As a result of the COVID-19 pandemic and the economic consequences of this, many employers have been reviewing their businesses and making decisions to let staff go. Sometimes the decision will be made to go down the route of settlement agreements and this can be a preferred route particularly for more senior staff.
A settlement agreement is a legal document under which an agreed termination of employment is formalised (or sometimes entered into after the event of a dismissal) whereby the parties agree: frequently a financial package, the waiver of an employee’s right to bring employment claims, confidentiality and often various arrangements relating to the end of the employment relationship. Here are some top tips on dealing with settlement agreements.
1. Be sensitive
It is possible that the mention of a settlement agreement is an unexpected bolt out of the blue for some employees. Being sensitive and amicable at this stage may help prevent the employee considering a potential claim as an alternative to the settlement agreement. If at all possible have a discussion with the employee about your proposal of a settlement agreement. Often the settlement agreement should be presented as an option to an employee, as an alternative to going down a formal procedure with the employer, such as a redundancy consultation, performance management procedure, or disciplinary procedure. It you present it as a fait accompli at the outset of your discussion, a consequence of doing so could be a potential employment claim, including for constructive dismissal.
2. Protection for discussions with employees
There is protection for employers who have “without prejudice” conversations with employees about a settlement agreement if the parties are in an existing dispute and purpose of the discussion is to avoid litigation. If you are not in “dispute” then there is limited protection under section 111A of the Employment Rights Act 1996, if you or the employee initiates a “protected” discussion about a settlement agreement, against unfair dismissal claims. The protection here means the employee cannot use the discussion as grounds for an employment claim. But, these protections can be undermined, including if the employee has been discriminated against or undue pressure has been put on them, so they feel bullied into accepting the settlement agreement.
3. Be careful what you say
Do be aware that some employees will record conversations with employers when they believe they are in a vulnerable position and where this might be to their benefit as evidence at a later date. This may be admissible as evidence at an employment tribunal hearing. Case law confirms that where recording was made, the employer was not aware of this and the employee was in fact out of the room, this can still be admissible in circumstances where the discussion is discriminatory in respect of the employee. So, be mindful and careful what you say at all stages.
4. Be careful what you write
It is not uncommon for an employee to submit a data subject access request “DSAR” to an employer in the context of a redundancy procedure, disciplinary procedure, or termination of employment. There are time limits on an employer in dealing with this. Compliance can be laborious and time-consuming. We work closely with our data protection lawyers on managing these requests. This is a means by which employees can get hold of personal data relating to them, including e—mails between managers and HR about them and notes made at meetings. So, again envisage in advance how what you might write could reflect in an employment tribunal hearing. See here for guidance on dealing with these requests.
5. Be prepared
Think about what you are going to say to the employee in advance. You may want to have an outline script in mind before the meeting. Consider what your offer to the employee might be in financial terms. Should they be at work while this proposal is being discussed, would they need time away to consider it and how will you communicate with other staff on their absence while maintaining confidentiality? Might you want to protect your business against your employee competing with you for a period of time once their employment has come to an end and, if so, do you have appropriate restrictive covenants in their contract of employment or would these need to be included in a settlement agreement? Are you prepared to provide a reference and do you want to make an announcement internally and/or externally about the employee’s departure once the settlement agreement is signed? If so, it would be advisable to include these terms in a settlement agreement.
6. Timing
Consider in advance by when do you wish the settlement agreement to be agreed by the employee. They will need time to take legal advice on it, which will usually be from a solicitor but could be another appropriate individual, such as a trade union representative. This professional advice is necessary, otherwise the employee will not have effectively waived their right to bring an employment claim against your business. Furthermore, there is a guidance in the Acas Code on Settlement Agreements whereby an employer should give an employee 10 calendar days to consider their offer, see here. Although, this is not legally binding, it is helpful to take into account when dealing with an employee in following a fair and reasonable process.
7. Time Limit
Put a reasonable deadline on when you want the settlement agreement to be returned signed to your business. Don’t leave it open ended and let the employee know that if the terms are not agreed then another route may be followed. This could be a formal procedure potentially leading to dismissal and applicable contractual and statutory payments due to the employee. The enhanced package you may have put on the table will no longer apply.
8. Get it right
Be clear on the financial package being offered to the employee as part of a settlement agreement proposal. This includes the amount you prepared to contribute to their legal costs to take advice on the settlement agreement, which is typically in the region of between £250 to £500 plus VAT. The more senior the individual the greater the contribution, as a rule of thumb. Make sure the various payments are treated in the correct tax appropriate way. Outstanding salary, payments in lieu of notice, accrued holiday pay should be treated as contractual payments and paid net as you usually would with salary due to the employee. There may be scope to make some other payments, such as redundancy pay and an ex gratia settlement sum as a gross sum, provided they fall below the £30,000 threshold.
Make sure your settlement agreement documentation is legally compliant and in accordance with current employment law. You may need to take legal advice on this.
9. Taking Covid-19 into account
There may be restrictions on meeting with employees to discuss settlement agreements in person, for example, if they are working at home, a local lockdown, national restrictions or they are shielding. In which case take steps to have the meeting with them remotely, via a virtual face to face meeting, if possible. It can be harder for an employee to sign (and have witnessed) a settlement agreement currently. So, consider how this might be achieved within your timescale and potentially using technology where documents can be signed via an electronic signature, such as Docusign.
Our Employment Team is very experienced in advising employers on settlement agreements, including complex issues involving company directors, shares, restrictive covenants and bonuses. Do contact us if you wish advice on a settlement agreement.