Signing a contract document

Settlement Agreement Lawyers - Help for Employees

Our settlement agreement lawyers are experts in advising employees and employers on settlement agreements. Our settlement agreement lawyers are Helen Monson, Rhodri Thomas and Imogen Finnegan who are experts in employment law matters.

If your employment is coming to an end, it can be an uncertain and confusing time. Figures from the World Economic Forum suggest that 7.1 million white-collar jobs could be made redundant by 2020. If this happens to you, your employer may offer you a settlement agreement. This blog explains what a settlement agreement is and gives you practical tips on how to manage one.

Settlement Agreement Lawyers - The basics of the contract

Formerly known as a compromise agreement, a settlement agreement is a legally binding contract made between an employer and an employee used to resolve an issue in the workplace. Most commonly used in the case of redundancy or when an employee’s employment is being terminated, settlement agreements lawyers are often tasked to draw up a contract to provide an alternative to the employer and employee going to the employment tribunal.

In most settlement agreements an employee will formally agree not to pursue certain claims against their employer in return for a termination payment of some description. The settlement agreement will contain a clear breakdown of the payments which have been agreed and will also state whether any of them are to be made to the employee free of tax. Usually, the first £30,000 of compensation will be tax-free. Once a valid settlement agreement has been signed, an employee will be unable to make an employment tribunal claim about any of the claims listed in the agreement. It is recommended that settlement agreement lawyers draw up the contract because if the agreement is unclear or misses certain clauses the agreement reached between the employer and employee can unravel.

Settlement Agreement Lawyers: Practical tips

Know how much you’re entitled to (roughly!)

If you’ve received a financial offer, you need to know whether or not it’s fair. If you have a strong potential claim against your employer, then you are more likely to get a higher termination payment. If you do not, then there is not much incentive for your employer to pay you a large sum. You should consider what potential claims you could bring, how likely it is that those claims would succeed, and how much you would be likely to recover if they did. The length of time that you have been working for your employer may also be taken into consideration. Our settlement agreement lawyers can advise you on what you are entitled to.

Don’t be scared to negotiate

Before entering into settlement discussions with your employer, you should take some time to work out what you want to achieve and how you’re going to do it. Think about what’s most important to you and similarly, what you can do without. It may be helpful to think outside the box when negotiating a settlement agreement and consider whether there are any non-financial terms that you would like to include. A good, agreed reference is often part of a settlement agreement. Our settlement agreement lawyers are experts at negotiating settlement agreements.

Try and reach a deal

Remember, settlement agreements are voluntary. You do not have to enter a settlement agreement and you should be given a reasonable amount of time to consider the proposal. According to the ACAS code of practice, you should get a minimum of 10 calendar days to consider a settlement agreement, unless you and your employer have agreed otherwise. There are, however, several advantages to reaching a settlement agreement, particularly if the alternative is going to the employment tribunal. A settlement agreement provides certainty, is confidential, and can be concluded within only a couple of days. In contrast, bringing a claim to the employment tribunal may take months, be costly, and you may not come out with the deal that you were expecting.

Get independent legal advice

Settlement agreements can often be long, complicated documents. Our settlement agreement lawyers can help you consider whether you’re getting a good deal and whether you have any grounds for a claim against your employer. Settlement agreement lawyers can also help with the negotiation process. Getting independent legal advice is also a statutory requirement. An employee must receive advice on the terms and effect of a proposed settlement agreement, as well as its effect on the employee’s ability to pursue their statutory rights. If you do not, your settlement agreement will not be valid.

Settlement Agreement Lawyers: The legal bits

The exact contents of settlement agreements are largely down to the parties and will vary depending on what each party wants. Usually a settlement agreement will set out the arrangements on termination, details of the settlement payment, and provisions on confidentiality. If you breach a confidentiality clause by speaking out about the agreement and/or its terms, your employer will have the right to bring a breach of contract claim against you and you may have to pay them damages.

For a settlement agreement to be valid, it must also comply with six statutory requirements. These are:

• The agreement must be in writing.

• The agreement must relate to a particular complaint or to particular proceedings.

• The employee must get legal advice from settlement agreement lawyers on the terms and effect of the agreement and its effect on the employee’s ability to pursue any rights before an employment tribunal.

• The settlement agreement lawyers must have a current contract of insurance, or professional indemnity insurance, covering the risk of a claim against them by the employee in respect of the advice.

