What is a settlement agreement and is it all about the money? In this current climate, I am dealing with a lot of settlement agreements and I am often asked, what is a settlement agreement and do I need one?
This article is a brief look at what settlement agreements are, what they are used for and how they are legally binding. There is also a link to the ACAS Code of Practice On Settlement Agreements at the bottom of the article.
What is a settlement agreement?
A settlement agreement is a legally binding contract between an employer and employee. It provides for a termination payment in exchange for an employee or worker waiving their rights to bring claims against the employer. It is not binding until employees have received independent legal advice and a solicitor signs a certificate confirming that advice has been received.
Employees often assume that they have to accept the initial offer that has been put on the table. That is not always the case and it may be possible to negotiate both the termination payment and the terms of the agreement.
But is it all about the money?
For some employees, there may be other more important considerations to take into account such as: a good reference from the employer or, release from non-compete clauses which would enable an employee to work with competitors or customers. This is particularly important for employees that work in a niche industry and the only other roles available are with competitors or, with customers of that employer. It is also worth remembering that an employment contract may also contain post-employment restrictions which may also need to be negotiated on exit.
When negotiating a settlement agreement, parties should specify that all communications are on a “without prejudice” basis and subject to contract which means that neither party is legally bound by anything agreed in the negotiations until the settlement agreement is signed and it is only at that point that the agreement is legally binding.
Who pays the fees?
Employers generally contribute towards the legal fees and the employee must have received legal advice from a relevant independent adviser on the terms and effect of the agreement and its effect on the employee’s ability to pursue the statutory rights in question at the employment tribunal.
Did you Google “can I sack an employee?” and are you wondering if you can, and how you do it without ending up in an employment tribunal? Want to know the answer?
YES! You can sack an employee fairly and safely.
But before you go all “Alan Sugar” on me and start pointing your finger and shouting “you’re FIRED!”, read on:
Employers have the right to dismiss any employee. However, it’s not as simple as just telling someone “you’re fired”.
This post deals with dismissal best practice and how to avoid a claim for Unfair Dismissal.
What does the law say?
The relevant law is the Employment Rights Act 1996, which affirms that employers can dismiss employees (not workers – see my post on “worker or employee?”) with 2 or more years continuous service if they can show that they have done so fairly and for good reason (subject to certain exceptions e.g. pregnancy, trade union membership etc).
How long has the employee worked for you?
To bring a claim for unfair dismissal, an employee must have been employed for at least 2 years. This is called the Qualifying Period. It’s fairly safe to dismiss employees who don’t meet this qualifying period requirement (subject to the exceptions referred to above). You must give them proper notice and pay them any monies that they’re entitled to. If you gave the employee a contract (or written statement of particulars) when their employment commenced, the notice period and holiday entitlement should have been set out in that document. You must comply with this.
So, what is “FAIR“?
The Employment Rights Act sets out five potentially fair reasons for dismissal. It’s important to ensure that any dismissal falls within one of these.
Even if the dismissal appears to be fair, an employment tribunal will still have to decide if the employer acted reasonably in all the circumstances. It’s therefore essential to follow a fair procedure when dismissing an employee. Hopefully, you have the procedure documented (if you don’t have policies, procedures, staff handbooks etc please contact me today to see how I can provide you with any or all of the documents you need).
The five potentially fair reasons are:
Some Other Substantial Reason (SOSR)
this is is concerned with an employee’s ability to to do their. Capability is often used in cases of long-term sickness absence or poor performance. When trying to improve capability, you should consider one or more of the following: training, development, coaching, mentoring, performance management, occupational health.
this is concerned with the behaviour of the employee and includes what is termed “gross misconduct”. There are many examples of conduct that may render a dismissal fair including, but not limited to: sexual harassment, being rude or offensive to colleagues or clients, refusing to follow a senior colleagues instructions, failing to adhere to Health and Safety requirements, fighting in work, stealing at work.
this is currently top of most employers’ minds at present. Redundancy might be an option if your business is closing down, moving to another location, or changing what or how it does what it does. Essentially, there is a diminished need for employees to perform their duties.
this is is where the employee would break the law in performing their role e.g. someone employed as a delivery driver who is subsequently banned from driving.
Some other substantial reason is a catch-all sweep giving employers the opportunity to cite a variety of potentially fair reasons, e.g. commercial needs.
Did you follow a fair process?
Just because the dismissal is for a fair reason, doesn’t mean that you can get away with not having a fair process for investigating and conducting your dismissal. To sack an employee fairly you have to follow a fair process. Ideally, you will have a robust set of policies and procedures in place, one of which will set out how you conduct investigations and dismissals, along with employees’ rights of appeal. If you don’t, please get in touch today to find out how I can provide the policies and procedures that your business needs.
