If you are a banking or finance sector professional and have been put at risk of redundancy, you may be offered a settlement agreement, aimed at reaching a prompt amicable outcome in a redundancy situation.
The economic impact of Covid-19 has hit nearly all businesses with the Office for National Statistics identifying an historic fall impacting most areas of economic activity, and the UK economy shrinking by over 20% in April 2020, according to a BBC report. At present, there are no signs of the pandemic abating and with lockdowns coming back into force across the UK, businesses are looking to what they need to do to survive economically which will inevitably include reorganisations and redundancies.
The Banking and Finance sector is unlikely to be any exception. Whilst some cuts announced by major banks were put on hold with the lockdown, some are beginning to look again at initiating restructuring programmes. HSBC put on hold its plans to cut 35,000 jobs back in February 2020, however on 17 June announced that it will forge ahead with previously planned cuts to its workforce and more recently, Lloyd's Banking Group announced plans to cut a further 1,070 jobs.
What is a settlement agreement?
Settlement agreements are legally binding agreements under which you can legally sign away your rights, usually in return for an enhanced exit package. There are certain legal formalities, set out under section 230 of the Employment Rights Act 1996 which requires you to seek independent legal advice for the agreement to be binding.
The settlement agreement is often an opportunity for you and your employer to reach terms on other matters such as internal and external announcements, references and what you can and can’t do next in terms of non-compete provisions.
For directors and senior executives, particularly in the finance and banking sector, consideration will need to be given to any deferred compensation, bonus calculation and payment, and shares or vesting options.
Your contract of employment may include non-compete provisions or restrictive covenants, or such terms may be included within the Settlement Agreement itself, restricting you for a set period of time on working in your industry for a competitor. We will review such provisions and where possible seek to have you released from any non-compete obligations that could restrict your ability to get a new job.
Is a settlement agreement the same as redundancy?
Settlement agreements are often used in a redundancy situation. However, a settlement agreement is not the same thing as redundancy.
In a redundancy situation, your employer must go through a fair redundancy procedure before deciding which employees to make redundant. This may need to include:
- identifying a pool of people at risk of redundancy
- applying fair selection criteria
- consulting with employees
- explaining the reasons for the redundancies
- exploring whether there are alternatives
- considering whether the staff could be re-deployed to another job role
- giving employees the opportunity to appeal against their redundancy
This can be a burden for employers, both in terms of time, administration and morale. Often an employer will offer a settlement agreement as an alternative to going through the redundancy procedure.
What if my termination involves a dispute or complaint?
Employers will often engage in a pre-termination negotiation described as ‘protected conversations’ or discussions which are ‘without prejudice’ to look at ways to resolve a dispute or complaint.
These meetings are a way of encouraging employers to have frank conversations with employees about terminating their contracts. Anything that is said in these discussions is protected and cannot, generally, be used by either party against the other in an unfair dismissal claim.
There are however, some limited but important exceptions to this and it is recommended that you seek legal advice on what to say before you enter into these discussions with your employer.
If terms are proposed, it is recommended that you resist the temptation to simply say ‘yes’ or ‘no’ and seek advice and assistance at an early stage.
Deals struck under settlement agreements are usually in addition to any contractual or statutory payments. Compensation may also be given in return for agreeing to certain conditions, i.e.: not bringing a claim against your employer and keeping the details of the agreement, including the settlement sum, confidential.
Getting expert legal advice at an early stage can help ensure:
- that you are able to make an informed decision on the choices available to you;
- that you understand if the terms of the agreement offered are aligned with your needs;
- that you are aware of what you might be able to achieve in any contested proceedings;
- that you are clear on what to do next.
There may be a range of options available, but the right advice can help you make these important decisions focused on your desired objectives.
Are settlement agreements taxable?
The first £30,000 of a termination payment is generally treated as being tax-free provided that no contractual payments are included in this payment. Contractual payments include holiday pay or payment in lieu of your notice period.
Most employers prefer to pay your notice period rather than ask you to work it, so this would be taxed at your normal rate.
What does a settlement agreement contain?
Although individual agreements will vary, they will always include clauses that deal with the claims to be settled. Other features may include:
- terms around the payments you will receive and the relevant tax issues
- a confidentiality clause
- provisions on post termination restrictions
- an opportunity for the parties to an agree a reference, and in some cases, internal and external announcements as to reasons for leaving
Important things to bear in mind
- Always take notes. You may be asked at short notice to attend a meeting which can sometimes be followed with being asked to immediately leave the building. This can be a shock and later it could be difficult to remember exactly what was said.
- Ensure you take expert legal advice. Employers will usually offer to pay a contribution towards the legal costs for you to see a solicitor and it is a legal requirement that you get advice from a qualified professional. A settlement agreement will only become binding if it can be demonstrated that you have received independent legal advice.
- You do not have to sign a settlement agreement. If you do not sign, you maintain your full rights to make a claim against your employer. You should however be aware that there are strict time limits in which to do this and so the best thing to do would be to obtain legal advice as soon as possible.
Achieving the result you deserve
Our employment team here at Tees will help you understand any offer you receive and make informed choices on if this is a good deal for you. We are expert in engaging in negotiations with your employer on your behalf if needed.
Our experienced team of employment lawyers have significant expertise in analysing and assessing complex and often sensitive cases where there may be grounds for a claim against your employer such as discrimination or unfair dismissal, but can also work with you on the complex issues around parting company with your employer on a dignified, discreet, and where possible, amicable basis for all parties to be able to move on.
This will include advice on how to pick your battles and when to go for a deal, ensuring you get the right financial package, reference, reasons for leaving and deal with any post termination restrictions aligned to your objectives and needs for now and the future.
A well-constructed claim and assessment of compensation can mean you achieve a settlement on better terms than initially offered by your employer without the need to take them to court.
If your employer has discussed the possibility of a settlement agreement with you, don’t hesitate to get in touch with us - contact one of our employment experts today.