• The agreement must identify the settlement agreement lawyers.

• The agreement must state that the above conditions have been satisfied.

The most common claims that employers will seek to protect themselves from are claims of discrimination, unfair dismissal, wrongful dismissal, breach of contract and harassment. An employer will want to waive as many claims as it can, but there are some claims which cannot be waived. These include certain statutory employment rights claims, claims in relation to accrued pension rights, and claims for personal injury that might be caused in the future.

Whether you’re an employer or an employee, it is in your best interests to ensure that you have a well negotiated and well drafted settlement agreement. If you have any questions about settlement agreements please contact our settlement agreement lawyers Rhodri ThomasHelen Monson or Imogen Finnegan.


London City Jobs Brexit

City Jobs Brexit: Coping with Redundancy

The way that City jobs will be affected by Brexit is still not clear but, in 2017, Deputy Governor of the Bank of England Sam Woods said that forecasts of 75,000 job losses were “plausible.” This figure has since been challenged but, with no real certainty in terms of what the true Brexit impact on jobs will be, many are preparing for round(s) of rapid redundancy.

City Jobs Brexit: employment in the City

Brexit day is still months away but the financial services industry is already proving a nervy place to be. The sector saw a 29% drop in job openings in the year to June 2018, as uncertainty over Brexit and employment slowed hiring. While it is now hoped that fewer jobs will move out of the financial services sector in London to Europe as a result of Brexit impact on the UK, more recent positive figures are not all that they seem. Goldman Sachs, for example, initially caused concerned by stating that it would be moving jobs to Paris but has now said it will also create 150 new jobs in London as part of its new Marcus retail bank. However, on closer inspection, 50 of the Marcus jobs will be in call centres, as opposed to financial services positions. So, the situation remains uncertain.

City Jobs Brexit: redundancies in the City

Given the dampened hiring climate in the City it’s crucial for anyone facing redundancy under these circumstances to get the best possible departure deal. It’s not currently known what hiring prospects in financial services will be like post-Brexit, which makes it even more important to secure the right exit package, whether that’s via redundancy pay or a settlement agreement.

City Jobs Brexit: Redundancy – the basics

  • You have the right to be given notice of redundancy. This is based on the number of years of service – 12 weeks’ notice for 12 years or more, one week’s notice for every year of employment for two to 12 years’ service and at least a week for anything below two years. These are the minimum periods of notice that an employer must give in law but your employment contract may contain longer notice periods.
  • You may not serve out your notice. An employer can offer pay in lieu of notice or you may be asked to take Gardening Leave, which means serving out the notice period away from the office.
  • You have the right to be consulted. Redundancy law requires employers to consult employees before dismissing anyone on redundancy grounds. Different time limits and consultation requirements apply, depending on the number of employees being made redundant.
  • Once you’ve received your redundancy notice you’re entitled to paid time off to look for other work (usually two days). You can also take unpaid leave for training and to look for another job, within reason.
  • Your employer may choose to offer you a settlement agreement rather than go through the redundancy process to determine redundancy pay.

City Jobs Brexit: The settlement agreement

Settlement agreements are often used in a redundancy situation as an alternative to redundancy procedures. They usually offer a cash payment in return for the employee waiving their rights to bring any kind of legal action against the employer.

In the UK, a settlement agreement must be in writing and will not be binding unless both parties have taken independent legal advice. If you are in a redundancy situation and presented with a settlement agreement, it’s crucial to take legal advice to ensure the agreement is valid but also so that you get the best possible deal.

City Jobs Brexit: What’s the purpose of a settlement agreement?

To bring an employment relationship to an end on agreed terms. In a redundancy situation, the use of a settlement agreement is often to save the time and resources involved in going through the full redundancy process. Settlement agreements are legally binding documents and so should not be signed without a sound understanding of the contents.

City Jobs Brexit: Are settlement agreements voluntary?

Yes. Employees being made redundant are not obliged to accept a settlement agreement that is on the table. If you refuse a settlement agreement then your employer will be required to go through the official redundancy processes in order to legally make you redundant.

City Jobs Brexit: Why do employers choose settlement agreements?

Employers like settlement agreements because they save time and money by avoiding the redundancy process. They also prevent a situation in which an employee feels that the redundancy process has not been properly or fairly handled and subsequently makes a claim against the employer for compensation for unfair dismissal. Once the settlement agreement is signed, as long as it was properly handled, the employee cannot make any future claims.

