HomeCompany NewsRedundancy: What you need to know about settlement agreements.

Redundancy: What you need to know about settlement agreements.

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On August 5th, Bank of Ireland became the latest organisation to announce redundancies due to the economic impact of Covid-19.

The bank posted a €669 million loss for the first half of the year due to the economic fallout from the pandemic. The lender is only the latest in what seems to be a never-ending queue of corporations announcing redundancies due to Covid-19. AirBNB, LinkedIn, Oracle and HSBC, are just a few of the household names that have made a significant percentage of their workforce redundant since March.

No doubt, with continuing travel restrictions, concerns about a second wave and general uncertainty about the future, we’re unfortunately going to see many more redundancies before this pandemic-induced economic crisis settles.

The rights and entitlements of employees, along with the statutes around redundancy, are complex areas of employment law. Not to mention that in the current climate, the laws around redundancy have changed due to the unprecedented circumstances. In this first installment in our series on redundancy, we look at what employees need to consider if their job is at risk to be made redundant.

First up, we look at settlement agreements.

What is a settlement agreement?

The terms “settlement agreement”, severance agreement, compromise agreement or waiver agreement are used interchangeably and are all used to describe the same thing.

A settlement agreement is an enforceable agreement setting out the terms agreed between each party on the termination of the employee’s employment.

It is a record of the terms on which both parties have agreed to settle any claims which the employee has or may have in connection with their employment and its termination; including the termination payment amount and in some cases the joint statement which will be issued notifying the company of the employee’s departure.  Subject to the terms of each agreement, the employer agrees to pay the employee a fixed sum of money, otherwise known as the settlement sum.  In return for the settlement sum the employee agrees to waive any claims that they might have against the employer arising from the termination of their employment.

This type of agreement is a mechanism to resolve disputes between an employee and an employer and are used to settle any claims the employee may have arising from the employment of their termination of employment.

They are helpful in ensuring both parties know their obligations to each other and assist in avoiding the possibility of disputes over a range of employment issues without the need to refer matters to the Workplace Relations Commission or the Labour Court. The main benefit of a settlement agreement  to both parties is the guaranteed outcome without the risk of proceedings.

Why do employers offer settlement agreements?

They are used by employers as a risk management mechanism, as there is a certainty of closure and they facilitate a clean break. Settlement agreements are in full and final settlement of any rights and entitlements the employee has or may have up to and including their termination date against the employer arising out of their employment with the employer or the termination of such employment.

Provisions of settlement agreements

Settlement agreements vary depending on each employee’s circumstances, however the agreement itself is often standard and is adapted to suit the package that the employer is offering the employee. Certain provisions are typical in settlement agreements such as:

  1. Termination of employment,
  2. Termination of renumerations,
  3. Tax treatment,
  4. Pension provisions,
  5. Return of company property,
  6. Settlement of any potential employment claims,
  7. Non disparagement agreement for one or both parties,
  8. Confidentiality,
  9. Independent legal advice.

‘Subject to Contract’ and ‘Without Prejudice’

Settlement agreement are marked “subject to contract” or “without prejudice”. This means that neither party can rely on the negotiation or any terms put forward until such a time as they are agreed by both parties. A settlement agreement will not become binding until such a time as it is executed, dated, witnessed and exchanged, at which time it shall be deemed to be an open document evidencing a binding settlement.

Pension provisions

Usually, the employee is entitled to retain whatever pension rights they are entitled to under the terms of the applicable pension rules up to and including the date their employment terminates with the employer.

Company property

It is usual in a settlement agreement that the employee agrees to return any information or documents relating or belonging to the employer, whether stored by electronic means or otherwise, in their possession to the employer. This may vary depending on the relationship between the parties and the company may allow the director to keep certain items (for example a company phone).

Confidentiality clause

Settlement agreements usually contain a confidentiality clause that the terms of the agreement are to be kept strictly confidential and shall not be released or disclosed to any non-party to the agreement. If the confidentiality clause is breached it can result in damages being sought for such breach.

Independent legal advice

For a settlement agreement to be legally binding, the employer is required to offer and advise the employee to receive independent legal advice on the terms and effects of the settlement agreement. The legal adviser advising the employee must sign an advisor’s certificate to confirm that the employee has received independent legal advice.

Where an employer does not advise the employee to obtain independent legal advice in advance of signing a settlement agreement, the Workplace relations Commission and Labour Court may not accept the signed document as being in full and final settlement. Therefore, it is highly advisable not to enter into an agreement until this is addressed as the settlement agreement may not be binding.

As a way of ensuring the independent legal advice is availed of, an employer typically agrees to contribute to the legal costs of the employee for obtaining advice in relation to the terms and conditions of the settlement agreement. Such contribution can be paid by the employee directly to the employees’ solicitor.

How to obtain legal advice during pandemic

Due to social distancing guidelines, we are offering telephone/video conferencing meetings to advise clients in relation to their settlement agreements. Our Adelaide Road office is also open and provides meeting locations and facilities that adhere to government-outlined sanitation and social distancing guidelines.

What are the next steps one the settlement agreement has been reviewed?

The next step is to promptly contact your employer to raise concerns or issues in respect of the terms and conditions of the settlement agreement. Once the terms and conditions have been agreed by both the employee and the employer the settlement agreement will be executed, dated, witnessed and exchanged.

Entering into a settlement agreement has its advantages and disadvantages. Employees should take careful consideration in weighing up the risks and rewards before deciding to sign any agreement as being full and final settlement.

For more information on settlement agreements or any other redundancy-related queries, please email Emer Murphy at [email protected] , Marc Fitzgibbon at [email protected] or call 01 644 580