Settlement Agreements in Redundancy

Settlement agreements, a legally binding agreement between an employer and an employee ending the employment relationship are generally invoked when a dispute arises and it has been decided to resolve the dispute without recourse to litigation and without the potential for the employee to take the employer to the tribunal or to court at a later date.

However, settlement agreements are often used by employers in a redundancy procedure and nearly always include an enhanced redundancy payment.  A settlement agreement applied in a redundancy procedure enables the employer to save considerable time and avoid the normal drawn out redundancy procedure and the potential for employment tribunal claims making the settlement agreement option an attractive option.

The validity of a  settlement agreement is regulated by Section 203(3)(c)  of the Employment Rights Act 1996 and is entirely voluntary. Usually a meeting or a number of meetings take place to discuss the terms of the agreement.  Employers must not in any circumstances put pressure on an employee to accept a settlement agreement by way of suggesting that the employee’s selection for compulsory redundancy has already been decided and that they (the employee) has no choice but to accept. It is possible that after a series of discussions both parties conclude that an agreement is not possible.

Daniel Theron, a partner, commented “in order for a settlement agreement to be valid an employee must receive independent legal advice to ensure that the employee fully understands the implications of waiving their right to bring a claim at a later date.” Daniel further commented “there is no legal obligation to do so but many employees offer a sum of money to their employee, to facilitate a speedy resolution.  This is generally a nominal fee that the same company adopts. A settlement agreement is not necessarily valid if the employee has not received independent legal advice. In this event, they may be entitled to bring a claim against their former employer within the time frames of employment law.”

The rules governing a settlement agreement are as follows:

• The settlement agreement must outline the circumstances leading to the agreement including the relevant claims
• The employee must have received independent advice from a relevant independent adviser
• The advisor must be identified
• The adviser must have current professional indemnity insurance covering the risk of a claim arising from an employee’s loss relating to the legal advice provided
• The agreement must confirm that all statutory regulations have been adhered to
• The agreement must be in writing

The employee’s legal advisor may not have any connections with the employer.  If the employer is undergoing a sizeable redundancy programme involving a number of employees they are permitted to direct their employees to one law firm, providing the firm selected is not associated or acting for the employer or any associated organisation.

The negotiations that take place between an employer and an employee to arrive at a mutually agreeable termination are generally on a “without prejudice” basis. This means the substance of the agreement and the potential claims must remain confidential and cannot be leveraged in a tribunal claim under the Employment Rights Act 1996 section 111a.  This enables both parties to freely discuss all aspects of the exit route without the risk of their statements being used in the future should a tribunal claim be brought against the employer.  However, if any improper behaviour is demonstrated on the part of the employer during the course of the negotiations, an employer may lose the statutory protection of section 111a of the Employment Rights Act 1996.  Examples of improper behaviour are as follows:

• Aggressive bullying or intimidation or harassment
• Any threat of or actual physical assault
• Discrimination or victimisation
• Pressurising an employee by not providing sufficient time to consider a settlement agreement
• Threatening an employee with dismissal if they reject a proposal.

Giambrone & Partners’ employment lawyers have considerable experience in advising both employers and employees with settlement agreements during the course of voluntary redundancy or severance schemes that considerably reduces the time and cost of a redundancy procedure.  Our lawyers have provided independent legal advice to employees on numerous occasions.

Daniel Theron, advises on contentious and non-contentious employment law matters, cross-border debt recovery and defamation.  Daniel has considerable expertise in contentious cross-border family law, including complex financial arrangements and enjoys a high level of success in both debt recovery and employment law.

Daniel enjoys a reputation of being meticulous in his analysis of the merits of a matter and tenacious in his pursuit of a successful outcome for clients.  He frequently impressively navigates challenging situations culminating in an excellent level of achievement, in excess of all expectations.

If you would like to know yur rights in connections with a settlement agreement or any other aspect of redundancy please contact Daniel’s clerk Sam Groom on [email protected]