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Chris Hadrill, the partner in the employment team at Redmans, gives his analysis of what he thinks are the top 10 pitfalls to employees negotiating settlement agreements

  1. The timing of the termination – making sure it works for you
  2. The value of the ex-gratia payment – increasing it as much as possible
  3. Dealing with notice pay properly
  4. The proper use of confidentiality clauses
  5. Dealing with bonus payments
  6. Checking your contract of employment for restrictive covenants
  7. Making sure you’re paid benefits (pension contributions, healthcare etc.)
  8. Provisions relating to confidential information
  9. Not obtaining independent legal advice from a suitably-qualified adviser
  10. Not getting a contribution to your legal fees from your employer

The timing of the termination – making sure it works for you

If you’re being offered a settlement agreement then you should ensure that the timing and method of the termination works for you. There are generally three methods of terminating employment via a settlement agreement: 1) working out your notice period; 2) going on ‘garden leave’ for your period of notice; and 3) your employment terminating (almost) immediately and you being paid in lieu for your notice period.

Carefully review your situation and determine what’s best for you: one mistake that employees make is often just accepting that their employer will make them work out their notice period; you may be able to negotiate being placed on garden leave for a period of time or, alternatively, that your employment terminates asap and that you be paid in lieu of your notice pay.

The value of the ex-gratia payment – increasing it as much as possible

The principal benefit of a settlement agreement to an employee is normally the amount of tax-free compensation that they will receive under the settlement agreement. This ex-gratia amount may not always be negotiable, but it normally is: the fundamental principle of negotiating settlement agreement payments is generally “if you don’t ask, you don’t get”. It’s therefore generally worth approaching your employer to see whether the value of your ex-gratia payment can be negotiated (your solicitor may be able to help with this).

Dealing with notice pay properly

On 6 April 2018 the law relating to taxation on notice payments changed: employers must  now tax as “general earnings” a portion of a termination award equivalent to the basic pay an employee would have earned had the employee served his or her notice in full (this has been called “post-employment notice pay” (or “PENP” for short)).

A failure to deal with the new tax provisions properly in settlement agreements could potentially cause tax problems for both the employer and employee in the future, so it’s normally important that the settlement agreement identifies the sum that would have been earned had the employee served their notice in full and states that this will be subject to tax and National Insurance.

The proper use of confidentiality clauses

In the wake of the Harvey Weinstein scandal a great deal of focus has been placed on the proper use of confidentiality clauses in settlement agreements – for example, the SRA has recently issued guidance that confidentiality clauses in settlement agreements shouldn’t allow law firms to hide discriminatory or harassing behaviour.

If your employer has engaged in serious misconduct (whatever this is) and you are being offered a settlement agreement then you must consider whether the confidentiality clauses in the settlement agreement are right for you in your circumstances – the best thing to do is to discuss this with your legal adviser.

It should also be noted that settlement agreements cannot and do not prevent employees from making protected disclosures (e.g. disclosures showing that their employer’s conduct has breached the criminal law, breached a civil legal obligation or breached environmental standards) in the public interest.

Dealing with bonus payments

If you normally receive a bonus payment in the course of your employment then you should check your contract of employment (or bonus scheme, employment handbook etc.) in order to determine what criteria you need to meet in order to qualify for a bonus payment upon termination: a lot of employers impose a condition on bonuses that you must be in employment as of a particular date in order to qualify for a bonus in a particular tax year, so if your employment terminates prior to that date it can sometimes make it difficult to argue that you should receive a bonus. It is normally worth approaching your employer, however, to see what you can negotiate regarding your bonus.

Dealing with shares, share options, and RSU’s

If you are entitled to shares in your employer (or you have share options or Restricted Share Units (“RSU’s”) then it is normally a good idea to reference the terms relating to those shares, share options and/or RSU’s in the settlement agreement, as well as how they will be dealt with post-employment, so both you and your employer are clear on how the shares will be dealt with and what will happen.

Making sure you’re paid benefits (pension contributions, healthcare etc.)

A mistake that employees often make with settlement agreements is not checking their contract of employment to see whether they are entitled to be paid in lieu for benefits (if they are being paid in lieu of notice): most contracts of employment state that the employee will normally only be contractually entitled to salary payments if they are paid in lieu of notice, but some contracts of employment are silent on this point or expressly state that the employee is entitled to both salary and benefits (pension contributions, healthcare etc.) if they are paid in lieu of notice – this could involve the employee being entitled to use these benefits for the period of notice that they would otherwise have served (e.g. use of company car, healthcare coverage) or being paid in lieu in respect of some benefits (e.g. employers’ pension contributions, car allowance).

Checking your contract of employment for restrictive covenants

“Restrictive covenants” are, to give a rather brief summary, clauses that restrict an employee’s ability to undertake alternative employment (both during employment and post-employment) or that restrict employees from being able to poach clients of their employer or former colleagues after their employment terminates.

Sometimes employees are unaware that they are subjected to restrictive covenants , or they don’t know what effect restrictive covenants in their contract of employment may have. The first thing that you should do is check your contract of employment (and any other relevant documents) to see whether you are bound by restrictive covenants and, if so, what those mean. It’s a good idea to speak to your legal adviser about the covenants.

