Covering the requested topic of settlement agreements, and how to maximise their potential. The slides were originally for an event on the 24th March 2020, and due to COVID-19, this has been adapted into a podcast found here: https://yolkrec.podbean.com/e/hr-insights-settlement-agreements-march-2020/

1. Settlement Agreements
Anna Denton-Jones
March 2020

2. navigating employment law
What are they?
• Written Agreement between an
employer and employee or former
employee
• Statutory regime

3. navigating employment law
When are they used?
• Usually on termination of employment:
– In settlement of existing claims (where
proceedings have already been issued)
– Where a termination package is being offered
to an Employee (where proceedings have not
yet been issued)
• Can be used if employment still ongoing
(e.g. discrimination claims)

4. navigating employment law
Advantages to Employers
• Certainty
• Early settlement - saves time and money
• No disruption e.g. witness attendance will not be
necessary
• Avoid adverse publicity
• Certainty – avoids risks associated with litigation
• Opportunity to ‘control’ eg:- restrictions,
confidentiality

5. navigating employment law
Advantages to Employees:
• Certainty
• Avoid risk of losing claim
• Avoid stress of tribunal
• Input into the provisions agreed
• Securing a satisfactory reference - tribunals have
no power to order a reference
• Other matters outside a Tribunal’s jurisdiction may
be incorporated e.g beneficial pension
arrangements
• Accelerated receipt of compensation

6. navigating employment law
What Claims can be
Compromised?
• Contractual claims
• Common law claims eg:- for
negligence/personal injury
• Statutory claims

7. navigating employment law
Contractual claims
• Can be settled so long as the employee
receives ‘valuable consideration’ for their
waiver of claim eg:- a letter

8. navigating employment law
Statutory claims
• Can only be settled/waived:
– ACAS COT 3
– Valid Settlement Agreement

9. navigating employment law
The Law
• Section 203 Employment Rights Act 1996
• Any provision in an agreement “to preclude a
person from bringing any proceedings under this
Act before an Employment Tribunal” is void (s
203(1)(b) ERA 1996)
• S 203(1)(b) “does not apply to an agreement to
refrain from instituting or continuing proceedings”
as long as the conditions regulating compromise
agreements under the Act are satisfied (s 203(1)(f))

10. navigating employment law
Conditions Regulating
Compromise Agreements
1) The agreement must be in writing
2) It must relate to a “particular complaint”
3) Employee must have received independent legal advice
4) Independent adviser should be covered by a valid
insurance policy at the time of advising the employee
5) Agreement must identify the adviser
6) Agreement must state that the conditions regulating
compromise agreements in the ERA 1996 have been
satisfied
(s 203 (3)(a) – (f) ERA 1996)

11. navigating employment law
Independent Legal Advice
Must be:
• Given by a relevant independent adviser not
acting for the employer e.g:
– Qualified lawyer or Legal Executive
– Officials, members, officers or employees of
independent Trade Unions
– Certified volunteers/ employees from advice
centres
• Employer may pay employee’s legal costs
(s 203 (3B) and (4))

12. navigating employment law
Who is an independent legal
adviser?
• 4 types:
– Qualified lawyers (barrister, solicitor)
– TU officials who are certified by union
– Those working in advice centre certified as
competent/authorised to do so
– Others specified in legislation eg:- Fellows of
the Institute of Legal Executives

13. navigating employment law
New breed ‘freelance’
solicitor
• November 2019
• Need to do due diligence on employee
adviser and make sure they are in a SRA
regulated practice

14. navigating employment law
What is the solicitor’s role?
• The requirement for the employee to
receive advice on the "terms and effects of
the proposed agreement" does not require
you to advise on whether the deal on offer
is a good one or whether you think the
employee should accept it (McWilliam and
others v Glasgow City Council [2011] IRLR
568 (EAT)).

15. navigating employment law
Legal Fees
• Solomon v University of Hertfordshire
2019
• EAT comment that £500 + VAT not
enough
• My average time spent now is £900 + VAT

16. navigating employment law
Scope of Settlement
Lunt v Merseyside [1999]
• Failure to fulfil the section 203 criteria renders
the agreement void
• Cannot compromise potential future claims
• May compromise more than one complaint
• Must identify each complaint and the relevant
statutory provision
• “Blanket agreements” signing away all of the
employee’s tribunal rights will not be effective
• Can validly compromise claims where tribunal
proceedings have not been issued

17. navigating employment law
(2) Hinton v University of East
London [2005]
• Agreement must relate to ‘particular
proceedings’
• Must expressly state the claim being
settled
– Generic description is sufficient
• Must be tailored to the individual
circumstances of the case

18. navigating employment law
(3) Hilton UK Hotels Ltd v
McNaughton [2005]
• Reference to Equal Pay Act here was sufficient to
identify the particular complaint in accordance with
Hinton. (No need to refer to section number of Act)
• Agreement stated that only claims being concluded
were those “you believe you have against the
Company”
• Compromise agreement did not therefore prevent
employee from bringing a claim she was not aware
of at the time of the agreement.
• Lunt does not prevent a party from contractually
compromising a future claim.

