such behaviour occurring.  If you feel you are suffering from bullying or harassment in the workplace, it is important you take action without delay to bring such unwanted behaviour to an end. The tools at your disposal for doing so include raising an internal grievance and, if this does not resolve the issue to your satisfaction bringing proceedings in the Employment Tribunal.

Following a decision of Supreme Court, the financial barrier to pursuing a complaint arising out of bullying and harassment e.g. discrimination and/or constructive dismissal through an employment tribunal no longer exists.  This provides greater accessibility to justice and provides a forum for redress if you are unable to resolve your complaint internally with your employer.

Here at iLaw we have over 20 years’ of experience assisting employees with internal grievances and employment tribunal claims.

Here are our top five tips for City executives faced with what we understand and appreciate can be a stressful situation:

1. Identify the bullying or harassing behaviour

Bullying or harassment can take many forms.  It may be direct or indirect; it may be obvious or insidious.  You should identify the behaviour before deciding what your next step should be.  Examples of unacceptable behaviour include:

  • Spreading malicious rumours;
  • Unfair treatment;
  • Threats or comments about job security;
  • Preventing career progression;
  • Offensive emails;
  • Jokes, teasing and pranks.

Bullying or harassment does not necessarily have to occur face to face.  It can also take the form of email, phone or supervision methods (i.e. recording of time).

The offending behaviour does not even have to take place in the work environment.  For example, an employee was fairly dismissed for posting obscene and lewd comments about the promiscuity of a female colleague on his Facebook page while at home.  The tribunal found that the comments created a degrading and humiliating work place environment for his victim which in their view amounted to harassment.

It should also be noted that unwanted and unacceptable behaviour received from a customer or client of the business can constitute harassment or bullying if you have told your employer and they do not take reasonable steps to prevent it happening again.

2. Keep a record

Keeping a diary of the offending incidents may not be your first thought when being subjected to bullying or harassment, but it will help to demonstrate the frequency and nature of the incidents.  You should record dates, times, witnesses and keep copies of emails, minutes of meetings letters.

3. Talk to someone

Even if the business has effective procedures in place to handle bullying or harassment, you may feel unsure whether to make a formal complaint.  You may want to talk to colleagues to find out if anyone else is suffering similar treatment.  Someone might have witnessed the unacceptable behaviour and be willing to support you if you make a formal complaint.  Alternatively, you should talk to a trade union representative or approach your manager.

Talking to the person who is behaving unacceptably should also be considered.  They may be unaware of the effect that their behaviour is having on you.  If you do not feel comfortable approaching the individual of whom you are complaining yourself, your union representative or colleague may be willing to act on your behalf. You may also want to involve HR in the meeting so as to guard against being subjected to further bullying and harassment by the individual.

4. Follow procedures

Employers should have appropriate safeguards in place to protect against unacceptable behaviour at work.  They should provide clear, transparent employment policies dealing with bullying and harassment which are to be followed in the event you receive unwelcome and unwarranted behaviour from another individual.  The policies should state both the employers and employees responsibilities as well as set the expected standards for workplace behaviour.

If your employer does not have policies in place, you should talk to your manager or HR regarding what your next steps should be.

5. Legal action

If the matter is not resolved, despite talking to someone and following formal procedures, you should consider seeking legal advice.

If you are suffering from harassment and it is because of or is related to a protected characteristic, a claim can be brought under the Equality Act 2010.  Protected characteristics include:

  • Age
  • Disability
  • Gender reassignment
  • Race
  • Religion or belief
  • Sex
  • Sexual orientation.

You may feel that resigning is the only option you have left.  If you feel that this is the route you would like to exercise, make sure that you have pursued all other formal procedures.  It is important to note that to make a claim of constructive unfair dismissal; you have to have been working at the business for at least 24 months before you resign.

At the same time you should be mindful that there are time limits for bringing complaints of discrimination in the employment tribunal. Generally speaking, the time limit expires three months after the act(s) complained of occurs.  It may be possible to argue that a pattern of behaviour amounts to a continuing act, in which case the time limit would apply from the last act committed.

It is also open to the employment tribunal to extend time where it considers it just and equitable to do so. However, it would be reckless to assume the tribunal will extend time. Their willingness to do so will depend on the circumstances of your case. Our strong advice therefore is to seek appropriate guidance at the earliest possible stage and certainly well before any time limit is due to expire.

Final Thoughts

By following the strategies and tips in this article, together with obtaining legal advice and support on your particular circumstances, tackling any bullying and harassment you may be facing in the workplace need not be such a daunting prospect.’

Are you facing harassment or bullying in your workplace?  Why not talk to our dedicated team of employment lawyers here at iLaw?  We can help guide you through the process of making a bullying or harassment complaint so that it runs smoothly and does not cause further unnecessary anxiety or stress.

Please call Julian Cox who heads iLaw’s employment team on 0207 489 2059 or email him at julian.cox@ilaw.co.uk.

This information does not give a full statement of the law. It is intended for guidance only and is not a substitute for professional legal advice.

