We’ve had a rash of settlement agreements to draw up recently.
Usually we’re asked to do these because the business doesn’t want to go through a lengthy redundancy process before possibly parting company.
However, the struggle is usually getting the business to understand that they are not just paying the employee their notice to go.
They have to pay them more than that (sometimes much more) as they’re actually paying them for giving up their right to sue the business.
And you have to pay tax and NI on notice periods, even under a settlement agreement.
So, to work out how much you should be paying, as a minimum, you need to pay them their notice period PLUS what they would have got if they had been made redundant PLUS a sum for giving up their right to sue you.
This only works as a ballpark figure if we are talking about unfair dismissal – if it’s discrimination, then you really need to be willing to offer at least one year’s pay.
If you’re extremely keen for them to accept your offer and there to be a minimum of fuss, then you should start at one year’s pay, including notice.
Want to know how much you should pay?
Visit our Settlement Agreement Calculator to find our recommended payout
(£30,000 of that will be tax free, but not the notice period.)
However the crucial cost in a settlement agreement is for the legal fees. Not ours, but for the legal advice that the employee has to receive before signing.
If the employee does not have a solicitor confirm, in writing, that they have advised them on their rights, and they are signing in full knowledge of what they are giving up, guess what?
The whole agreement is invalid!
We make this clear to all our clients. Very clear.
And yet there are still some managers that feel, in their infinite wisdom, that they know the law better than us and obviously have an extremely high appetite for risk.
Which is exactly what happened this week.
The business got the employee to sign the settlement agreement without making sure that the employee obtained legal advice.
It is NOT optional.
An employees MUST have proper legal advice for their signature to be binding. Ignorance is a defence for an employee, but not an employer.
They have paid the now ex-employee thousands of pounds. Without a legally binding agreement.
So, at any time in the next few months the ex-employee could start a tribunal against them and claim exactly the same amount of money again.
Without legal advice, the settlement agreement is worth a lot less than the paper it was printed on.
If you have an employee that you feel you need to part company with, particularly now that furlough is soon ending, please give me a call so that I can make sure that you DO have a legally binding agreement in place!