Redundancy settlement agreements
- Alex Kleanthous
- Updated: Thu, 2nd Mar 2017
We review your redundancy settlement agreement and tell you if the compensation offered is the best you can achieve. We are not limited to reviews of redundancy settlement agreements as we do review for any dismissal situation. Usually your legal fees for our review are paid by your employer and often there is no cost to you.
We negotiate redundancy settlement agreements and other types of settlement agreement for staff at all levels of seniority. We have the experience to resolve related issues including tax, matters relating to employee options and share awards and issues for directors. We are discrete but successful.
Redundancy settlement agreement review includes:
We work with employees and directors from a variety of backgrounds being offered redundancy settlement agreements or facing dismissal for other reasons. We have particular expertise in dealing with settlement agreements offered to employees from the financial services industry, professional services, media and technology.
Redundancy settlement agreement review – is the offer good enough?
A settlement agreement is usually offered by an employer because the employer does not want to run the risk of a claim in the Employment Tribunal.
How compensation is calculated
Compensation offered under a settlement agreement is usually made up of three parts:
- Contractual entitlements;
- Redundancy pay (if applicable); and
- Compensation for loss of employment or directorship – this is where there may be scope for negotiation.
When an employment or directorship is terminated you will have certain contractual entitlements up to the date your employment terminates. Contractual entitlements include:
- Notice pay;
- Holiday pay; and
- Contractual commission and bonus.
Payments due on redundancy
If your employment is terminated by reason of redundancy:
- You will be entitled to statutory redundancy if you have more than two years continuous service.
- In many cases the employer will operate a redundancy policy – often referred to as enhanced redundancy pay. A redundancy policy often pays out more than the statutory redundancy allowance. We will establish if your employer does operate an enhanced redundancy policy.
- If you do not have two years continuous employment service:
- There is no entitlement to statutory redundancy; but
- You may be entitled to an enhanced redundancy allowance if the employer’s policy permits this.
The compensatory sum compensates you for your loss of employment. We estimate the fair compensation for your circumstances. We then match that against the settlement offer to tell you your position. All directors and employees are required to mitigate their loss – that means look for another job. If you already have a new job lined up you will have mitigated the loss arising from termination of employment. This means the compensatory sum will be less.
If the compensatory sum falls short of expectations we can either:
- Negotiate for you; or
- Guide you in the background on how to negotiate with your employer.
A fair process must be followed in any termination of employment case
If an employer terminates any employment for any reason a fair process must be followed. If a fair process is not followed you may have a claim for unfair dismissal. The areas where a fair process is required are wide ranging and include:
- Your employer is making you redundant;
- Your employer is terminating the employment because you do not fit in;
- Your employer is terminating you because your skills do not match business needs; or
- Your employer is shutting your division down.
The importance of two years employment
If you do not have two years service as an employee or are a consultant you do not have the right to claim unfair dismissal. You may have the right to claim breach of contract or discrimination depending upon the facts.
Special rules over and above the requirement to follow a fair process apply in cases where:
- Your employer is terminating your employment in connection with a TUPE transfer;
- You have brought a whistle blowing allegation; or
- You have suffered discrimination at work.
Redundancy settlement agreement review – what to look out for
Based on past experience, the core areas which could be important to you and which may require attention include:
Dismissal where the employee is not blameless
If the employer is terminating your employment good reasons with evidence must exist. If the employer cannot show good reason then the compensation payable may be increased with negotiation. This is because most employers want to avoid claims in the Employment Tribunal.
We do see cases where the employee is partly at fault and the employer has not followed a fair process. Fault can reduce the chances of success in an Employment Tribunal and reduce the level of compensation that would be awarded. The judgement on whether there would be a deduction and if so by how much is a difficult to pre-determine. But, it is important to establish the risks. Knowing the risks helps you work out how to proceed.
- There is no point in pursuing meritless claims. We analyse the position and guide the employee on the likely outcome of negotiations.
Dismissal to avoid paying a bonus or commission
We do see cases where the employer selects for “redundancy” to avoid paying a bonus or commission. Selection for redundancy for improper purposes is unfair selection and an area that can give rise to negotiation. Usually we advise that we set out the complaint in a written grievance.