Learning lessons from Ryanair’s cancellation turbulence: Our Top 5 Tips for effective holiday planning

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Ryanair have recently hit the headlines for having to cancel flights over the next six weeks due to pilot shortages. Chief executive Michael O’Leary has admitted this has been caused, in his words, “because we’re giving pilots lots of holidays over the next four months. He went on to explain candidly ”What we have messed up is the allocation of holidays and trying to over allocate holidays during September and October, while we’re still running most of the summer schedule, and taking flight delays because of principally air traffic control and weather disruptions”   A spokeswoman for the budget airline said Ryanair is preparing for up to €20m in compensation claims, according to Reuters.

Here are our top tips for effectively managing holiday so as to avoid unanticipated problems and liabilities for your business.

1. Assess the needs of your business

At the start of your business year, assess your organisation’s staffing needs. How many employees do you need in place to cover your likely workload on a month on month basis?  Before agreeing individual holiday dates make sure you have enough staff in place as cover in order to avoid interruption to your business.  Consider whether you have any especially busy week when no one can have a holiday, such as summer holidays and Christmas? Consider overtime and organising extra staff to cover for these peak holiday periods if necessary.

2. Plan for peak holidays periods

For the majority of businesses, summer and Christmas represent the peak holiday periods.  Taking a summer holiday is traditionally popular. For employees with families and child care responsibilities, the school summer holidays represents the most likely period they want to take holiday.  How are you going to cover for this likely two week period? Many employees also tend to save up their holidays till the end of the year either insurance policy just in case something comes up at short notice requiring them to take time off work or because they want to take the Christmas period off. So what will happen at Christmas? Can everyone be off? Can no one be off?   Depending on the business sector you work in  the holiday peak period may be different. For example for Ryan Air, it appears to be just after the summer when pilots who have had to work over the busy summer period want to take holiday.

3. Consider shut downs

Consider shut downs. These are a useful tool for ensuring your workforce uses up its holiday entitlement during the current holiday year. Many companies shutdown for at Christmas for example as it is traditionally a quiet period. Other companies shut for a week or two during the summer for much the same reason to coincide with the bank holiday periods.

4. Monitor and Record Holiday Bookings

Your business needs to have in place a mechanism recording all staff holiday requests so that you can readily and properly assess if you can allow or decline a holiday request against the staffing needs of the business.  A holiday year planner, represents a simple and relatively inexpensive solution allowing you to record an individual employee’s holiday requests and allowing you  to see at a glance how much holiday who else is off that day in terms of assessing the needs of the business and how much holiday entitlement the applicant has left before agreeing it.  For larger organisations there is specialist HR software that can greatly assist with effective holiday planning.

5. Have an Annual Leave Policy

We recommend your business ought to have fair and comprehensive policy in place to ensure that staff understands the rules and procedures when it comes to taking annual leave entitlement and what is expected of them in applying for holiday.  This can be in the form of either a standalone policy or included as part of a raft of employment policies in the organisation’s staff handbook. Either the policy can be made available on request or included on the organisation’s intranet for easy access.

Final thoughts

Here at iiLaw we have over 20 years of experience advising employers in relation to holiday issues, including drafting holiday policies and procedures.  Please call the author of this article, Julian Cox who heads iLaw’s employment team to discuss on 0207 489 2059 or e-mail him at julian.cox@ilaw.co.uk to discuss.

 

Top 10 strategies for employers handling redundancies

settle_your_differencesIntroduction

In order to remain commercially competitive it is important businesses review their staffing needs on a regular basis. Even where a business is successful, it is inevitable, that redeployment of labour and redundancies will sometimes be necessary based on prevailing market conditions. This is particularly true in the uncertain times in which we live as a result of Brexit. It is vital if you are considering reducing staff head count due to the prevailing economic circumstances that such redundancies are handled carefully to avoid unanticipated liabilities for your organisation.

Here at iLaw we have over 20 years’ of experience guiding employers through redundancy processes. Here are our top ten tips for employers faced with having to make what we understand and appreciate are difficult decisions:

1. Avoid having to make redundancies in the first place

Developing an effective strategy for human resource planning can help manage current and long term staff needs and avoid the need to make redundancies.

2. Make sure there are good grounds for making redundancies

Even if an organisation has an effective HR strategy in place, sometimes having to make redundancies is inevitable. It is important when considering making redundancies that you are able to justify the grounds as a matter to law to avoid claims for unfair dismissal.

According to the Employment Rights Act 1996 a redundancy situation arises when:

  • the employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was so employed; or
  • the employer has ceased, or intends to cease, to carry on the business in the place where the employee was so employed; or
  • the requirements of the business for employees to carry out work of a particular kind has ceased or diminished or are expected to cease or diminish; or
  • the requirements of the business for the employees to carry out work of a particular kind, in the place where they were so employed, has ceased or diminished or are expected to cease or diminish.

3. Adopt a fair selection criterion

The selection criteria for making an individual employee redundant should be fair, objective and consistent. By ensuring this,  this avoids any suggestion the employee has been unfairly selected for redundancy.

