Chris Hadrill, a specialist employment solicitor at Redmans, answers the question:
“What payments should I expect to receive under a settlement agreement?”
There are two separate sets of questions in the above: firstly, what payments should you reasonably expect to receive under a settlement agreement based on your legal entitlement?; and, secondly, what payments do you expect to receive under the settlement agreement, regardless of your legal entitlement?
With regards to the first question, what you should expect to receive under your settlement agreement as a matter of law does depend upon the circumstances of your case: if you are being made redundant then, if you have been employed by your employer for two years or more then you can expect to receive at least your notice pay (if you are not working your notice), accrued but untaken holiday pay, and your statutory redundancy pay; if, in fact, performance concerns have been raised to you then you should expect to receive at least your notice pay and accrued but untaken holiday.
As a matter of practice, and in addition to the minimum payments you are owed, you should generally expect to also receive one or more of the following payments under the settlement agreement (this list is not exhaustive):
- Ex-gratia compensation
- Bonus payment
- Commission payment
You should generally expect to receive a payment of ‘ex gratia’ compensation (also known as an ‘enhanced redundancy’ payment in redundancy situations) under your settlement agreement. The general purpose of this payment is to to compensate you for any losses that you sustain as a result of the loss of your job and/or to reflect the reasonable value of any Employment Tribunal claim that you may be threatening to bring. The exact amount of ex-gratia compensation that is reasonable and appropriate in any one settlement agreement will depend on a number of factors, including (among others) the nature, strength, and value of any Employment Tribunal claim that the employees is threatening to bring, how long the employee expects to be out of employment for, and the custom and practice of the employer in paying sums under settlement agreements.
In order to qualify for a bonus payment you should normally have a contractual right (whether discretionary or not) to receive a bonus payment – this contractual right may be based upon an express verbal or written confirmation of your entitlement to a bonus (and generally how it will be calculated), or it may be implied by the employer’s conduct in similar situations. Sometimes an employee may not have a reasonable expectation of receiving a bonus (because there has been no agreement to such and/or no custom and practice of paying a bonus) but the employer may be willing to pay a sum to the employee in respect of a bonus – this is unusual but, equally, it is a matter of commercial negotiation between the parties.
It’s always wise to check your contract of employment and correspondence with your employer to check what has been agreed regarding bonus terms.
The issue of bonus payments under settlement agreements is also covered in this article.
If you are entitled to receive commission payments then your entitlement to such as well as the value of the commission payment you expect to receive should be recorded in the settlement agreement terms – a failure to include wording relating to such could preclude you from receiving such a payment if there is what is known as an ‘entire agreement’ clause in the settlement agreement.
As well as the payments listed above it is also generally a good idea to record in the settlement agreement all contractual rights and/or payments you expect to be able to exercise and/or receive upon termination of the contract of employment – for example, share options, long-term incentive plans, short-term incentive plans, and/or share schemes. Including in the settlement agreement the terms under which such contractual rights may be exercised will provide certainty to the parties relating to the exercise of those rights and prevent potential misunderstandings at a later date.