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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

4.76 Average

124 Reviews

Brittany

I was very grateful for Redmans to treat my case with respect and discretion. At the time, I was very new to London and it was meaningful to have someone on my side and win the case for me. Without any doubt, I would definitely recommend Redmans Solicitors to anyone who is in need of it.

Posted 1 month ago

Jake L

Chris is very professional and calm. Very attentive and patient, been a positive experience having Chris represent me, and would recommend him.

Posted 2 months ago

Anonymous

Excellent service. It was a pleasure to work with Chris H, who is brilliant at what he does and very efficient. Their Senior Associate Rana T. is also very knowledgeable and resolves any queries speedily and efficiently. My issue could unfortunately not be resolved, but that was due to my employer and not the firm. Redmans however did all they could. I would definitely recommend them.

Posted 2 months ago

Anonymous

Very pleasant and quick to deal with. Mnay thanks.

Posted 2 months ago

Anonymous

Easy to get hold of. Quick.

Posted 3 months ago

Owen J

Very helpful, efficient service.

Posted 3 months ago

Anonymous

I am very lucky that I worked with Mr. Chris Hadrill and he managed my case very progressively with an analytical approach and trustfully. Of course with a very positive result. I strongly recommend Mr. Hadrill to any one seeking for a successful result from a highly qualified solicitor.

Posted 3 months ago

Kulbir S

Amazing, quick friendly service from Chris from the start and Caroline. They made me feel at ease during a difficult time, they understood and advised accordingly and I am really happy with the outcome of my case. Will always advise anyone who needs legal advice to contact Redmans, I’m so glad that I did and can confidently say I don’t think any other firm could have handled my case any better. Well done guys, wish you all the best and please keep doing what your doing, simply the best!

Posted 3 months ago

Mark A

Excellent service - rapid and “to the point” advice given to ensure meeting the target time frame

Posted 3 months ago

Anonymous

Chris Hadrill kept me sane during the negotiations with my employer. He was courteous professional and he cared about doing the best he could for me. I will use Redmans again if ever I need an employment solicitor. Excellent service.

Posted 3 months ago

Muhammad Z

Awesome services. Professionals at their best .

Posted 3 months ago

Anonymous

Thanks for the advice and for negotiating a good outcome. Good to have the support at a very stressful time

Posted 3 months ago

Chloe F

My solicitor at Redmans was very helpful and efficient. Really pleased with the smooth service.

Posted 3 months ago

Anonymous

Chris was absolutely excellent. Clear and concise, offering sound advice.

Posted 3 months ago

Tim O

Experienced and competent advisors

Posted 3 months ago

Rachel A

Quick and expert assistance. I would highly recommend Chris for any of your legal needs.

Posted 3 months ago

Joe S

I was very happy with the service provided by Chris and the team at Redmans Solicitors. I felt very comfortable discussing all matters with Chris and am very grateful for all the help and guidance I was given throughout the whole process. I would definitely recommend Redmans Solicitors to friends and family!

Posted 3 months ago

Anonymous

I had a very good experience working with Chris Hadrill during a difficult and emotional time. This held true from the moment I spoke to him on the phone, to the end of the process. Overall, he was attentive, professional and highly supportive. He provided sound advice and clarity. It was the reviews that led me to Redmans! I was very happy to know they were all true. I highly recommend working with Redmans Solicitors. Thank-you to the entire team!

Posted 4 months ago

Anonymous

Good service

Posted 4 months ago

Anonymous

Excellent professional service. Highly recommend.

Posted 4 months ago

Rob O

Very prompt response and I could not fault the service. My solicitor listened carefully to the details of my case and I felt very confident in the advice I was offered. All emails and work done on my behalf with my former employer was of the highest standard and Redmans helped take a lot of the stress out of the situation for me.

Posted 4 months ago