As far as possible, objective criteria, precisely defined and capable of being applied in an independent way, should be used. The purpose of having objective criteria is to ensure that employees are not unfairly selected for redundancy. Examples of such a compulsory criteria are:

  • Skills or experience;
  • Standard of work performance or aptitude for work;
  • Attendance or disciplinary record.

4. Make sure in applying the selection criteria it is not tainted by discrimination

The chosen criteria must be consistently applied by all employers irrespective of size. The employer should also ensure that in applying the criteria their decision making is not tainted by discrimination in any way e.g. disability in the context of work attendance and age in the context of experience (the argument being younger employees may have less experience by virtue of their age but that does not mean they do not have the skills and capabilities to do the job in question).

5. Consider voluntary redundancies

One acceptable method in terms of a non-compulsory selection criteria is for employees to volunteer to be considered for redundancy and for the employer to select from the list of volunteers those employees who are to be dismissed.

This has the advantage of avoiding the need for compulsory redundancies, with a less demoralising and disruptive effect on the workforce. It is not uncommon to offer enhanced redundancy payments as an incentive to attract people to leave. In situations where the number of volunteers exceeds requirements, employers should be alert to the potential reaction of some employees not selected and consider in advance how best to deal with this.

The disadvantage of going down the voluntary redundancy route is that sometimes those volunteering for redundancy may be the employees with the superior skills and capabilities (as a result of which they are more confident of obtaining alternative employment) and therefore the ones the employer would prefer to retain.

6. Follow a fair redundancy procedure

Put into place an effective redundancy policy that sets out the redundancy process step by step. This will help employees understand the procedure that will be followed before it takes place. It also provides employers with the structure and framework to be followed. Fair and appropriate procedures need to be followed to avoid unanticipated liabilities for unfair dismissal even where there are good grounds for making a redundancy.

The essence of a fair redundancy procedure established by UK employment case law is:

  • Warning;
  • Consultation; and
  • Notice

Dealing with each of these three limbs in turn:

7. Warning

The employer should meet with the employee and give them warning that their role has been POTENTALLY identified for redundancy explaining the underlying grounds. It is just that, that the role is potentially redundant. It is important at this stage not to say anything that would suggest the employer has made the decision to make the position redundant terminate the employee’s employment. To do so would risk prejudicing the entire consultation process rendering the dismissal potentially unfair and opening the employer to a claim.

The employer should follow up the meeting with a letter to the employee confirming the following:

  • The reasons for having to make redundancies; and
  • Stating the employee’s role has been identified as a result as being potentially redundant; and
  • Explaining the consultation process that will follow with dates for the next meeting to take place as part of that process.

8. Consultation

Consultation should take place as soon as possible following the initial meeting at which warning of potential redundancy is given. The purpose of consultation is for both sides to explore the available options. It presents an opportunity for the employee to pitch ideas as to how the redundancy can be avoided. For the employer it presents an opportunity to listen to such ideas as well as to identify whether there is a suitable alternative role for the affected employee(s), so as to avoid having to give notice of termination of employment at the end of the consultation period.

NB employers who propose to dismiss as redundant 20 or more employees at one establishment over a period of 90 days or less have a statutory duty to consult representatives of any recognised independent trade union, or if no trade union is recognised, other elected employees. This is in addition to the employer’s obligations to consult individually with the employees.

9. Notice

At the end of the consultation period (and not before), if employer and employee have not been able to identify a way of avoiding the redundancy crystallising or suitable alternative employment for the employee then the employer should meet with the employee again to confirm the redundancy is confirmed and give notice of termination of employment. The employer should follow up the meeting with a letter confirming in writing the following:

  • Confirmation of the redundancy; and
  • The planned date for termination of employment; and
  • The employee’s entitlement to a redundancy payment whether under statute (assuming the employee meets the 2 year qualifying criteria for such a payment) or under the employer’s redundancy policy if it includes provision for an enhanced redundancy payment; and
  • The employee’s contractual entitlements on termination of employment including (but not limited to) the following elements:
  • Notice or payment in lieu of notice if the employer does not want the employee to work their notice period; and
  • Accrued but untaken holiday entitlement due up to the date of termination of employment; and
  • Any commission earnt or bonus due on termination in accordance with the employer’s scheme rules

This list is not intended to be exhaustive.  You should refer to the employee’s contract of employment to check the full extent of the financial entitlements due on termination of employment.

10. Consider offering a settlement agreement

Settlement agreements offer employers a clean and effective means of dealing an employee being made redundant providing protection against the employee seeking to claim they have been unfairly dismissed following termination of employment. Typically the employee is offered an enhanced redundancy payment in return for waiving any legal claims they may have against their employer arising out of their employment and its termination. For more about settlement agreements take a look at our article Settlement agreements: 5 top strategies and tips for employers.

Final thoughts

Handled properly, following the tips contained in this article, a redundancy process need not be so daunting for an employer. Are you facing a redundancy situation with your workforce? Why not talk to our dedicated team of employment lawyers here at iLaw?  We can help guide you through the exercise so that it runs smoothly and does not leave you open to the exposure of litigation from affected employees.

