settlement agreement | Employment Rights Ireland

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

*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.

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

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

payments for claims made under a “relevant act” on foot of a decision or recommendation of a “relevant authority” and

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

payments in respect of remuneration or arrears of remuneration
the termination of employment, for example a successful claim for unfair dismissal (there are some reliefs for termination due to redundancy and retirement)
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.

Avoid This Costly Mistake in Your Employment 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:

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
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.

Without Prejudice Negotiations Can Be High Risk for Employers if Not Handled Correctly

“Without prejudice” negotiations in an employment dispute can be an incredibly useful tool.

For many employers, they represent the best route to an acceptable outcome to an employment dispute.

Because, quite frankly, the employer often “hasn’t a leg to stand on”. You wouldn’t believe what some of them get up to!

However, if they are not handled correctly they can backfire badly on the employer.

Well Drafted Settlement Agreement

And without a well drafted agreement, the employer does run the risk of an employee collecting on foot of a settlement and bringing legal proceedings afterwards.

Without prejudice discussions or negotiations are generally, but not always, excluded from being introduced into evidence in subsequent legal proceedings.

The purpose of such discussions are to resolve the dispute to the satisfaction of both parties without the costs associated with going to Court or some other dispute resolution body.

“Without prejudice” negotiations should be carried on between lawyers for both sides, not the parties themselves. In the employment context it is a mistake for the employer to carry on “off the record” or “without prejudice” discussions with an employee.

The reason for this is simple: the employee may claim not to have fully understood the implications of such discussions.

And if this is the case the employee may well claim that even though she gave her consent for such discussions to be private, “off the record”, and “without prejudice” that her consent was not informed consent.

Independent Legal Advice

The employer should ensure that the employee has obtained independent legal advice and confirms this in writing.

Any decision maker, be it a Court or tribunal, is likely to find for the employee on this point given the perceived and/or real imbalance of power between employer and employee.

There is another reason why without prejudice negotiations or discussions can backfire on the employer.

For discussions to be truly without prejudice there must be a dispute between the parties; and the discussions must be an attempt to settle that dispute. Not a dispute in the normal sense of the word but a dispute in which legal proceedings have commenced or are being contemplated.

It’s not always certain whether a “dispute” would therefore exist to allow “without prejudice” discussions.

As state above “without prejudice” discussions can sometimes be admitted in evidence in subsequent legal proceedings. The High Court has held that without prejudice discussions can be admitted in evidence where the interests of justice require it.

For employers therefore it is prudent not to make a without prejudice offer directly to the employee to agree their exit from the employment. Such an offer could be put forward by the employee in an unfair dismissal claim as evidence of dismissal.

The better course of action is for the employer to instruct a solicitor to negotiate with the employee’s solicitor.

It is better again if the employee or his/her solicitor initiates the discussions.

Negotiations between solicitors will be more structured and reduce the chance of the employee claiming that she did not know what without prejudice discussions meant. And the written settlement agreement should be water tight.

So if you are an employer and are thinking about getting rid of a troublesome employee, you should give some serious consideration to a “negotiated exit” through without prejudice negotiations.

It will probably be cheaper in the long run.