Restrictions after employment has ceased
Many senior executives and directors are keen to move onto new roles and take contacts and know-how with them – we advise what can be done safely. In practice the employer will address the question of restrictions in one of two ways:
Rely on existing post termination of employment restrictions
- Rely on the existing post termination of employment restrictions in the employment or director service agreement. If the existing restrictions were unenforceable during employment they will be unenforceable after employment. We review and tell you the position.
Draft new post termination restrictions into the redundancy settlement agreement
- Draft better restrictions and include these in the redundancy settlement agreement (or the settlement agreement covering any other dismissal). It is likely that such restrictions would be enforceable providing they are reasonable. In the employer’s favour is that the employee has received legal advice as part of entering into the redundancy settlement agreement or any other settlement agreement. The employer will seek to rely upon legal advice to claim the post termination restrictions are enforceable.
We consider the tax implications as part of our service. If the settlement agreement is not drafted properly you may be paying extra tax. A redundancy settlement agreement is one of the only remaining methods for an employee to receive tax free payments. Consequently, HMRC target redundancy settlement agreements for review. .
The tax payable on payments made on termination of employment is not always straight forward. We often find employers, especially the smaller employers, do not get it right. This can be to the detriment of the employee.
Redundancy settlement agreement review – Share awards and options
The rights under share awards and options do need a review as there may be scope for improving the deal offered by the employer.
The rights will vary depending upon the terms of the share award or options. We do work out the rights for you. There is usually a distinction between:
- The rules applying to options such as unapproved options, EMI options, CSOP options and awards under SAYE and SIP plans; and
- The terms on which shares were awarded.
- Whether the employee spent any time abroad as a part of a transfer of secondment abroad.
Options usually lapse on termination of employment. Some option plans distinguish between rights for “good leavers” and “bad leavers”. Redundancy can be a good leaver reason in many cases.
How shares will be dealt with again depends upon the rules of the share plan. The way that leavers are handled often varies between private companies and public quoted companies.
Share rights in private companies
In private companies it is not unusual to see requirements that the shares are compulsorily bought back on leaving employment. There can be a distinction between “good leavers” and “bad levers”. Unless the rights to force the transfer of shares have been set out in the articles or shareholders’ agreement the employer will have no right to force the transfer of shares.
If a profit is made on shares there can be a tax liability arising – we do deal with tax on share transactions.
Redundancy settlement agreement – Implications of signing
By entering into a redundancy settlement agreement (or any other type of settlement agreement) you warrant that you have no claims against your employer. Therefore, any claims you could have must be considered before you sign the settlement agreement.
By consulting us, and using our position as independent solicitors, you are able to discuss any potential claims in full confidence. The list of claims that you will be required to waive under the redundancy settlement agreement (and any other type of settlement agreement) can run into pages. We breakdown down the terms and focus on what is important to you.
There is no going back once you have signed your settlement agreement. The settlement agreement provides for full and final settlement of all claims against the employer and money due to the employee. We often see side conversation with HR for example on contractual bonus payments. These should be included in the settlement agreement to avoid any later dispute.
Redundancy settlement agreement – track record
We have advised thousands of employees who mainly work around Holborn, West End, Liverpool Street, Docklands and surrounding areas of London. In many cases the redundancy settlement agreement is fair and reasonable and we advise you to sign without negotiation. In other cases, working with us you decide to challenge the position. We provide choices.
- Robustly responded to the financial sums offered within a settlement agreement for an employee with over fifteen years’ service based in Mayfair. We increased the compensation offered, by “considering” a claim for unfair dismissal.
- Advised a group of employees in receipt of settlement agreements from a trading business based in Moorgate following a redundancy and re-structuring exercise.
- Enforceability of restrictive covenants under a settlement agreement for a director of a top four accountancy firm based at Bank. He was seeking to work for a competitor after termination. We advised that our client’s career intentions were not restricted and he then signed.
- Employment and company law advice about share sale and unfair dismissal, for an associate of a professional services company based in Farringdon. The departing associate held shares in the company which we handled.
- Negotiated for a line manager at a telecommunications company on the terms of a settlement agreement. The company sought to withhold his bonus, but failed following our intervention.
Before a settlement agreement has been received, we are able to formulate honest and reasoned advice on what should and should not be agreed to. Once you are happy with the terms, the settlement agreement can be signed.