Please call the author of this article, Julian Cox who heads iLaw’s employment team to discuss on 0207 489 2059 or e mail him at julian.cox@ilaw.co.uk.

 

 

Settlement agreements: 5 top strategies and tips for employers

ilaw-landing-page-banner-bg-img1Introduction

 With Brexit continuing to cause economic uncertainty in the UK, it is inevitable that some employers are now looking at re-organising and reducing staffing levels. As part of this process businesses often offer departing employees a settlement agreement as a means of protecting themselves from potential litigation arising out of the employees’ employment and its termination.

A settlement agreement (previously called a compromise agreement) is a legally binding confidential agreement between an employer and employee. A severance payment is typically given in return for the employee’s agreement not to pursue any employment tribunal or civil courts claims arising from their employment or its termination. A settlement agreement can also provide an opportunity for employers to secure additional protection in relation to its business needs in the context of the employee’s future business activities, including reaffirming post-termination restrictions and duties of confidentiality, while preventing employees from bad-mouthing their ex-employer.

At iLaw, we have over 20 years’ experience putting together commercially focused and robustly drafted settlement agreements on behalf of employers.

Here are our top 5 strategies for using settlement agreements based on our skills and expertise in this area:

1. Settlement agreements are a useful tool when an employer is faced with insurmountable workplace issues surrounding a particular employee

Settlement agreements are a particularly effective tool for employers where they cannot see a way forward in terms of an employee’s continuing employment but resolving the situation presents challenges. For example, where it may be difficult to justify a particular redundancy. Work performance procedures can take months to follow involving having to give a series of warnings before any decision can be taken to dismiss. Settlement agreements are particularly useful in such circumstances because they offer employers a quick and clean method of terminating someone’s employment without having to undertake a long and difficult redundancy, disciplinary or capability process, which usually involves substantial management time.

2. Make sure to pitch any financial settlement under a settlement agreement a commercially appropriate level.

There is no prescribed sum an employer should offer an employee under the auspices of a settlement agreement. The amount will very much depend on the reasons why the employer wants to terminate the employee’s contract of employment, the terms and conditions in the employee’s contract of employment and the likely value of any potential claims they may have arising out of their employment and its termination.

As an employer you are effectively compensating the employee for terminating their employment and not filing an employment tribunal claim. For employees with over two years’ employment you ought to be aware this gives them sufficient continuity of employment to claim unfair dismissal. Even if they can’t fulfil the service requirement for unfair dismissal depending on the background to the dispute they may have a claim for discrimination which needs to be compromised out of.

At the same time as considering making an ex gratia payment to the employee, employers need to ensure that all contractual entitlements (e.g. notice or payment in lieu, holiday entitlement, commission, bonus etc.) are taken care of as part of the settlement.

It’s wise to ensure professional legal advice is obtained and the appropriate settlement amount is carefully calculated based on this before pitching such an offer.

3. Make sure the Employer’s cost contribution is appropriate

 For a settlement agreement to be legally binding as a matter of law, the employee has to take independent advice as to its terms and effect.

Given that, by signing the settlement agreement, the employee is effectively compromising out of any claims they may have arising out of their employment and the termination thereof, it is conventional that the employer pays a contribution towards the legal costs of the employee seeking that advice.

It is important that the cost contribution is sufficient to allow the employee to take considered legal advice regarding the meaning and effect of the settlement agreement.

As an employer, you don’t want to make the contribution too high though so as to encourage the employee to instruct the lawyer to create arguments to try to negotiate a higher settlement figure on their behalf. If you do, you are running the risk of effectively giving the employee the bullets to fire the gun so to speak. Depending on the employment sector in which your business operates, its geographical location and the employee’s level of seniority within the organization, a cost contribution of between £250-500 plus VAT. In some rare cases, employers might not offer any contribution at all, for example, where there are strong grounds to dismiss the employee if they won’t sign the agreement.

4. Ensure any post termination obligations are properly catered for under the settlement agreement

In the case of senior employees and sales staff there may be a concern, with them exiting the business, that they may cause it damage commercially in terms of joining a competitor or trying to poach clients or key employees away from the organisation. If you have identified there is a risk of the business’s legitimate business interests being harmed in this way and they have post termination provisions written into their contracts of employment then it is recommended to refer to these restrictions in the settlement agreement also and make it clear the employee is expected to adhere to these obligations. The same goes for maintaining confidentiality and intellectual property rights. Where the employee does not have any such restrictions contained in their contract of employment then the settlement agreement provides an opportunity to write these in. The employee may seek further compensation in return for agreeing to any such post termination restrictions though as they may represent a fetter on their ability to obtain alternative employment in the short to medium term.

5. Give an appropriately focused time limit for signature of the settlement agreement

It is important that settlement negotiations remain focused. You may therefore want to suggest a defined period for consideration and return of the agreement including the Adviser’s Certificate. The Acas Code of Practice on settlement agreements suggests (and it is just that, a suggestion) a period of a minimum of 10 calendar days for the employee to consider the agreement. That ought to be more than sufficient in the circumstances. Many employers state that the offer is open for acceptance for a defined period after which it will be withdrawn. This tends to help focus the mind of the employee.

