Employment termination agreement, severance agreement, compromise agreement, waiver agreement, settlement agreement.
It has many names but it amounts to the same thing.
The employment is being terminated and the employee is being asked to sign some type of agreement and enter into another contract with the employer.
I see a lot of these agreements on a frequent basis in my office, especially now with the Covid 19 pandemic and the move by employers to carry out redundancies and cut costs.
What is involved in this type of agreement?
What is the big decision the employee has to make?
These are the questions I will address in this piece. Let’s take a look, shall we.
What’s in the agreement?
The agreement itself will almost certainly be a standard agreement which will be adapted for the particular employee and the package being offered; but the same types of matters are dealt with in all these sorts of agreements.
The following will be included:
- The parties
- Definitions of words and phrases in the agreement
- Termination of the employment
- The termination payment, and other payments
- The tax treatment
- Legal advice-provision for the employee to get legal advice regarding the agreement, and provision for payment by the employer of the legal costs of obtaining the advice
- Pension (if any)
- Health insurance (if any)
- Outplacement services (if any)
- Return of company property
- Release and settlement of any issues or claims arising from the employment
- Non disparagement by the parties
- Reference or statement of employment
- Binding agreement
- Applicable law-Irish law
The proposed settlement/severance agreement will me marked “without prejudice/subject to contract” until executed and witnessed by both parties.
The big question
So, now that you know what is usually contained in these agreements what is the big decision for the employee, particularly in a redundancy situation?
Let’s take a look at a redundancy, although the same type of logic and decision making will need to be applied in other termination circumstances.
The employee is going to be offered a payment by the employer, in return for which the employee is going to sign this agreement and waive all her rights to bring any claim arising from the employment.
The agreement will make provision for the payment of a statutory redundancy payment, to which you are legally entitled, and the payment of an “ex gratia” payment, which is at the discretion of the employer.
The employee may believe, for example, that a) it is not a genuine redundancy or b) she is being unfairly selected. If that is the case and she wishes to pursue the matter at the WRC (Workplace Relations Commission) she will be bringing a case for unfair dismissal. If she wishes to do so, however, she will be refusing to sign the agreement and passing up any “ex gratia” payment proposed by the employer.
If the employee signs, she gets both payments. If she refuses to sign she is still made redundant but only gets the statutory redundancy payment.
This decision needs to be considered carefully.
Yes, he might win at the WRC, but if he does will he win more than he has foregone by refusing to sign the agreement? Is he prepared to wait the 6 months for a hearing, and then pay for the legal costs of representation?
If it is an unfair dismissal claim the employee may win reinstatement or reengagement, but this is unlikely and the relationship between the employer and employee may be strained or broken.
On the other hand if the employee was to win a claim for discrimination he could be awarded up to two years’ salary. So, each case must be looked at on its particular facts and circumstances.
These are the factors the employee must consider when making the big decision to sign or refuse to sign the agreement.
But the bottom line is simple.
On the one hand the employee is being offered a payment to leave the employment quietly and with no fuss; in return he is giving up his rights to bring any claims in the future arising from the employment.
The employee needs to get legal, and probably taxation, advice about any termination agreement he is being asked to sign. Because once she signs the agreement it is probably going to be effective in doing its job to prevent the employee from bringing any further claims against the employer.
There is a straightforward cost/benefit, risk/reward analysis to be done by the employee when it comes to sign or not sign such an agreement.
Want to roll the dice and put all your chips on red/black? This is the stark decision you face. Weigh it up carefully. If you do sign it will probably bind y0u.
Here is a recent example of one such case where the employee signed an agreement but later claimed it was only signed under duress. The WRC did not accept this and held the agreement was effective and binding on the parties.