Settlement agreement question - how much?
Discussion
A friend of mine is being made redundant. He's worked for the company for 2.5 years, and his pay is 55k pa.
His contractual notice period is 6 months, but the email informing of the termination negotiation meeting mentions a settlement agreement.
Any thoughts on what kind of settlement agreement he should be aiming for?
His contractual notice period is 6 months, but the email informing of the termination negotiation meeting mentions a settlement agreement.
Any thoughts on what kind of settlement agreement he should be aiming for?
Depends on what his contract says. Statutory redundancy is not very much, especially as he barely qualifies. They can pay pretty much what they like above the minimum as compensation for loss of employment but the first £30k is tax free, the rest is taxed as income and so is unused holiday pay. In any case they will need to pay for an employment lawyer to review the proposed agreement to ensure he gets the right legal advice. Best thing to do is be amicable and friendly to the employer so they want to help.
Edited by anonymous-user on Wednesday 27th June 18:29
Cheers - amicable and friendly is definitely the way to do things, I agree.
It looks like the law has changed so that tax must be paid on the lump sum, and also employers aren't actually legally obliged to pay your legal fees, although many do.
I'm wondering where the negotiations should start. They want rid of him and he wants to leave. Working out his notice or Gardening Leave would not be great options. I need to find out whether 6 months salary is a starting point for negotiations which then go down or up?
It looks like the law has changed so that tax must be paid on the lump sum, and also employers aren't actually legally obliged to pay your legal fees, although many do.
I'm wondering where the negotiations should start. They want rid of him and he wants to leave. Working out his notice or Gardening Leave would not be great options. I need to find out whether 6 months salary is a starting point for negotiations which then go down or up?
N Dentressangle said:
Cheers - amicable and friendly is definitely the way to do things, I agree.
It looks like the law has changed so that tax must be paid on the lump sum, and also employers aren't actually legally obliged to pay your legal fees, although many do.
I'm wondering where the negotiations should start. They want rid of him and he wants to leave. Working out his notice or Gardening Leave would not be great options. I need to find out whether 6 months salary is a starting point for negotiations which then go down or up?
From 6th April 2018, any PILON made where there is no contractual right to do so will be subject to income tax and NI. It will require employers to split any termination payment/award to find out what element is taxable in the following way:It looks like the law has changed so that tax must be paid on the lump sum, and also employers aren't actually legally obliged to pay your legal fees, although many do.
I'm wondering where the negotiations should start. They want rid of him and he wants to leave. Working out his notice or Gardening Leave would not be great options. I need to find out whether 6 months salary is a starting point for negotiations which then go down or up?
- Work out the basic pay that would have been paid for any part of the notice period not worked. This is done by applying a “post-employment notice period” (PENP) formula. This is explained further below;
- The remainder will be subject to the current £30,000 tax exemption threshold, subject to the normal rules relating to this.
N Dentressangle said:
A friend of mine is being made redundant. He's worked for the company for 2.5 years, and his pay is 55k pa.
His contractual notice period is 6 months, but the email informing of the termination negotiation meeting mentions a settlement agreement.
Any thoughts on what kind of settlement agreement he should be aiming for?
Sounds like the firm is offering a settlement agreement because they've elected not to go through a proper selection process when deciding who to make redundant? As a minimum your friend will at least get his contractual notice period paid plus any statutory redundancy but if the company are openly talking about a settlement agreement it means they'll almost certainly pay more than the minimum; however, how much more will depend on a range of factors so difficult to give an indication as to what he should expect. His contractual notice period is 6 months, but the email informing of the termination negotiation meeting mentions a settlement agreement.
Any thoughts on what kind of settlement agreement he should be aiming for?
Personally I'd advise your friend to consult an employment law solicitor (they often give initial consultations for free) and if his employer makes an offer in line with the advice received just take it and move on!
JNW1 said:
N Dentressangle said:
A friend of mine is being made redundant. He's worked for the company for 2.5 years, and his pay is 55k pa.
His contractual notice period is 6 months, but the email informing of the termination negotiation meeting mentions a settlement agreement.
Any thoughts on what kind of settlement agreement he should be aiming for?
Sounds like the firm is offering a settlement agreement because they've elected not to go through a proper selection process when deciding who to make redundant? As a minimum your friend will at least get his contractual notice period paid plus any statutory redundancy but if the company are openly talking about a settlement agreement it means they'll almost certainly pay more than the minimum; however, how much more will depend on a range of factors so difficult to give an indication as to what he should expect. His contractual notice period is 6 months, but the email informing of the termination negotiation meeting mentions a settlement agreement.
Any thoughts on what kind of settlement agreement he should be aiming for?
Personally I'd advise your friend to consult an employment law solicitor (they often give initial consultations for free) and if his employer makes an offer in line with the advice received just take it and move on!
I agree - my mate should see a solicitor and preferably the firm should pay for it. But hey ho!