Not obtaining independent legal advice from a suitably-qualified adviser

There is a legal requirement that you obtain independent legal advice from a legal adviser on the terms and effect of your settlement agreement in order to render the settlement agreement enforceable; a failure to obtain independent legal advice from a suitable legal adviser will generally render a settlement agreement unenforceable.

If you’re offered a settlement agreement then it’s normally recommended that you approach a solicitor (or another suitably-qualified independent legal adviser) to discuss your settlement agreement with them – specialist employment solicitors will generally have a great deal of experience advising on settlement agreements, and should be able to help you considerably with advising your agreement.

If your employer tries to force you to sign a settlement agreement without making you aware that you should receive independent legal advice first then you should immediately point out to your employer that you should have the benefit of legal advice prior to signing.

Not getting a contribution to your legal fees from your employer

It is not a legal requirement that an employer make a contribution towards your legal fees, but in practice most employers will (for a number of reasons) offer a financial contribution towards the cost of you receiving legal advice on your settlement agreement (this contribution will normally be between £250 plus VAT and £500 plus VAT in value, although it may be more in some circumstances). If your employer is not offering a contribution towards your legal fees then approach your employer and negotiate this.

About

Redmans Employment Team deal with employment matters for both employers and employees, including drafting employment contracts and policies, advising employers and employees on compromise agreements, handling day-to-day HR issues, advising on restructures, and handling Employment Tribunal cases for both employers and employees Call 020 3397 3603 to speak to one of the members of our employment team or email us on enquiries@redmans.co.uk. Redmans have offices in Richmond, Chiswick, Hammersmith, Fulham, Kingston, Wimbledon, Ealing, Kings Cross and Marylebone (meetings strictly by appointment only).

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Testimonials

4.63 Average

30 Reviews

Anonymous

Immediate response to my initial enquiry. Very clear throughout the whole process and thorough and great communication which worked really well during quite a stressful time. Chris Hadrill was extremely helpful and made me feel at ease.

Posted 1 month ago

Nick D

I received a very professional service from Chris. The advice given really helped to leave me comfortable to sign the settlement agreement following my redundancy. Would be happy to recommend your services to others.

Posted 1 month ago

Anonymous

Excellent service from initial contact to deliverables.

Posted 2 months ago

Virginia K

Yes, Chris Hadrill answered all my questions and I feel more confident with my current situation

Posted 2 months ago

Anonymous

Chris Hadrill was referred to me my a friend of mine. I found the service to be efficient, quick and like Chris's direct approach to my work. Well done and thank you Chris!

Posted 2 months ago

Andy W

Very prompt & structured service that helped put my mind at rest at a difficult time

Posted 2 months ago

Anonymous

I have found Redmans to be very helpful, diligant and thoroughly professional when dealing with them, plus they gone that extra mile for me !

Posted 2 months ago

Anonymous

Thank you to Chris Hadrill at Redmans for his assistance in settling my case. I contacted him at the very last minute and he was happy to help me and managed to get everything done on time and in a very professional manner. I will definitely be happy to work with him again .

Posted 2 months ago

Redman's provided excellent legal employment advice for me during a difficult time in my employment. Chris was my lawyer, super efficient, quick, reliable and clearly very experienced in the matter. Could not ask for a better law firm to deal with your query if you are in need of some help. Would definitely use them again in the future. Highly recommending Chris.

Posted 6 months ago

Steven

Chris Hadrill was very professional and responsive. I would highly recommend him

Posted 6 months ago

Dinah

Very Efficient, with very quick email reply’s. I had a matter that needed resolving within a very short space of time and Redmans Solicitors were great with dealing with my matter quickly.

Posted 6 months ago

Ankar

At Redmans the solicitor that was dealing with me was Chris. He dealt with my situation smoothly with clear guidance and explanation

Posted 6 months ago

Anonymous

Clear, concise advice and guidance delivered by an experienced and very capable solicitor, within the timelines required

Posted 7 months ago

Anonymous

Very efficient service. I never had to wIt for more than a day for a reply to any of my queries and the matter was dealt with swiftly.

Posted 7 months ago

Anonymous

Very timely, thorough and helpful advice. Friendly and considerate of the needs of the client

Posted 7 months ago

Anonymous

Very prompt and attention to detail. Thank you for the service

Posted 7 months ago

Chris

Couldn’t be happier with how Redmans successfully handled our seemingly tricky case. By being clear and detailed every step of the way, with the utmost professionalism and courtesy, they made it an informative and eye-opening process, taking the stress out of the situation and ultimately delivered what you would want from such a service. I fully appreciate everything they have done, and if I am ever in need of such services in the future, they will be the first number I contact. Excellent.

Posted 7 months ago

Anonymous

Excellent work delivered with great quality

Posted 7 months ago

Dominic

Chris Hadrill was a great help both in terms of his advice and his expertise. He explained my options to me clearly and concisely enabling me to quickly make the right decision for me in the circumstance. I would not hesitate to recommend Chris or Redmans to friends or colleagues, and would certainly make Redmans my first port of call should I require a similar service in the future.

Posted 7 months ago

Kurt

Redmans gave excellent advice and helped me understand everything in clear concepts. Thank you!

Posted 7 months ago

Anonymous

Resolved my issues

Posted 7 months ago