City Jobs Brexit: Why would an employee accept a settlement agreement?

As employers like settlement agreements, they tend to offer incentives to employees to make signing the agreement more attractive than going through a redundancy process. So, for example, the agreement will usually contain an offer to pay more as a settlement sum than an employee would receive if their employment came to an end via a standard redundancy process.

City Jobs Brexit: What type of clauses might you find in a settlement agreement?

1. Employee entitlement – this covers what the employee is entitled to in return for signing the agreement and could be a combination of:

a) Contractual payments including:

  • Payment in lieu of notice
  • Accrued, but not taken, holiday
  • Any benefits due during notice
  • Bonus payments
  • Stocks and shares

b) A compensation payment. Above the legal minimums, the amount of compensation offered is dependent on an employer. The first £30,000 is usually tax and National Insurance free.

2. A reference – agreed job reference wording should be attached to the settlement agreement and a clause inserted that requires an employer to refrain from any less favourable oral references.

3. Confidentiality – usually, employees will be required to keep the contents of the agreement confidential.

4. A “non-derogatory” clause – i.e. the employee cannot speak in a derogatory way about the employer. It’s a good idea to make sure that this is reciprocal.

5. Restrictive covenants – there may be restrictions in the agreement on who an employee can go on to work for in the future. Variations and waivers can usually be negotiated.

A redundancy situation is not something to ignore – the right support will be key when it comes to handling the process effectively. Settlement agreements can be complex but, if well negotiated, can help to secure a bright future.

Please get in touch with one of our specialist employment lawyers Helen Monson or Imogen Finnegan.


EM Law Settlement Agreements Photo by Ant Rozetsky

Settlement agreements – A Quick Guide

EM Law helps employers and employees with drafting, advising on and negotiating settlement agreements. Our employment law team is made up of expert solicitors with City and large regional law firm experience.

If you are an employee and your employer has offered you a settlement agreement the chances are you are in the process of being made redundant or your employment is terminating for some other reason. For some individuals, redundancy is a welcome thing - an opportunity to leave a job they wanted to leave anyway with a package they would not have received if they had resigned. For the majority of people, though, being made redundant is a very stressful situation. Quite often, employers will take a hard line – putting pressure on the employee to accept the offer that’s on the table.

This is where we come in.

We help employers follow the correct process and provide pragmatic, commercial advice to help employers achieve the best outcomes. We prevent employers frm being exposed to greater claims.

From the employee perspective, we help employees receive the best settlement package they can.

Negotiating settlement agreements

The common aim with settlement agreements is that, once signed, they end the employment relationship. The employee, in return for compensation in cash and other benefits, agrees that they will not bring any claims against the employer.

So it’s important to get settlement agreements right. Loose drafting opens the door for the employee to make claims that they shouldn’t have been able to make. Poor negotiation will leave an employer paying more than they should or an employee receiving less than they should.

Negotiation: common scenarios

Typically, the process of negotiation can take place in one of four scenarios.

Where employment has ended

The employee may be presented with a draft settlement agreement (marked “without prejudice and subject to contract”) and asked to revert to the employer within a fairly short timescale with a response to the settlement offer.

Where employment and active duties continue

The employee is approached by their manager or human resources department (either in a without prejudice discussion or a pre-termination negotiation). They are made an offer and potentially given a draft settlement agreement (marked “without prejudice and subject to contract”). They are told to take it away and consider its contents, usually within a fairly short timescale. The employee will remain in the workplace, actively carrying out their duties, but will be asked to keep the settlement discussions confidential, including the existence of the settlement agreement.

Where employment continues but the employee is not actively carrying out duties

A variant of the above is where the employee is still employed but not actively carrying out their duties They may be on long-term sick leave or family related leave. As above, the employee will be given a draft settlement agreement (marked “without prejudice and subject to contract”) and asked to respond within a certain timescale.

Where employment continues but employee is sent home

The employee may be given the draft settlement agreement, or an outline of settlement terms, and asked to remain at home while they consider the offer over a certain timescale. They may be placed on garden leave, or else just told it is better for them to remain at home while they consider the position. They will be asked not to have contact with colleagues or clients and their computer access may be disabled.

Possible steps in a settlement discussion (employee still employed)

Step 1: invitation to meeting

The employer invites the employee to a meeting at a mutually convenient time and place.

