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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

    4.81 Average

    324 Reviews

    Mark Q

    Five Stars I was most impressed by the attention, courtesy, speed and above all, professionalism in dealing with my Settlement Agreement. I would certainly have no problem in recommending this firm to anyone in need of their services.

    Posted 21 hours ago

    Ade A

    I was surprisingly impressed by how Redmans Solicitors handle my case. From the moment I call them to the absolute end of my case, they always look after my best interest.

    Posted 2 days ago

    Malcolm P

    they were there when others were not

    Posted 1 week ago

    Anonymous

    Excellent service all the way through from start to finish. Really great support and guidance from the team, they secured the offer that I wanted. I can't recommend Redmans highly enough and will be sure to use their services again should the need arise.

    Posted 1 week ago

    Anonymous

    Efficient and quick service!

    Posted 3 weeks ago

    Karen B

    Quick response very helpful Issue raised dealt with very quickly

    Posted 3 weeks ago

    Carmen T

    Redmans give Great service and advice on reading contracts. They can explain all the solicitors jargon into words that you can understand. I received excellent service an I will use them again and again.

    Posted 3 weeks ago

    Anonymous

    Very grateful for Mel’s efforts in handling my case from start to finish which I would have found very stressful without it. She was very professional, friendly and we had a positive outcome. Highly recommend.

    Posted 1 month ago

    Nalin W

    Mel Chin was my Legal Executive when I engaged the services of Redmans Solicitors to help with a redundancy matter. She was incredibly approachable and professional from start to finish. Specially I have to mention regarding prompt reply to all my email queries, It was super quick. I would thoroughly recommend Mel Chin. Many Thanks

    Posted 1 month ago

    Anonymous

    I'd highly recommend Redmans Solicitors. Mel was very helpful and assisted me throughout my case.

    Posted 2 months ago

    Anonymous

    Sacha was very thorough and very helpful, with great advice on when to act and when to wait on my case.

    Posted 2 months ago

    Anonymous

    I have been very pleased with the support I got from Redmans Solicitors on my case with my employer. Caroline has always helped me to put things in perspective and showed me different scenarios ultimately to help me taking the right decision. She was very professional and always available when I needed, and at the same time also emphatic which I found also really important to establish a strong relationship. Will definitely recommend!

    Posted 2 months ago

    Anonymous

    Prompt and efficient response to my enquiries. Excellent negotiating skills with my employer which considerably improved the terms of my settlement agreement.

    Posted 2 months ago

    Anonymous

    Very quick and professional service , Rana was very helpful

    Posted 2 months ago

    James G

    Very professional, knowledgeable and kept me informed at every stage of my case. I would highly recommend Redmans.

    Posted 2 months ago

    Pravina P

    Chris was really good and help solve my issues with current company. I would recommend him to anyone.

    Posted 2 months ago

    Paul L

    Sacha was extremely helpful in my matter. I would not hesitate you use Sacha or Redmonds again. Everyone was very helpful.

    Posted 3 months ago

    Monique N

    I had Mel Chin helping me with a settlement and she was very professional and reliable throughout my case. Mel provided me with a good understanding of what was happening and gave suggestions on routes I could take. My case was resolved and closed promptly although the opposing side were very difficult to deal with. A very big thank you to Mel and Chris.

    Posted 3 months ago

    Jackie C

    My first ever experience needing the services of a solicitor; cannot speak highly enough of Mel and Chris’s personable, reassuring and straight to the point advice in dealing with my settlement agreement. They put me at ease during an extremely stressful time. I am equally as happy with the outcome, as l am their professional services.

    Posted 3 months ago

    ""

    Really happy with the service. All very efficient. Mel rattled through things very fast, however was great whenever I needed to stop and ask a question! Would definitely return to Redmans if I ever needed Legal advice.

    Posted 3 months ago

    Peter F

    Very helpful and clear advice, would highly recommend.

    Posted 3 months ago