In today’s financial market, redundancies are unfortunately becoming a reality for many businesses and employees. We are seeing a marked rise in settlement agreements being offered, as employers attempt to navigate fair and mutually beneficial terms for redundancy. However, the process is often fraught with difficulties, and a misstep in negotiations, or in the drafting of the settlement agreement can cause the process to quickly unravel.
With that in mind, we have set out our top 10 tips for drafting and negotiating settlement agreements, to help both employers and employees who find themselves in this situation.
Seek legal advice early
It is perhaps unsurprising that this would be our first tip, but we really do recommend that anyone, employer or employee, who is going through a redundancy situation, or in discussions regarding a settlement agreement obtains legal advice early on. When mixed up in tense negotiations, it can be very difficult to see the wood for the trees, and to know when there is a genuinely good offer on the table. Hard feelings can muddy the waters and sometimes it takes an outside perspective to offer insight and move negotiations forward.
It is also good to seek the advice early, before concessions have been made that may not be in the parties’ best interest. For many parties in this situation, it is not something that they have had a lot of experience dealing with, whereas a solicitor should be well versed in what a good deal looks like for the employer or the employee, and should be au fait with best practice to negotiate a better deal. It is difficult to roll back a situation that has advanced too far, where cards have already been laid on the table, so engaging legal expertise early can make sure that the parties’ rights and interests are protected.
It is worth also noting that most settlement agreements include an employer contribution for the employee getting advice on the agreement. With costs rising for everyone, including average rates for solicitors, we recommend that employers ensure that they are offering a sensible rate for this, so that the employee will actually get proper advice and avoid potential unnecessary costs down the line.
Understand Your Legal Rights and Responsibilities
We recommend that anyone going through this process familiarises themselves with their legal rights and obligations. Redundancy in the UK is by no means a simple process, and the legal protections are there to make sure that the process is fair. It is very difficult to engage meaningfully in any settlement negotiations if you do not have a realistic understanding of what each parties’ rights and responsibilities are, including if a fair process has been conducted, any statutory or contractual redundancy pay due has been paid, and notice periods have been adhered to.
As above, if you have sought legal advice early, your solicitor should be able to explain this to you properly, and can save you the time and the risk of misunderstandings.
Open and Transparent Communication
Redundancy conversations can be difficult for both parties, and they are often made worse if the employee feels that they are being lied to or manipulated. A good employer will seek to deal with their employee fairly and honestly, avoiding underhand tactics that only serve to get people’s backs up. Whilst there is a time and place for hard-ball negotiating tactics, it is rarely in the arena of redundancy settlements, which are voluntary agreements and where the potential risks of claims are high.
Open and honest communication from both parties fosters trust and allows both to express their concerns, facilitating smoother negotiations. Your solicitor can help ensure that communications remain professional and calm, and can help provide a buffer where emotions are running high. .
Prepare Well
Whether you are the employer or the employee, you should enter any meeting about a settlement agreement well prepared, knowing your available options. We always encourage clients to think early about what their top and bottom line is. That can be difficult if you have never been in this situation before.
For employees, it can be tempting to think about cases you’ve heard about where people received huge pay-outs from employers, or colleagues who you know got a lot. However, it is important to be aware of your specific circumstances. Think about how long you’ve been with the employer, what your role was, how long it might take you to get another job, and most importantly, try to be realistic. You will only end up disappointed if you go into a discussion with a completely unrealistic goal. One of the benefits of talking to a solicitor early, is that we can help to guide you on what is actually realistic in your circumstances.
Consider Other Terms
Redundancy settlement agreements often encompass more than just financial compensation. You should always consider early if there are any other terms that you want to include, such as agreed references, outplacement support, and the return of company property. You might find that making an offer on a non-financial term goes a long way to building goodwill and reaching a settlement.
We often see cases where parties think they have agreement because they agree on the headline figure. However, when the detailed settlement document if put in front of them, containing many of the standard precedent clauses, they realise there are other terms that they are not willing to agree to. This can quickly lead to a breakdown in negotiations, so if you know there is something that is important to you, make sure it is included in the offer at an early stage. For example, as an employee you might want to agree a waiver of the restrictive covenants in your employment contract so you can find a new job more easily. As an employer, you might want to agree an announcement to clients, so that you have some control over the narrative of the situation.
Address Confidentiality and Non-Disparagement Clauses
It is common for the agreement to include clauses which protect sensitive company information, and the confidentiality of the agreement itself. Confidentiality and non-disparagement clauses are often most important to the employer, who will want to ensure firstly that they are able to continue to make and negotiate settlement agreements without colleagues discussing who was offered what, and also to protect their wider reputation from any negative or overly critical statements. But non-disparagement clauses can also be particularly important to employees, who will want to protect their reputations and careers going forward too.
Be Mindful of Tax Implications
Redundancy payments will likely have tax implications for both employers and employees. Seeking advice from a tax professional can help parties understand the financial implications of the settlement agreement. Whilst a solicitor cannot advise you on specific tax implications, they can assist in drawing your attention to where you may be taxed and help to explain what the legal jargon in settlement agreements means, such as post-employment notice pay, pay in lieu of notice, and indemnity clauses.
Ensure all Terms are Understood
When you are negotiating terms, make sure to ask questions and seek clarification if needed. It is important not to make assumptions about what is meant. If the other party hasn’t mentioned something, you should ensure that you ask the question early so it is not a surprise later that can derail the settlement negotiations.
A good example of this is holiday pay. Usually, an employee will receive a payment for all accrued and unused holiday along with their termination payment. However, this may not happen if they have taken more than their entitlement at the time of settlement. Or if they are going to be placed on garden leave.
It is recommended that you make sure you document every stage of the process too. If you have a meeting about the potential settlement, or a protected conversation, then ensure that someone is making a note which will be shared with the parties afterwards. This can be useful for resolving disputes in the future.
Consider the Waiver of Claims
It is an obligation in settlement agreements that legal advice is given to the employee signing it as to any claims they are waiving under the agreement. Usually settlement agreements contain a ‘catch all’ for employment claims, including specifically those that relate to the reason for the termination. An employer and an employee should carefully consider what claims should be captured in the circumstances.
For employers, you want to ensure that they are all properly captured, and that you have satisfied yourself that there are no outstanding risks you haven’t considered. For employees, it is important to think carefully about any claims that you might want to bring, and make sure that you have explained the situation carefully to your solicitor. They can only advise you on the information you give them, so if you withhold facts about your termination, it may be that you are signing away rights to a potential claim that could at least have been leveraged for the purpose of the settlement agreement negotiations.
Know When the Payment is Due
It is really important that if you are agreeing to a settlement, the payment is made on time. Employers need to ensure that they know when the deadline is, and that this information is passed to the finance team in the company. It is a good idea to ensure that a confirmation email is sent by the person responsible for paying to whomever negotiated and signed the agreement on behalf of the company.
Likewise, an employee should make sure they know when they should expect the payment and exactly how much they are going to be paid, so that they can be prepared to raise it quickly if they think there is a mistake.
We hope that these tips are useful to those in this difficult situation, and we encourage you to reach out to our employment team if you need any advice, either as an employer or employee, to make the process as easy and hassle free as possible. For more in-depth guidance on redundancy and settlement agreements, be sure to take a look at our guide and have a listen to our podcast.