Tag: settlement agreement

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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.

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Employment Claims

Employment termination agreements-how effective are they?

Employment termination agreement

The use of a settlement or compromise agreement in the termination of an employee’s employment is something I deal with frequently.

There is a wide range of reasons why the employment is being ceased, ranging from redundancy to difficulties in the employment relationship to allegations of misconduct to allegations of bullying, discrimination, harassment, and so on.

Often the parties will look at the advantages and disadvantages of getting into a full blown dispute, either in Court or at the WRC or Labour Court, and decide that a “negotiated exit” from the employment might be the best option for both employer and employee. This way means that matters are settled confidentially and both parties avoid the prospect of a costly legal battle that could go either way. The employer may also avoid the cost of an investigation and disciplinary hearing in the workplace, something that can be disruptive, divisive, and expensive.

The employee might also, as part of the settlement deal, negotiate a satisfactory reference or, at a minimum, a neutral “statement of employment” which will not adversely affect their future career prospects.

All correspondence up to the signing of such agreements will be on a “without prejudice” basis, just in case the negotiations break down. If the talks do fail then none of the preceding correspondence can be used in evidence later at a hearing between the parties.

The central purpose of such agreements can be boiled down to an essence whereby the employer pays a termination payment to the employee in return for the employee signing an agreement in which she will waive all her rights to bring any further claims against the employer arising from the employment. Both sides avoid a messy conflict with an uncertain outcome and move on with their lives.

Both sides have certainty and in business or life or in one’s career there is a lot to be said for this.

How effective are settlement agreements?

How effective are these agreements? Can the employee come back for another bite of the cherry?

All these agreements will contain a clause confirming the employee has obtained independent legal advice about the agreement or will sign the agreement waiving their right to obtain such advice.

That does not mean that an employee will not later attempt to bring a claim against the employer, notwithstanding the signed agreement. Generally, but not always, such agreements are effective and do what the employer wants them to do: prevent any future claims.

In a WRC case (ADJ-00020068) from January 2020 an employee attempted to have another nibble in circumstances where he had signed a settlement agreement. The employee argued that he did not have knowledge of the Irish legal system and attempted to have the agreement set aside.

The agreement contained the usual clause to the effect that it was an agreement “in full and final settlement, satisfaction, release and discharge of any and all claims … arising out of the employee’s employment or termination of his employment”

The adjudicator declined to hear the case as a consequence.

In like fashion the Labour Court had a similar case in Higgins v Dept. of Foreign Affairs, UDD 1969. The employee had signed a settlement agreement releasing the employer from all liability, damages or causes of action, whether known or unknown, relating to [her] employment … or the termination of that employment, or any other acts or events.

The employee had obtained professional legal advice and the Labour Court held the agreement was effective and dismissed the case.

Effective settlement agreements

An effective settlement agreement will almost certainly be one in which the employee confirms she has had legal advice and there will be confirmation from a solicitor that he has advised the employee regarding the agreement.

It may be sufficient that the employee waives his right to get independent legal advice but I, if I was advising the employer, would warn the employer about the dangers of accepting this and would advise against it.

Moreover, I have seen cases where the advice of an experienced trade union advisor has been held to be effective and binding, notwithstanding the absence of legal training or qualification.

You need to be careful, too, that all of the acts and potential claims that are being waived should be listed in the agreement, with no omissions. For example, if the agreement only refers to claims arising from statute but does not make reference to common law or tort or contract may leave the employer  susceptible to attack on an unanticipated front.

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Employment Claims

Timing is Critical for Employees Seeking to Stand Up For Their Employment Rights

timing

*Sigh*

Yes, I admit it. It’s trite and glib and a cliché to say that “timing is everything”.

You’ve heard it before, and from all types of people, in a variety of circumstances.

But it’s true.

Because the veracity of the statement was never clearer to me than when 3 employees came to me for help in the last 12 months.

Let me explain.

“You can keep your job-I’m not putting up with this”

Let’s call him Mick.

Mick was employed in the same job for nearly 20 years. A few years ago, the business changed hands and Mick had a new boss.

From day one, there were difficulties in their relationship, with regular disputes between them about minor things.

Eventually Mick felt the cumulative build up and drip, drip nature of disputes and niggles becoming too much.

He quit his job. After nearly 20 years.

Mick brought a claim for constructive dismissal.

However, it would have been a much stronger case if he hung on a little longer. Because he should have exhausted all internal procedures first, before quitting, even if it was a futile exercise.

This would have strengthened his case considerably.

If he came to me before she resigned, this is what I would have told him: to exhaust all avenues in the workplace and position himself as an employee who behaved reasonably and simply wanted to sort out the difficulties.

Remember, he walked away from any benefits that would have flown from his 20 year’s service, for example a substantial redundancy payment, if this arose in the future.

However, his timing was poor-he should have got advice before quitting, not after.

He settled his claim, but would have been negotiating from a far stronger position if he had obtained advice when he was still in the job.