We hope this article has been useful. If your business is considering offering an employee (or a number of employees even) a settlement agreement we would be very happy to talk to you about strategy generally and how to tailor the agreement(s) to your organisation’s business needs. Please call the author of this article, Julian Cox who heads iLaw’s employment team to discuss on 0207 489 2059 or e mail him at julian.cox@ilaw.co.uk.

Forthcoming changes to UK employment law: what employers need to know

2016

UK employment law continues to develop at a rapid pace. It is important that employers continue to keep up to date so as to avoid unanticipated liabilities for their organisation. There are several key changes due to come into effect in April 2016.

These include:

From 1st April

Introduction of National Living Wage

The new National Living Wage comes into force. It will apply to workers aged 25 and over at a rate of £7.20 an hour.

From 6th April

Increase in Tribunal compensation limits 

The maximum compensatory award for unfair dismissal will rise from £78,335 to £78,962.

The maximum amount of a week’s pay, used to calculate statutory redundancy payments and various awards including the basic and additional awards for unfair dismissal, also rises from £475 to £479.

Introduction of financial penalties for unpaid tribunal awards and settlements.

A new scheme is introduced penalising employers who fail to pay tribunal awards or settlement sums under a COT3.

Introduction of Tribunal postponement rules

Legislation comes into force limiting the number of postponements to two for each party in each case, introducing a deadline for postponements of seven days before the hearing and requiring a costs or preparation order to be considered where a successful application for a postponement is made less than seven days before the hearing.

For more information about these forthcoming changes contact Julian Cox, Head of Employment at iLaw either by e mail (julian.cox@ilaw.co.uk) or phone on 0207 117 4737.

 

Zero hours workers now have the right to claim against employers who penalise them for wanting to work for other employers – will it make a difference though?

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Introduction

 Zero hour contracts have been the source of much controversy over recent years. Politicians, unions and employee organisations have all united to accuse employers of abusing them leading the Government to try to tackle some of the commonly perceived underlying problems associated with them.

The Exclusivity Terms in Zero Hours Contracts (Redress) Regulations 2015 (‘the Regulations’) now in force, represents part of this initiative, providing a remedy for zero hours workers against employers who include exclusivity clauses in their contracts of employment.

Why are such Regulations necessary and will they make a difference?

 Zero hours contracts – what are they?

A zero hours contract is a standard contract for a casual worker where there will be no guarantee that the employer will offer or provide any work, but the worker is expected to accept any work offered. The intention is that the individual will be a worker, rather than an employee or self-employed contractor.

Employers in the retail and hospitality sectors commonly use such contracts.

The controversy

These types of contracts are the source of some controversy as some employers included exclusivity clauses that effectively prevented workers engaged under such agreements from working for another organisation, or at least prevented them from doing so without their consent.

In 2014 the Government calculated that 125,000(around 20%) of zero hour workers had contracts including exclusivity clauses meaning that they could not work for anyone else.

Zero hour contracts became a major issue at the last general election with Labour campaigning against them. This led to the Government subsequently seeking to address the abuse of such contracts.

Ban on exclusivity clauses

Exclusivity clauses in zero hours contracts have been unenforceable since May 2015, under section 27A(3) of the Employment Rights Act 1996. The Government’s justification for doing so, as set out in its guidance, is that employers must allow zero hour workers ‘to take work elsewhere, in order to earn an income if they themselves do not have sufficient hours’.

The loophole

This means employees cannot be bound by exclusivity clauses and can therefore effectively ignore them. Until now though employers have still been able to try to avoid the exclusivity ban and penalise zero hour contract workers who chose to work elsewhere by failing to offer them any further work for example.

Remedy now available to employees for trying to avoid the ban

This loophole has now, effectively, been closed with the introduction of the Regulations giving zero hours employees the right not to be unfairly dismissed and zero hours employees and workers the right to not be subjected to a detriment for choosing to work for another employer also or asking their employer for permission to do so.

Where a zero hour worker successfully brings a claim for detrimental treatment the new Regulations give employment tribunals a fairly wide discretion over the amount of compensation to award on “just and equitable” grounds.

The future

Whether the effective outlawing of exclusivity clauses and penalties employers now face for seeking to circumnavigate this ban has any real impact on the numbers of workers engaged on zero hours contracts remains to be seen. Only time will tell. This commentator suspects not though given the flexibility such contracts afford businesses in managing their staffing levels with many retailers such as Sports Direct still using them.

 

Do employees really have the green light to snoop on employees private e mails and messages following European ruling?

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‘WARNING: Your boss can now read EVERY Facebook and WhatsApp message you send at Work’   The Daily Express

‘Your boss now has the right to snoop on your private online messages’   The Metro

‘Bosses can snoop on workers’ private emails and messages, European court rules’  The Telegraph

In a decision by the European Court of Human Rights (ECHR) that has led to sensationalist news headlines in certain sections of the media, they have ruled that a company reading an employee’s Yahoo Messenger chats sent during work time was within its rights.

