In the event that an employee has their employment terminated due to redundancy or for any other reason or where there is the possibility of employment terminating an employee may be made a settlement offer and asked to sign a Settlement Agreement (formerly known as a compromise agreement).
Settlement Agreements are a means by which an enhanced sum can be paid to an employee and/or disputes settled without an Employment Tribunal claim being raised. If a Settlement Agreement is signed then an employee waives their right to bring certain claims against their former employer, in exchange for a settlement sum. Most claims which an employee may wish to bring against their former employer can be settled in this way including, for example, unfair dismissal, discrimination and constructive dismissal claims.
In order for a Settlement Agreement to be legally binding the employee must receive legal advice on the terms and effect of the Agreement.
Very often prior to a Settlement Agreement being finalised there will be some negotiation regarding the amount being paid and/or in relation to certain key elements of the wording of the Settlement Agreement. Common issues which we negotiate include:-
- the settlement sum (does this adequately compensate the employee?)
- tax efficient payment structures (structuring the agreement in a tax efficient way maximises the amount that the employee receives in their pocket)
- internal and external departure statements (preserving the reputation of the departing employee both internally and externally is very important)
- the wording of a reference (an agreed, positive, reference will assist an employee with finding alternative employment elsewhere)
- outplacement coaching (again, this may assist an employee with finding alternative employment more quickly than they might do otherwise)
- securing confidentiality (preservation of an employee's reputation is extremely important and adequate "gagging" clauses seek to ensure that the organisation from which the employee is departing (1) keeps matters confidential and (2) does not bad mouth the employee)
- restrictive covenants (if there are restrictive covenants in the employee's contract then, potentially, it may be possible to re-negotiate these so that the employee is not restricted in respect of whom they can work for moving forward)
- retention of property such as a company mobile telephone or an agreement to continue to use the same mobile telephone number post-termination (this may be of considerable assistance to an employee)
- legal fees (employers will generally make a contribution to legal fees and it may be possible to negotiate the contribution upwards if necessary).
There are also various practical matters to think about when entering into a Settlement Agreement. For example, it is important for a departing employee to consider replacing any insurance benefits that they will lose due to their employment terminating such as life assurance cover or private medical insurance.
Whilst, as I mentioned above, a redundancy or an employment dispute can be a very stressful time, it is important to make the most out of a difficult situation and negotiating an appropriate settlement package can be a big step in the right direction. Remember also that a departure presents the opportunity for a fresh start and perhaps even the chance to do something a little different moving forward. Over the years I have seen many clients never look back having found some very interesting and varied opportunities elsewhere.