Settlement/Termination Agreement

Jackie was also in the job a long, long time. She had a number of grievances and issues with the employer.

To put it simply, she believed the employer owed her a considerable amount of money under various headings. She was considering bringing a claim against her employer, having tried to resolve her issues internally.

Jackie came to me and I advised her about the various causes of action that may have been open to her.

I didn’t hear anything further from her for a while.

Then she returned and told me she had left the job and the employer paid her off. Jackie now wanted to bring a case against her former employer and was wondering about the strength of her case, and what it might be worth.

There was one major problem: when Jackie left the job, the employer, when paying her off, had Jackie sign a compromise/settlement agreement.

(I have written extensively before about waivers/settlement agreements/negotiated exits from the workplace. Take a look at “Avoid this costly mistake in your settlement agreement” and “The Minimalist guide to the tax treatment of employment law awards and settlements”.)

A fundamental part of all these agreements is the undertaking by the employee not to bring any claims or legal cases arising from the employment. Basically, the employer buys this peace of mind by paying the employee money and settling her existing claim, and any future ones.

So, when Jackie came to me I had to tell her that she could not bring any claim because of the agreement she had signed.

The timing problem here was that she should have ensured to obtain legal advice about what she was being asked to sign before she signed it, not months later when it was too late.

WRC had no jurisdiction

Jasminka was a Croatian nanny. She had a number of complaints arising from her employment including not getting rest breaks, excessively long working weeks, being on call and not getting paid, and not receiving the minimum wage.

By the time she came to me, it was too late. She was out of time to submit her complaints, only by a few weeks, but out of time nevertheless.

We submitted the claims on her behalf, but ultimately the WRC decided she was out of time (over 6 months), and there were no exceptional circumstances to justify an extension of time.

So, the WRC decided it had no jurisdiction to hear her claims.

 

These 3 cases illustrate clearly that, yes, timing can be absolutely critical for employees seeking to redress wrongs and stand up for their employment rights.

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Employment Claims

The Minimalist Guide to the Tax Treatment of Employment Law Awards and Settlements

mployment awards taxation

There is an exemption from income tax in respect of certain awards for the breach of an employee’s rights. This would cover an award for a successful claim by an employee under the heading of, for example discrimination or harassment.

However, the exemption does not apply to awards in respect of remuneration, for example an award of holiday pay or arrears of pay.

So, let’s take a look and get a good handle on payments arising from employment law claims that are exempt from income tax and those that are not.

Before we do, though, let me make this point as plain as a pikestaff: this is a complex area. If you are involved in any of the scenarios discussed in this piece, either as an employee or employer, get advice from a tax professional.

Payments exempt from income tax

The exemption applies to

  1.     payments for claims made under a “relevant act” on foot of a decision or recommendation of a “relevant authority” and
  1.       Subject to certain conditions, “out of court” settlement payments arising out of claims under a “relevant act”.

What’s a relevant act?

A “relevant act” includes the following acts:

  • Employment Equality Act, 1998
  • Maternity Protection Act, 1994
  • Parental Leave Act, 1998
  • Payment of Wages Act, 1991
  • Terms of Employment Information Acts, 1994 and 2001
  • Minimum Notice & Terms of Employment Acts, 1973 – 2001
  • Protection of Young Persons (Employment) Act, 1996
  • Protection of Employees (Part-Time Work) Act, 2001
  • Protection of Employees (Fixed-Term Work) Act, 2003
  • Redundancy Payments Acts, 1967 – 2003
  • Organisation of Working Time Act, 1997
  • Carers Act, 2001

Generally, it is an act containing provisions for the protection of an employee’s rights/entitlements.

A “relevant authority” is

  • Court
  • The WRC (Workplace Relations Commission)
  • The Labour Court

Payments not exempt from income tax

The tax exemption does not apply to

  1.    payments in respect of remuneration or arrears of remuneration
  2.    the termination of employment, for example a successful claim for unfair dismissal (there are some reliefs for termination due to redundancy and retirement)
  3.    compensation for a reduction in income or future reduction in income due to restructure/reorganisation, change in work methods, change in location

Settlements

“Out of court” settlements may qualify for an exemption if certain conditions are met. These conditions include

  • the settlement agreement is in writing
  • the agreement is not between connected persons
  • the claim would have been a bona fide claim under a relevant act if it was made to a relevant authority
  • the claim was likely to be successful if put in front of the relevant authority
  • the amount does not exceed the maximum amount that could have been awarded if it was decided upon by a relevant authority.

For more information and examples refer to the Revenue Commissioners website.

Termination Payments

Here is a useful guide from Standard Life which sets out the position in relation to termination payments and ex-gratia termination payments.

Conclusion

This is a complex area.

If you are an employer or employee involved in an employment case you should be crystal clear about the tax implications of any award or settlement arising from an employment related claim or dispute.

Let me make this clear as a bell: you should obtain professional advice from a qualified tax consultant.

Unless you want the Revenue Commissioners to come knocking on your door and landing you with an unexpected tax bill.

 

Categories
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.