That’s Settled Then.

Last week, we gave another presentation on the use and content of settlement agreements.  This is an area of our employment practice which crops up on very regular basis.  In just the first two days this week, we’ve been asked to draft two agreements for employers and advise four departing employees on the terms of their agreements with different employers.

Settlement agreements are a very useful tool to ensure that an employer can close an employee’s personnel file when they leave and (subject to a few standard exceptions) won’t need to re-open the file once the terms of the agreement have been implemented.  The employee waives their rights to bring particular claims and receives (usually) a sum of cash together with other bits and bobs in return.  It may be that the employer decides to pay more than the statutory and contractual entitlements on redundancy and forgoes a lengthy consultation process, so they will not want the employee to use the extra monies to challenge the fairness of their redundancy.  Alternatively, the employer may be settling potential claims which have good, reasonable or even no prospects of success in order to avoid the time and expense which would otherwise be taken up in fighting the claims in Tribunal.

Of course, all settlement agreements should contain a properly drafted confidentiality clause which prevents the employee discussing the terms and existence of the agreement with anyone other than limited classes of individuals including close family and professional advisers.  However, there’s always the risk that information about the agreement creeps out and many employers are wary about setting a precedent that they will settle every potential claim.  It’s all about weighing up the various risks – time, expense, health, litigation and reputational. 

Solicitors have a professional obligation to ensure that non-disclosure provisions in a settlement agreement do not purport to exclude any legal exceptions (such as whistle-blowing or co-operating with law enforcement) or prevent an employee revealing matters to a regulated health professional (bound in turn by a duty of confidentiality).  Following a consultation exercise, the Government has announced that any agreement which purports to exclude or prevent such matters will be void in any event.  However, we’re still waiting for the law to be amended in this regard.

In a previous bulletin, I explained why you shouldn’t be naughty with notice.  However, there’s nothing to stop you saving employer’s national insurance contributions on the balance of compensation in excess of £30,000 by making payments for terminations before the law changes on 6 April 2020 when any excess will be both subject to tax and liable for employer’s NICs. Just remember not to rush drafting your agreements.  Be very wary of re-using a previous employee’s agreement without ensuring that it’s been personalised for the next employee, the previous employee’s name doesn’t appear and specially negotiated provisions on a previous occasion have been removed.  To be safe and avoid potential data protection breaches, we always advise that you should start from scratch each time.

The contents of this article are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this article. © Mundays LLP.


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