The firm are shutting down the area of operation he works in, so I don't think there's necessarily any process they haven't followed.
Here's the 'meat' of the email he got:
[i]Therefore, as happened in 2016, this phone meeting started the formal consultation period which will end on Wednesday 1st August. Please note that this means that you are now “at risk” of redundancy. During this consultation period David and I as well as other members of the management team are available to discuss and consider any alternative options you might wish to put forward. It should be noted that at present there are no suitable alternative roles for which you can be considered.
As discussed, you will need time to absorb and reflect upon today’s call, but I would appreciate you letting me know this week what time on August 1st is most convenient for you to meet with us at the London offices. If, following the review at that meeting the outcome is redundancy of role, then there will be a discussion and agreement of final termination date.
If redundancy is the outcome, you will be paid as normal until the termination date pus any Statutory Redundancy Payment (SRP) to which you are entitled. As an employee with over two years of service you are entitled to redundancy which will be subject to a settlement agreement. You are also entitled to be accompanied by a trade union representative or colleague at any future meetings.
Please do not hesitate to contact me with any questions or observations. [/i]
The firm are shutting down the area of operation he works in, so I don't think there's necessarily any process they haven't followed.
Here's the 'meat' of the email he got:
[i]Therefore, as happened in 2016, this phone meeting started the formal consultation period which will end on Wednesday 1st August. Please note that this means that you are now “at risk” of redundancy. During this consultation period David and I as well as other members of the management team are available to discuss and consider any alternative options you might wish to put forward. It should be noted that at present there are no suitable alternative roles for which you can be considered.
As discussed, you will need time to absorb and reflect upon today’s call, but I would appreciate you letting me know this week what time on August 1st is most convenient for you to meet with us at the London offices. If, following the review at that meeting the outcome is redundancy of role, then there will be a discussion and agreement of final termination date.
If redundancy is the outcome, you will be paid as normal until the termination date pus any Statutory Redundancy Payment (SRP) to which you are entitled. As an employee with over two years of service you are entitled to redundancy which will be subject to a settlement agreement. You are also entitled to be accompanied by a trade union representative or colleague at any future meetings.
Please do not hesitate to contact me with any questions or observations. [/i]
N Dentressangle said:
I agree - my mate should see a solicitor and preferably the firm should pay for it. But hey ho!
The firm are shutting down the area of operation he works in, so I don't think there's necessarily any process they haven't followed.
If the company has followed a proper process I don't really understand the need for a settlement agreement but then I'm not an employment law solicitor!The firm are shutting down the area of operation he works in, so I don't think there's necessarily any process they haven't followed.
Just on the issue of legal advice, if your friend has legal expenses cover as part of his house insurance it may well cover any costs associated with an employment dispute. Obviously not an issue if the employer covers any legal expenses but perhaps worth bearing in mind if they don't.
Jasandjules said:
That appears to be suggesting he is required to sign a settlement agreement to obtain his redundancy package. That is not correct.
Yes, interesting, isn't it?My suggestion to him was that he replied noting they mentioned a settlement agreement and ask for some more details and whether they would pay for legal advice. Seem sound?
My own problems are now well sorted, and thank you for all your good counsel at the time!
JNW1 said:
Just on the issue of legal advice, if your friend has legal expenses cover as part of his house insurance it may well cover any costs associated with an employment dispute. Obviously not an issue if the employer covers any legal expenses but perhaps worth bearing in mind if they don't.
Yes, good thought and I've suggested this to him - hopefully he'll look into it.Edited by N Dentressangle on Wednesday 27th June 20:01
N Dentressangle said:
Yes, interesting, isn't it?
Quite. I would probably reply and say something like "I am confused about the mention of a settlement agreement as this is not necessary or appropriate for a normal redundancy package as I understand it. Can you please clarify"........But that is just me, I would invite them to explain basically and see what they come back with and take it from there...
Jasandjules said:
Quite. I would probably reply and say something like "I am confused about the mention of a settlement agreement as this is not necessary or appropriate for a normal redundancy package as I understand it. Can you please clarify"........
But that is just me, I would invite them to explain basically and see what they come back with and take it from there...
No, that was exactly my take on it. Polite puzzlement and see what comes back.But that is just me, I would invite them to explain basically and see what they come back with and take it from there...
Thanks for that - he's going to send the email tomorrow.
Jasandjules said:
That appears to be suggesting he is required to sign a settlement agreement to obtain his redundancy package. That is not correct.
I believe to be legally binding you are obliged to get legal advice from a qualified employment lawyer. Usually the employer will pay for this.N Dentressangle said:
I'm wondering where the negotiations should start.