Not surprisingly the headlines that have greeted this decision like the ones above have caused a certain degree of alarm and consternation amongst employees in member states. On closer examination though, the decision does not give employers the right to snoop on their employees with quite the level of impunity the media have suggested?

What is the background to this case?

The judges said that the employee – in Romania – who was sending private messages to his fiancée and brother from his work computer when he supposed to be working and had breached the company’s rules and that they were therefore entitled to check his activities as a result of which he was eventually dismissed.

The decision, handed down at the start of the week, binds all countries that have ratified the European Convention on Human Rights, and this includes the UK,

The facts in the case go back to 2007. The engineer, a man called Bogdan Barbulescu, had been using a Yahoo Messenger set up for work as well as a second private one to chat with his family as well as professional contacts, and had asked the ECHR to rule that the company had breached his right to a private life by accessing and reading a log of his messages.

Crucially in the case the messages were sent from a work messaging account, Mr Barbulescu’s employer had a policy in place banning its staff from sending personal messages at work and had given him prior warning that the company could check his messages.

In July 2007, the employer informed him that his communications had been monitored, presenting him with a 45-page transcript of his messages, including exchanges with his fiancée and his brother.

He was dismissed for breaching the company’s e mail and internet policy, which clearly stated that it was strictly forbidden ‘to use computers, photocopiers, telephones, telex and fax machines for personal purposes’

What did the judges actually say?

It is important to note that whilst the case included claims in relation to both the work and private messaging account, the judges restricted their decision to discussing the work account.

They ruled the employer could monitor the messages because it believed it was accessing a work account.

The ECHR said that it was not unreasonable for an employer to want to verify their employees were completing their professional tasks during working hours.

The judges also stated the employer acted within its disciplinary powers since, as the domestic courts found, it had accessed the work Yahoo Messenger account on the assumption that the information in question had been related to professional activities and that such access had therefore been legitimate.

At the same time though the ECHR also made clear in its judgment that it was not acceptable to carry out unregulated snooping of staff’s private messages.

Employers needed to draw up policies to define the scope of the information they intended to collect and their method for doing so.

The judgment went on to state that If the employer’s internet monitoring breaches its own internal data protection policy or the relevant law or collective agreement, it may still entitle the employee to terminate his or her employment and claim constructive dismissal, in addition to pecuniary and non-pecuniary damages.

What does the case mean for employers and employees?

Contrary to the somewhat alarmist impression given in some sections of the media, the ECHR’s decision does not effectively give employers carte blanche to access and read employees’ private messages sent at work. Employers still need to proceed with caution.

The employer in this case had a clear, absolute ban in place clearly defined in its e mail and internet policy forbidding its employees from using its IT systems for personal messaging whilst working. The employee in question denied doing so.

In order to investigate whether the employee was in breach of this policy the court ruled it had to follow that to check his activities it was entitled to access his work messaging account and records.

An employer would therefore need a similar policy in place with clearly defined rules prohibiting its employees from using their IT resources for private messaging to be able to justify accessing and reading individual employees private messages sent via its IT systems.

Many UK employers have in place e mail and internet policies that allow, or at least tolerate, some level of personal email use at work (for example during work breaks).

An employee may have a claim for breach of contract, and/or constructive dismissal, not to mention the UK’s existing raft of data protection and electronic communications privacy statutory rules and legislation therefore without having suitable provisions also in place allowing the employer  to monitor private messages sent using its IT systems  together with providing reasons for the precise purpose for doing so.

Employers ought to ensure they have notified their employees individually that they have a policy in place at the start of their employment whereby their online activity may be monitored and that the content of this policy is properly communicated to them. Employees should be asked to indicate that they have read the policy and accepted its terms. Employers ought to be sent reminders about the policy and notified of any changes.

iLaw specialist employment lawyers

Given this is a fast changing area of law it is important to ensure your business has appropriate e mail and internet policies in place and they are reviewed on a regular basis so as to avoid unanticipated liabilities.

Here at iLaw we specialise in drafting and reviewing employment policies and procedures. Call Julian Cox, Head of Employment at iLaw on 0207 117 4737 or email julian.cox@ilaw.co.uk to discuss your employment and HR requirements.

The Employee’s guide to settlement agreements – what you need to know

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Introduction

As an employee, being presented with a settlement agreement to consider by your employer can be a daunting experience.

It is inevitable that issues surrounding employment relationships arise in the work place – employers may be discontented with an employee’s work performance or behaviour whilst employees may feel unhappy with the way they are being treated or the work they are being asked to do.

Such problems may be resolved through the use of performance management, informal and formal disciplinary or grievance procedures, workplace mediation or Acas conciliation.

Settlement agreements offer an alternative tool to deal with workplace problems. Most commonly they are used by employers to help end an employment relationship in a mutually acceptable way.

Here are some of the main questions to consider before making a decision whether to sign a settlement agreement or not:

What is a settlement agreement?

Settlement agreements, formerly known as compromise agreements, are documents which set out the terms and conditions agreed by those involved (employer and employee) when they agree to waive their right to bring a claim covered by the agreement – for example, the right to make a claim to an employment tribunal or court.

