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Employment Claims The Employment Contract

Employment Termination Agreements-the 1 Big Decision for the Employee

employment termination agreement

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
  • Confidentiality
  • Secrecy
  • 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.

Conclusion

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.

Categories
The Employment Contract

Important Lessons from High Court Fixed Term Contract Case

A recent High Court case involving a teacher and a school board of management in an employment dispute is worth looking at. The case is The Board of Management of Malahide Community School v Conaty [2019] IEHC 486 and you can read the full decision of the High Court here.

The High Court decided that the fixed term contract that the school gave to Ms Conaty was void because it had the effect of depriving her or protections she had already acquired under statute, particularly the Unfair Dismissals Act 1977.

The focus of this piece, however, is not Ms Conaty’s case per se but what wider lessons we can learn from the decision.

Protection for employee waiving her employment rights

Section 2(2) (b) of the Unfair Dismissals Act 1977 is described in the act as an exclusion. The High Court has decided that it is, in fact, a waiver.
Section 2(2) (b) states,

(b) dismissal where the employment was under a contract of employment for a fixed term or for a specified purpose (being a purpose of such a kind that the duration of the contract was limited but was, at the time of its making, incapable of precise ascertainment) and the dismissal consisted only of the expiry of the term without its being renewed under the said contract or the cesser of the purpose and the contract is in writing, was signed by or on behalf of the employer and by the employee and provides that this Act shall not apply to a dismissal consisting only of the expiry or cesser aforesaid.

The Judge in this case held that if the employee is to sign a contract containing this waiver their consent needs to be given at the commencement of the employment and the consent must be informed.

The Court referred to section 13 of the Unfair Dismissals Act 1977 which states

 13.—A provision in an agreement (whether a contract of employment or not and whether made before or after the commencement of this Act) shall be void in so far as it purports to exclude or limit the application of, or is inconsistent with, any provision of this Act.

The High Court recognised that Freedom of contract is severely restricted by section 13 of the Act. Any provision in an agreement which purports to exclude or limit the application of, or is inconsistent with, any provision of the Act is void.

But how is this restriction on an employee ever contracting out of their rights allowed in, for example, settlement agreements?

The High Court recognised that However, there is case law which suggests that—at least in the context of settlement agreements—an employee may be entitled to waive their rights on the basis of informed consent.

Therefore, if an employee is to enter into an agreement, whether a contract of employment or settlement agreement, his/her informed consent must be obtained in advance, not retrospectively. This is an important lesson for employers to take from this case and it has wider application to employment settlement agreements.

Fixed term contract

For a contract to be classified as a ‘fixed term contract’ as envisaged by section 2(2)(b) the term of the contract must be fixed-that is, the termination date must be ascertainable at the outset.

And not reliant on variables or contingencies such as teaching hours continuing to be available and/or demand for the subjects continuing.

In this case the contract contained this clause,

“The temporary contract will commence on 30 August 2015* 8th October 2015 and will terminate of 31 August 2016 subject to satisfactory service during the probationary period. The temporary contract may be renewed for a continued period in the event that the allocated hours as specified above continue to be available and the demand for these subjects continues.”

The Judge decided that the contingencies set out in this clause meant that it was not a fixed term contract as the termination date was not ascertainable.

Conclusion

The lessons to be extracted from this case are important and of potentially wider application, especially regarding an signing a waiver of their rights and the possibility of employees claiming that they are not, in fact, on fixed term contracts by reason of the contingencies in their contract of employment.

Read the full decision in

The Board of Management of Malahide Community School v Conaty
[2019] IEHC 486