Would another reasonable employer make the same decision?
This is an important step! If the main reason for dismissal is fair, your final hurdle is to show that it was a decision that any reasonable employer might also have made. The decision must fall within a band of reasonable responses. You may be surprised to read that employment tribunals are not meant to substitute their own views on this. So even if they think your decision to dismiss was harsh, they cannot overturn it or deem it unfair if it is a decision that another reasonable employer might also have made.
See this case, HERE where a long-serving member of staff with a clean record was dismissed following a derogatory post on Facebook.
Here’s a step by step look at Unfair Dismissal:
Following these steps will help you to conduct a fair dismissal, thereby reducing employment tribunal risk. If you’re wondering if you can sack an employee, keep this step-by-step list in mind and use it help you through the process.
Has the employee brought a claim within 3 months, less 1 day from the effective termination date?
Were they an employee, not a worker
At the time of the dismissal, did they have 2 years continuous service
They were NOT within an excluded class (e.g. pregnancy, trade union membership, etc which would render the dismissal automatically unfair)
They were dismissed (actual or constructive)
You (the employer) can give the main reason for dismissal
That reason falls within one of the five potentially fair reasons
This was a quick run-through the topic of dismissal, and as an employer, how you might reduce tribunal risk. I hope it answered your questions if you can sack an employee. If you have any questions, or would like help with any aspect of today’s topic, please get in touch. If you are in the process of dismissing an employee and want to know if you’re doing it fairly, I am here to help.
I can be contacted on 020 3004 5484 or email: firstname.lastname@example.org
While you’re here, why not sign up for my regular employment law updates? Every month I send an email setting out recent tribunal decisions, providing a tip to help employers manage their obligations and encourage you to interact with me on social media. I always try to add some fun and humour to the emails too, so if you’re having a grey day, rest assured there’ll be something to make you chuckle. To join the other employers who are benefitting from these emails fill in the box below and hit the send button.
HMRC has just released the hotly awaited update on holidays and annual leave for furloughed employees! Great news.
Holiday entitlement is to be paid at 100% to all furloughed employees. Employees will also continue to accrue holiday entitlement while furloughed. In practice, this means that an employer will need to top up the furlough payment for all holidays taken during furlough.
Furlough and annual leave can run simultaneously; therefore, an employee can be furloughed at the same time as being on annual leave.
Can an employer force employees to take annual leave?
There are competing views on this question, some experts saying yes but others no. In respect of YES, the Working Time Regulations 1996 are being cited as giving the right to do so long as double the amount of notice is given in advance of the request. For example, if an employer wants an employee to take one-week of annual leave, they would need to give two weeks’ notice of this.
In respect of NO, it is suggested that the purpose of annual leave is to take a period of rest and relaxation away from work. Barrister, Adam Willoughby writing for ThriveLaw compares furlough to sick leave, arguing that furlough is tantamount to being at home sick (see Stringer, citation below) in so far as an employee is unable to leave the house or enjoy the freedoms associated with annual leave. I find this argument very compelling and am inclined to agree with him.
Perhaps the key to this question is the fact that employers cannot force employees to take annual leave while they are on sick leave? Notwithstanding the fact that employees can take annual leave while on sick leave their employer cannot force them to do so because the purpose of sickness absence is to recover from sickness. In addition, the employee must be given an opportunity to take the accrued annual leave upon their return to work.
Can annual leave be carried forward as a result of coronavirus?
Yes. Up to 4 weeks annual leave can be carried forward up to 2 years, meaning that employers and employees will benefit from not having to cram in annual leave.
Why might a business want furloughed employees to use their holiday entitlement?
Some employers may wish to ensure that staff are not all trying to take holidays at the same time when the business reopens. It could be argued that asking employees to take holidays now will lessen the impact going forward. However, the government has made provision for annual leave entitlement to be carried forward (see above) thereby lessening the impact of this, especially given that employers are not obliged to approve every single holiday request without question.
The downside to requesting employees to take annual leave is that any furlough payment will need to be topped up to 100%. For businesses facing an uncertain financial future, it may be more prudent to keep cash reserves and do a more thorough job of managing holiday requests when the employees return to work.
For more detail on Furlough, please see my earlier post HERE
Cases referred to above:
Her Majesty’s Revenue and Customs v Stringer  UKHL 31, HL
Would you like to receive monthly legal updates designed to help you stay on top of your employer obligations?