Each settlement agreement will vary depending on the particular circumstances but usually it will include clauses that deal with:

  •  the particular claims to be settled
  • the financial payments you will receive and how they will be treated for tax
  • confidentiality
  • non-bad mouthing provisions
  • post termination restrictions
  • any agreed reference from your employer

Who can enter into settlement agreements?

Normally it is an employer and employee (or former employee) who are the contracting parties to a settlement agreement.

They can also be agreed between an employer and someone other than an employee (or former employee) who may be able to bring a claim to an employment tribunal – for example an unsuccessful job candidate complaining about discrimination or a worker with a claim for holiday pay.

A settlement agreement cannot be signed by groups of individuals.

What’s the difference between a settlement agreement and a compromise agreement?

The government renamed compromise agreements settlement agreements at the end of July 2013.

Whilst the nature and structure of the agreements themselves remains essentially the same, the new regime introduced an element of pre-termination negotiations – also known as a protected conversation.

Protected conversations are a way of encouraging employers to have full and frank conversations with employees about terminating their contracts. Anything that is said in this discussion is protected as being without prejudice and therefore cannot be used by either party against the other in the context of certain claims such as unfair dismissal.

There are exceptions: such conversations are not considered legally protected in discrimination, whistleblowing or other automatically unfair dismissal claims for example. This means that the negotiations can no longer be treated as being essentially ‘off the record’ if either party behaves improperly during the process. So, in these cases, what was said during the protected conversation could come out into the open.

For example, if an employer suggests to a pregnant woman that she might want to consider leaving their employment in return for a compensation package, such a conversation would not be protected if the employee believes that this offer has only been made because she is pregnant

What should I do first?

When you are invited into a meeting and asked to leave your job in return for signing a settlement agreement, it can be quite a shock. It can be hard to recall exactly what was said later on.

As soon as you can, write down as detailed a note as possible, setting out precisely what happened and what was said during the meeting. These contemporaneous notes can help you give accurate evidence in the event that you were to decide not to sign the settlement agreement in its original form and want to negotiate; or bring a claim against your employer in the event that an agreement cannot be reached.

Why do I need to take independent legal advice on a settlement agreement?

A settlement agreement will only become binding once you have received independent legal advice on its terms and effect from a solicitor or other qualifying adviser.

The adviser ought to provide you with a signed certificate to confirm they have provided this advice which you will need to give to your employer at the same time as you sign and return the agreement.

As well as advising you on the terms and effect of the settlement agreement, the adviser should consider with you whether you have any grounds for a claim against your employer. They should also discuss with you whether you are getting a good all round deal in the circumstances.

Who pays for the advice?

Under the terms of the settlement agreement, your employer usually to contribute an amount up to a certain level (typically between  £350 and 500 + VAT) towards your legal fees for having to obtain independent legal advice regarding the meaning and effect of your settlement agreement.

Ordinarily therefore you will not have to pay anything towards your adviser’s fees, assuming you are happy with the terms of the settlement agreement being offered and do not wish to seek any amendments. The adviser will send their invoice for their professional legal services for payment directly by your employer as provided for in the settlement agreement. Provided that your employer honors their contractual obligation under the settlement agreement and pays the invoice there will be nothing for you to pay.

Where you are dissatisfied with the terms of the settlement agreement being offered and want your adviser to act on your behalf to try to negotiate an increased level of compensation typically you will be responsible for your adviser’s additional fees involved in your adviser carrying out this work on your behalf, unless your employer agrees to pay these. Typically also your adviser will try though to pass on their fees for carrying out such additional work to your employer if at all possible by seeking an increase to the employer’s costs contribution provided for in the settlement agreement.

 How much ought my employer to be offering me?

In deciding how much money you ought to be offered, the following considerations are relevant:

  • what your contract of employment states regarding your financial entitlements such as remuneration, notice period and untaken paid annual leave. These need to be reflected in settlement agreement
  • your length of employment
  •  your statutory redundancy entitlement
  •  any enhanced redundancy pay scheme in place
  •  any entitlement to bonus or commission
  • the length of time it may take to resolve the problem if a settlement is not reached
  • how difficult it would be for your employer to fill the post
  • how long it might take you to find another job
  • the reasons for offering a settlement
  • the possible liabilities and costs involved in dealing with any potential tribunal or court claim you may bring if a mutually agreeable settlement cannot be achieved.

Do I have to pay tax on the money I receive?

This will depend on the precise nature of the payment.

Ordinarily, any contractual payment made to you, such as salary, bonus and paid holiday entitlement will be subject to tax in the normal way. Any redundancy payment (whether statutory or enhanced), or payment genuinely representing compensation for loss of employment, injury to feelings or damages can be paid tax exempt up to a value of £30,000.

Separate specialist tax advice may need to be obtained in relation to this complex, technical area.

How much time should I be given to consider the settlement agreement?

You ought to be given a reasonable time to consider an offer of a settlement agreement. What is reasonable will depend on the circumstances of each case, including what both parties might agree is a reasonable time.

