Season of Santa and settlement agreements

‘Tis in the season of goodwill that employers choose to fire employees. So legally, Christmas becomes the busiest time of year for employment lawyers.

Law and Christmas job cuts. Copyright: Richard Croft

Law and Christmas job cuts. Copyright: Richard Croft

Employers tend to be the first to make resolutions on what they want to do in the new year. Top of the list is the new compliment of staff. In the experience of this firm, more downsizing, restructuring, reorganising and downright dismissals occur in December than in any other time of year. Most of them are dressed up as redundancies, you know, ā€œHappy Christmas, your firedā€. Many are executed with ā€˜settlement agreementsā€™.

What is a settlement agreement?
A settlement agreement is a full and final contract settling up claims that an employee may have against his employer. An employee will have a number of employment rights or claims against his employer. Some of these rights come with the contract of employment but, very importantly, a number come from statute.

Most people are well aware of their statutory rights such as the right NOT to be unfairly dismissed, the right not to suffer discrimination or the right not to suffer deductions from wages.

Fair procedure
To lawfully dismiss an employee, the employer must be fair and choose from the five statutorily prescribed reasons. The most common chosen reasons are misconduct, incapability and redundancy. The employer is then required to follow a ā€˜fair procedureā€™.

The fair procedure is where the danger lies for most employers. Itā€™s difficult to get it right and easy to make errors. But errors lead to Employment Tribunal claims. Enter settlement agreements to simply buy off all claims. However, the settlement agreement must be drafted in a particular way and,very importantly, the employee must get advice from a solicitor, unconnected to the employer. Otherwise the agreement will fail.

How much should the employer pay and how much should the employee accept?
The employer should pay a sum that is below the value of the potential claim he is buying out. So, if the claim is unfair dismissal, an employer should aim for a third to half of what the employee could recover at the Employment Tribunal, if he succeeds.

The employee should aim for at least half to two thirds of what he could recover, if he succeeds.

Compromise agreements save time and money

Compromise agreements save time and money

A deal saves both employer and employee time and money. Thatā€™s why, sensibly, so many settlement agreements bolster the Christmas bonus.

We advise both sides, employers and employees, whether you are seeking to get it right, get more or pay less, talk to us on our new number, 0345 430 0145.

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