Step 2: at the meeting

At the meeting, the employer explains its concerns (for example, performance issues or the breakdown of the working relationship) in a neutral manner, and proposes an exit with an agreed settlement package. The employer should provide enough information for the employee to understand what has led to the offer and the potential consequences if they do not depart.

Where inadequate information is provided, this could support an argument that there is a discriminatory basis for the offer.

Step 3: written offer

If the employee agrees to explore the suggestion of settlement, the employer produces a written offer.

The employee must have a “reasonable period” in which to consider the formal written terms.

Step 4: settlement agreement

If the employee is interested in proceeding with the settlement, the employer can provide the employee with a settlement agreement documenting the terms, if they have not already done so. The employee will need to take independent legal advice on the implication of entering into the agreement.

If the employee is not interested in exploring settlement, the employer should cease settlement negotiations and seek to tackle the underlying problem.

Acas guidance on conducting settlement discussions

Acas has produced the following guidance and resources:

  • A Code of Practice on Settlement Agreements which focuses on the admissibility provisions regarding pre-termination negotiations.
  • A guide to settlement discussions to help employers and employees understand when settlement agreements can be negotiated.
  • Two template letters (putting forward settlement offers) and a model settlement agreement; these are contained in the guide.

Allowing time to consider offers

The Acas Code on Settlement Agreements states that parties should be given a reasonable period of time to consider the proposed settlement agreement and that, as a general rule, ten 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.

Allowing employees to be accompanied

Although the Acas Code on Settlement Agreements acknowledges that there is no legal right for employees to be accompanied during pre-termination negotiations, it suggests that employers should allow this.

“Subject to contract”

Correspondence about the settlement agreement (and drafts of the agreement itself) will usually be marked “subject to contract”. The intention is to make it clear that nothing said or written in negotiations should give rise to a legally binding contract until all the terms have been agreed and the contract signed by both parties.

Typical contents of settlement agreements

The contents of a settlement agreement are largely at the discretion of the parties, except for those clauses which relate to the statutory requirements.

In a typical case, termination of employment will have occurred or be imminent. The agreement will usually provide for the employee to receive a termination payment in return for waiving certain claims.

Examples of typical clauses are:

  • Arrangements on termination (dealing with issues such as untaken holiday and salary payments)
  • Termination Payment (what cash compensation will the employee receive?)
  • Benefits (what other benefits will the employee receive?)
  • Pension (dealing with treatment of the employee’s pension)
  • Legal fees (usually all of the employee’s legal expenses are covered)
  • Waiver of claims (where the employee agrees not to sue the employer)
  • Return of company property (where the employee agrees to return all company property)
  • References (where the employer agrees to provide a reference that is in a form agreed with the employee)
  • Restrictive covenants (usually these repeat any restrictive covenants in the employee’s employment contract)
  • Confidentiality (the parties agree that the terms of the agreement are confidential)
  • Other standard clauses to be found in most contracts such as English law applying, the English courts having jurisdiction to hear any claims etc

Issues relevant to drafting settlement agreements

Prior to drafting a settlement agreement, a number of issues will need to be considered, including:

  • The proposed timing of the termination, including the implications if there is going to be a significant delay between signing the agreement and the proposed termination date.
  • The reason for termination, including how this will be reflected in the agreement (if at all) and how any associated announcements will be handled.
  • The value of the settlement package on offer (having regard to the employee’s salary and contractual entitlements, together with the value of any potential claims).
  • Where there is a discretion to be exercised by the employer (for example in relation to bonus or share options), how this discretion will be exercised.

Termination payment

The amount of the termination payment is likely to be an important focus of the settlement discussions. The employee will usually seek to improve this, or to enhance the overall value of the package in other ways. This may be done by:

  • Negotiating a higher lump sum, having regard to the merits of any claims.
  • Seeking a more tax efficient way for the sum to be paid, for example having part of the termination payment paid into a pension scheme.
  • Negotiating the payment of discretionary sums under discussion, for example in relation to bonus, commission or share options.

Tax status of payment

Where a payment is made to an employee on the termination of employment, it is either taxable in the normal way as earnings under the Income Tax (Earnings and Pensions) Act 2003 or taxed as a termination payment under sections 401 to 416. The first £30,000 of payments that fall within section 401 is exempt from tax and any excess will be subject to income tax in the normal way, with the employer being responsible for accounting to HMRC.

