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Employment Claims

Avoid This Costly Mistake in Your Employment Settlement Agreement

settlement-agreement

I nearly threw up my porridge when I read of this case.

Joan Healy and Michael Healy against Bia Ganbreise Teoranta (full decision here).

This case involved the effectiveness of a settlement agreement to prevent future claims arising from the employment.

This is a common type of agreement used to settle many employment related disputes.

It is also used when making an employee redundant and intends to provide protection for the employer.from future claims by that employee.

In this case the appellants, Joan and Michael Healy, sold their business to company F in 2008 and commenced working with F.

In September 2010 the Healys issued Circuit Court proceedings against Co. F claiming damages for breach of contract for failure to pay each of the appellants certain wages.

In 2011 the Healys compromised their Circuit Court claim after their employment had ceased with F and they were offered new employment with X, which with F had bought the entire share capital of A, a subsidiary of F.

When they compromised their claim the settlement agreement contained a “full and final settlement” clause which is common in these types of agreement. The settlement sum was €31,750 in respect of unpaid wages for a 2 year period.

In 2012 X placed the Healys on a temporary lay off. They in turn served a RP9 form claiming  redundancy payments from X.

X  informed the Healys that their positions in X were redundant and no suitable alternative positions were available.

In July 2012 the Healys initiated appeals under the Redundancy Payments Acts with the Tribunal, each appellant seeking a redundancy lump sum payment from the respondent.

The respondent contended that the Employment Appeals Tribunal had no jurisdiction to hear the appeals under the Redundancy Payments Acts 1967 to 2007 by virtue of the settlement agreements, in particular by virtue of clauses 7 &13 thereof.

X also contended that, in any event, the appellants did not have the requisite two years’ service to entitle them to a redundancy lump sum payment.

Section 51 of Redundancy Payments Act 1967

51.—Any provision in an agreement (whether a contract of employment or not) shall be void in so far as it purports to exclude or limit the operation of any provision of this Act.

However, the Tribunal accepted that it was well accepted that this does not preclude severance agreements or agreements compromising claims containing such exclusions.

The settlement agreements in this case contained these 2 clauses:

  1. Clause 7 The Employee agrees that the terms of the Agreement provide a full and final settlement of the proceedings and all or any claims that he/she has or may have against the company and /or the employer and/or any of their respective group of companies, officers and/or employees agents and shareholders, howsoever arising, including, without limitation, arising out of or in connection with the employment of the Employee of the company and /or the employer and /or any of their respective Group companies, and the employee hereby fully and finally releases all such entities from all or and any such claims, whether in statute or common law in tort, in equity or otherwise howsoever arising
  2. Clause 13 This Agreement shall enure to the benefit of and be binding upon the respective parties hereto and their respective personal representatives and successors.

In Hurley v the Royal Yacht Club [1997] ELR 225 Buckley J.in the Circuit Court considered a waiver clause in an agreement in the context of the Unfair Dismissals Acts and having concluded that there must be informed consent to such a waiver later in his judgement set out what this requires:

         “I am satisfied that the applicant was entitled to be advised of his entitlements under the employment protection legislation and that any agreement or compromise should have listed the various Acts which were applicable, or at least made it clear that they had been taken into account by the employee. I am also satisfied that the applicant should have been advised in writing that he should take appropriate advice as to his rights, which presumably in this case, would have been legal advice. In the absence of such advice I find the agreement to be void”

This statement of the law was applied by Smyth J. the High Court in Sunday Newspapers Ltd v Kinsella and Brady [2008] ELR 53.

In this case the Tribunal accepted that the Healys were legally advised and gave their informed consent to the waiver.

However, Clause 7 of the settlement agreements neither lists the various Acts under which the appellants might have waived their entitlements nor does it make clear that they had been taken into account by the appellants.

The unsworn and uncontested evidence on behalf of the appellants was that the unpaid wages of the appellants was the only issue discussed in the negotiations leading to the settlement agreement. This fact is corroborated by a number of other uncontested facts: the settlement figure of   €31, 750.00 was the precise amount of the unpaid wages owing to the appellants; payslips dated 30 July 2011 in this amount with the usual deduction made therefrom were issued to each of the appellants and the respondent’s letter of 23 September 2011 to the Office of the Revenue Commissioners confirming that that the payment was in respect of a number of weeks worked in 2009-2011

The Tribunal found  that there was no break in the appellants’ employment between 7 July 2011 and 16 July 2011 and that on the purchase of the entire share capital of Co A by Co X in May 2011 the rights of the employees remained unaffected.

Similarly, a change of company name does not affect those rights.

Accordingly, for the above reasons the Tribunal finds that the appellants did not waive their statutory entitlement to a redundancy lump sum payment, their employment had been continuous from the time they became employees on 8 July 2008 until it was terminated by reason of redundancy on or around 22 March 2012.

Conclusion

I have come across standard “template” type forms which employers are using when they are paying redundancy to an employee.

This case shows the importance of having a properly drafted settlement agreement in settling any claim or paying off an employee by way of redundancy.