As a general rule, a minimum period of 10 calendar days should be allowed to consider the proposed formal written terms of a settlement agreement and to receive independent advice, unless the parties agree otherwise.

The period of ten calendar days is a specific requirement outlined in the Acas Code of Practice on Settlement Agreements.

 The failure to adhere to this timetable may mean that the settlement discussions can be referred to as evidence in a subsequent unfair dismissal claim before an employment tribunal.

It can be helpful to agree a timetable for discussions which allows parties time to take advice and to consider offers, whilst also avoiding any unnecessary delays.

Do I have to sign the settlement agreement?

 The short answer to this question is no. Entering into a settlement agreement is something that is entirely voluntary – they include terms and conditions that are mutually agreed, and parties do not have to enter into them if they do not wish to do so.

Final agreement is often reached through a process of discussion and negotiation. You do not have to accept the terms initially offered – there may be scope for negotiation during which both sides make offers and counter offers.

Your adviser can also help you negotiate a better deal, which may include an increased financial pay-out.

If you believe you will be facing a period of unemployment, you will want to make sure you are able to meet your household living expenses until you find another job. One of the considerations you need to make is whether the money that’s being offered is enough in the circumstances.

Once both parties have signed the settlement agreement you have a binding contract meaning essentially there is no going back. This is why the legislation insists that you take independent legal advice.

If you do not sign the agreement, then you preserve your full rights to make a claim against your employer. You need to be mindful though there are strict time limits for bringing a tribunal claim if you do decide to do so.

iLaw – for specialist settlement agreement advice

 If your employer has offered you a settlement agreement or you believe they are in the process of making such an offer then we can help. Please do get in touch with us here

 Why us?

At iLaw we provide settlement agreement advice you can trust.

We offer a fast, efficient settlement agreement advice aimed at achieving your objectives.

Our focus is on meeting your particular needs – whether you are satisfied with what you are being offered financially and simply require standard advice regarding the terms and effect of your settlement agreement (formerly known as compromise agreements) you are obliged to take by law; or are looking for additional advice and assistance in order to try to negotiate an exit package with your employer on preferential, financial terms.

Key benefits of our service

Cost guarantee. We only charge the amount your employer is prepared to contribute towards your legal fees for reviewing the settlement agreement and providing advice as to its terms and effect.

  • We are fast and efficient. We appreciate time is of the essence when dealing with settlement agreements. We aim to provide same day appointments wherever possible, subject to availability.
  •  We also endeavor to contact your employer immediately following on from our meeting with any amendments sought to the settlement agreement.
  • We understand what a difficult and stressful time it can be for you faced with being offered a settlement agreement and endeavor to provide reassurance and support every step of the way.
  • We act for clients in London and across the UK. We are conveniently located in the heart of London for clients working in the City and central London. For clients located outside of London we can provide advice via telephone or video conferencing such as Skype.  

Contact us

Call us now on 0845 468 0082 for a FREE initial telephone consultation or e mail your enquiry to Julian Cox, Head of Employment at iLaw on julian.cox@ilaw.co.uk

http://www.ilaw.co.uk/settlement-agreement-specialist-advice/

Employment Law 2016 at a glance

2016

Happy New Year! UK employment law continues to develop apace and shows no sign of slowing in 2016. Set out below is a summary of the changes you can expect this year.

11 January 2016 

The Zero Hours Contracts (Redress) Regulations 2015 introduced, affording zero hours contract workers protection against employers trying to exercise exclusivity clauses.

7 March 2016

New rules come into force requiring employers in the finance sector to obtain and provide specific disclosures in relation to employment references for certain specified roles in the sector, as well as a continuing obligation to update them where the former employer becomes aware of matters that would have caused them to draft the reference differently

26 March 2016

Large employers will be obliged to publish information about their gender pay gaps.

We know that regulations must be introduced by 26 March 2016 that will make it compulsory for organisations with 250 or more employees to publish information regarding the difference in pay between men and women. This will need to include details of the gap in bonus payments.

3 April 2016

Statutory maternity pay, statutory paternity pay, statutory shared parental pay and statutory adoption pay all frozen at £139.58 per week.

6 April 2016 

National Living Wage introduced under the National Minimum Wage (Amendment) Regulations 2016, adding a 50p premium to the existing national minimum wage to create a new national living wage of £7.20 as the new single hourly rate for adults aged 25 years or older.

Weekly rate of statutory sick pay to remain at £88.45 for 2016 to 2017.

The Pensions Act 2014 introduces a new state pension for people reaching state pension age on or after 6 April 2016. The State Pension Regulations 2015 set out some of the detailed rules of the new scheme.

Jan – June 2016

Gender pay gap reporting draft regulations expected.

Jan – June 2016 

Consultation expected on extension of shared parental leave and pay to working grandparents.

October 2016 

Earliest likely implementation date for measures in the Immigration Bill 2015-16.

If you have any questions on how these changes will effect you or your business then I would be happy to discuss these with you. Do not hesitate to contact me at julian.cox@ilaw.co.uk.