Legal fees

It is usual for the employer to make a contribution to the employee’s legal fees, since one of the statutory conditions for a settlement agreement is that the employee has received legal advice.

If you have any questions concerning a settlement agreement please get in touch.


EM Law Crawford v Network Rail

Crawford v Network Rail Infrastructure Ltd UKEAT/0316/16 (8 November 2017) Compensatory Rest Breaks

The Employment Appeals Tribunal in the case of Crawford v Network Rail Infrastructure Ltd UKEAT/0316/16 has held that a worker’s right to compensatory rest for a 20-minute rest break under the Working Time Regulations 1998 (SI 1998/1833) (Working Time Regulations) must be given as an uninterrupted rest break of 20 minutes. Allowing a railway signalman to take a number of shorter breaks throughout his eight-hour shift, which in aggregate amounted to substantially more than 20 minutes, was not compliant.

Background

Under the Working Time Regulations, a worker is entitled to a rest break if their daily working time exceeds six hours (regulation 12(1)). A rest break is a period of at least 20 minutes which the worker is entitled to spend away from their workstation, if they have one (regulation 12(3)).

Workers falling within a number of “special cases” under regulation 21 of the WTR, including those working in rail transport whose “activities are linked to transport timetables and to ensuring the continuity and regularity of traffic” (regulation 21(f)), are excluded from entitlement to a rest break under regulation 12(1). However, in such cases, regulation 24 provides that:

  • His employer shall wherever possible allow him to take an equivalent period of compensatory rest (regulation 24(a)).
  • In exceptional circumstances in which it is not possible, for objective reasons, to grant such a period of rest, his employer shall afford him such protection as may be appropriate in order to safeguard the worker’s health and safety (regulation 24(b)).

In Crawford v Network Rail Infrastructure Ltd UKEAT/0316/16, the Employment Appeals Tribunal considered whether a railway signalman had been given adequate compensatory rest when he was permitted to take a series of short breaks while remaining “on call”.

Facts

The Claimant – Mr Crawford - was a railway signalman working on single manned boxes on eight- hour shifts. He had no rostered breaks but was expected to take breaks when there were naturally occurring breaks in work whilst remaining “on call”. Although none of the individual breaks lasted 20 minutes, in aggregate they lasted substantially more than 20 minutes.

Mr Crawford claimed that he was entitled to a 20 minute “rest break” under regulation 12 of the Working Time Regulations or “compensatory rest” under regulation 24(a). The Employment Tribunal found that regulation 12 did not apply and that the arrangements were compliant with regulation 24(a).

Mr Crawford appealed on the basis that “an equivalent period of compensatory rest” must comprise one period lasting at least 20 minutes.

Decision

Judge Shanks in the Employment Appeal Tribunal found in favour of Mr Crawford – agreeing with him that adequate compensatory rest had not been provided.

Judge Shanks picked up on the Employment Tribunal’s finding that Mr Crawford had not requested (and had therefore not been refused) any different arrangements to the ones he was obliged by Network Rail to follow and noted that, in fact, Mr Crawford had more than three months before the starting of the tribunal proceedings brought a substantial grievance and then an appeal which raised the very complaint that he took to the tribunal, namely that he did not have a continuous 20-minute break. Judge Shanks noted that Mr Crawford’s complaint and the appeal were dismissed and no steps were taken to change the system. Accordingly, the only question to be determined was whether the tribunal had been entitled to find that what was provided on such occasions amounted to an equivalent period of compensatory rest.

Judge Shanks examined the case of Hughes v The Corps of Commissionaires Management Ltd [2011] EWCA Civ 1061 (8 September 2011) noting that the mere fact of being “on call” during a break would not mean that the break couldn’t amount to a compensatory rest break in accordance with the Working Time Regulations. However, he concluded from the judge’s reasoning in that case, that the compensatory rest must comprise a break from work which must last at least 20 (continuous) minutes.

Comment

Crawford v Network Rail Infrastructure Ltd makes it clear that if a worker’s daily working time exceeds 6 hours, the worker must have an uninterrupted single period of at least 20 minutes’ rest.

Also of note: Network Rail ran an argument that their system worked better from a health and safety perspective than a system involving a continuous 20 minute break. This argument was rejected as irrelevant.

For any questions that you have concerning the Working Time Regulations please do not hesitate to contact us.