19. navigating employment law
….. Hilton UK Hotels Ltd v
McNaughton [2005]
• The language of the agreement must be
“absolutely clear” and state what exactly the
parties are intending to contract out of. Royal
National Orthopaedic Hospital Trust v Howard
[2002]
• The blanket waiver referring to ‘all present and
future claims’ was therefore not effective

20. navigating employment law
Other legislatory
requirements
• Statutory requirement eg:- that agreement
should state that the conditions regulating
compromise agreements under this Act
are satisfied

21. navigating employment law
What claims can be signed off
under a compromise agreement?
• The statute itself needs to permit the
contracting out from the rights it creates
eg:- s147 Equality Act
• Claims don’t need to have been brought –
could just be threatened

22. navigating employment law
What claims cannot be signed
off?• Agency workers
• Blacklisting
• Rights to statutory maternity pay, paternity pay,
adoption pay and shared parental pay
• Failure to consult and inform under TUPE and to
provide employee liability information
• Failure to consult and inform collective
redundancy but can compromise protective award
claim
• Detriment under a zero hours contract
• Data Protection legislation

23. navigating employment law
Personal injury claims
• Depends on the category of claim
• Careful wording needed
• Cannot be included in ACAS COT3

24. navigating employment law
Pensions claims
• It is not possible to waive accrued pension
rights – s91 Pensions Act 1995
• Normally the rights are owed to the
employee by the pension trustees – not a
party to the agreement
• If there is a dispute with the employer in
connection with an occupational pension it
can be compromised

25. navigating employment law
Future claims
• Courts don’t like employees being asked
to sign away rights that they don’t yet
know about
• In principle if wording sufficiently clear –
can sign away future rights

26. navigating employment law
Negotiating
• “Without prejudice”
• “Subject to contract”
• “Subject to a protected conversation under
s111A Employment Rights Act 1996”

27. navigating employment law
“Protected Conversations” and
Settlement Agreements
• s111A Employment Rights Act 1996
• Offers of settlement cannot be used as
evidence in ET so long as there has been
no improper behaviour
• Unfair dismissal only

28. navigating employment law
Improper Behaviour
• Any form of harassment, bullying or intimidation
including offensive words or aggressive behaviour
• Physically assaulting the employee or threatening to
do so
• Discrimination
• Putting undue pressure on the employee to act
quickly.
• Indicating that the outcome of any alternative
procedure will be dismissal

29. navigating employment law
Case law on improper
behaviour
• Gani v Cambridge Strength and
Conditioning Ltd
• Crespigny v Information Security Forum
Ltd

30. navigating employment law
10 days to consider offer
• ACAS Code on Settlement Agreements
Para 12: a minimum period of 10 calendar days
should be allowed to consider the proposed formal
written terms of a settlement agreement and to receive
independent advice, unless the parties agree
otherwise.
• Courts upheld this – suggestion that improper
behaviour if less than 10 days

31. navigating employment law
Strategy
• Have a plan B
• Start plan B

32. navigating employment law
Common clauses
• Termination date
• Payment up to termination
• Expenses and loans
• Payment in lieu of holiday

33. navigating employment law
Common clauses
• Payment in lieu of notice; or
• Garden leave
• Compensation for loss of employment
• Continuation of certain benefits

34. navigating employment law
Garden leave
• If large gap between agreement and TD
risk HMRC sees payments as fully taxable
• New disputes?

35. navigating employment law
• Restrictive covenants
• Confidentiality
• Announcement
• No derogatory comments
• Entire agreement
• SRP calculation
• Governing law

36. navigating employment law
• Purchase of property eg: car, laptop
• Outplacement
• Contribution to legal fees
• Waiver of claims
• Withdrawal of ET claim
• Tax indemnity
• Return of property
• Warranty that not got another job
• Warranty that not breached contract
• Agreed reference
• Resignation from posts

37. navigating employment law
Confidentiality
• Employer concern – setting precedent
• Employee concerns – needs to be able to
say how their employment ended to get
new job
• If one way only – consideration needed to
avoid tax under s225 ITEPA 2003
• Public authority limitations

38. navigating employment law
New guidance from SRA on NDA
• Background – Parliamentary Select Committee
investigation into scandal
• Criticism of NDA
• New precedent clause – make it clear employee can
still:
– Go to Police
– Report to Regulator
– Take medical advice
– Whistleblow

39. navigating employment law
From employee’s perspective
• Reason given for termination – affect on
benefits
• PILOB – Payment in lieu of not just notice
but all benefits eg:- pension
• PENP and tax position
• Pension contributions – tax efficiency
higher earners

40. navigating employment law
Tax – order of priority
• £30k tax free only available if no other tax
provision bites
• Consider
– General earnings part 2-5 ITEPA 2003
(salary, wages, benefits, emoluments of
office)
– Payment for a restrictive covenant s225 and
226
– S401-406 ITEPA

41. navigating employment law
From employee’s perspective
• Make waiver of claims conditional upon payment
being received
• Guarantor for payment?
• Statutory entitlement to a letter re redundancy
• Gagging clauses that don’t work – they have to tell
new employer something
• Lack of reference/promise that oral references
consistent

42. navigating employment law
From employee’s perspective
• Maternity and parental rights
• Scope of Adviser cert

43. navigating employment law
Enforcement - employer
• Breach of contract in civil courts
• Injunctive proceedings
• Withold payment

44. navigating employment law
Enforcement – employee
• Breach of contract claim in civil courts

45. navigating employment law
Trends
• Use of ACAS template letters – badly
drafted eg:- on tax points

46. navigating employment law
Trends
• Reaffirmation –
– consequent knock on effect on costs
– issues that arise between signing the first and
the second agreement eg:-
• Fresh grievances
– making sure first agreement only signs away
claims to signing date

47. navigating employment law
Trends
• Contribution to legal fees not keeping up
with rates
• Offer to be accepted in principle quickly
and then rest of 10 days used to sort out
paperwork

48. navigating employment law
Tax changes
• All PILON since April 2018 taxable
whether or not there is a clause in the
contract
• PENP calculations
• NIC will apply on redundancy payments
over £30k from April 2020

49. Contact Us: adenton@refreshinglawltd.co.uk
Phone 029 2059 9993 or 077977 545480
www.refreshinglawltd.co.uk
Contact Us: eharries@yolkrecruitment.com
02921 673734
www.yolkrecruitment.com