There are no negotiations. Don't be under the misapprehension that your friend attends the meeting and they say the will offer X months salary and your friend says I want Y months salary and you umm and ahh and meet in the middle like buying a car. That's not how it works.The meeting will inform your friend that, after careful consultation, the role he performs is ceasing to exist and unfortunately there is no other space for him in the organisation, and here is a letter detailing your statutory redundancy. In addition here is a second letter saying you promise not to sue us and if you sign it, we'll give you a lump sum. It's a take it or leave it situation, the amounts are not up for negotiation.
48k said:
There are no negotiations. Don't be under the misapprehension that your friend attends the meeting and they say the will offer X months salary and your friend says I want Y months salary and you umm and ahh and meet in the middle like buying a car. That's not how it works.
The meeting will inform your friend that, after careful consultation, the role he performs is ceasing to exist and unfortunately there is no other space for him in the organisation, and here is a letter detailing your statutory redundancy. In addition here is a second letter saying you promise not to sue us and if you sign it, we'll give you a lump sum. It's a take it or leave it situation, the amounts are not up for negotiation.
That clear cut, you reckon? I thought there'd be some room for movement, but in some ways it makes it easier if not.The meeting will inform your friend that, after careful consultation, the role he performs is ceasing to exist and unfortunately there is no other space for him in the organisation, and here is a letter detailing your statutory redundancy. In addition here is a second letter saying you promise not to sue us and if you sign it, we'll give you a lump sum. It's a take it or leave it situation, the amounts are not up for negotiation.
Obviously this is not my area of professional expertise. I would (and have done in the past) take professional advice, but he has asked me along for moral support, and I'd like to be as well prepared as a lay person can be.
How do you know this?
If the company have opened the batting for redundancy with the immediate mention of a settlement agreement then they want something, ie protection against legal action.
Depending on how much they went it will determine how much they are prepared to pay.
On the face of it, with a properly conducted process with 2.5 years service there would be no need for a settlement. If they think there is a risk of an unfair dismissal claim, they'll have a certain amount to play with. If they think there is the risk of a discrimination or harassment claim they'll be prepared to pay more. You might be right there is no room for negotiating, I think you may well be wrong.
In terms of advice, if it were me I'd play it very straight and just wait to see what they have to say. Id not question the settlement agreement at this stage and just play dumb. Listen, don't comment and say you need to think about it. Then determine the next step.
There may be little to gain but you won't know until you hear their opener.
Bert
If the company have opened the batting for redundancy with the immediate mention of a settlement agreement then they want something, ie protection against legal action.
Depending on how much they went it will determine how much they are prepared to pay.
On the face of it, with a properly conducted process with 2.5 years service there would be no need for a settlement. If they think there is a risk of an unfair dismissal claim, they'll have a certain amount to play with. If they think there is the risk of a discrimination or harassment claim they'll be prepared to pay more. You might be right there is no room for negotiating, I think you may well be wrong.
In terms of advice, if it were me I'd play it very straight and just wait to see what they have to say. Id not question the settlement agreement at this stage and just play dumb. Listen, don't comment and say you need to think about it. Then determine the next step.
There may be little to gain but you won't know until you hear their opener.
Bert
48k said:
There are no negotiations. Don't be under the misapprehension that your friend attends the meeting and they say the will offer X months salary and your friend says I want Y months salary and you umm and ahh and meet in the middle like buying a car. That's not how it works.
The meeting will inform your friend that, after careful consultation, the role he performs is ceasing to exist and unfortunately there is no other space for him in the organisation, and here is a letter detailing your statutory redundancy. In addition here is a second letter saying you promise not to sue us and if you sign it, we'll give you a lump sum. It's a take it or leave it situation, the amounts are not up for negotiation.
The meeting will inform your friend that, after careful consultation, the role he performs is ceasing to exist and unfortunately there is no other space for him in the organisation, and here is a letter detailing your statutory redundancy. In addition here is a second letter saying you promise not to sue us and if you sign it, we'll give you a lump sum. It's a take it or leave it situation, the amounts are not up for negotiation.
It will depend on what kind of arrangement they are offering. If they are just offering enhanced redundancy, ie. above the statutory level, then the only options are to accept it or try and find some legal requirement they didn't fulfill in making redundancies.
It seems to be getting much more common for companies to offer compromise agreements. I've only had redundancy once, and I had only been employed 18 months. They could have offered almost nothing, but instead I walked with 3/4 of a years salary + bonus + benefits. This was only available if I signed the compromise agreement, and they paid for the legal advice.
It seems to be getting much more common for companies to offer compromise agreements. I've only had redundancy once, and I had only been employed 18 months. They could have offered almost nothing, but instead I walked with 3/4 of a years salary + bonus + benefits. This was only available if I signed the compromise agreement, and they paid for the legal advice.
mbcx4jrh said:
Slightly on the side - if the employer pays for the legal advice, does that not become a taxable benefit? So negating any value in taking the costs pre-tax?
No - there's special treatment for this under the relevant legislation - as long as the invoice is made out to the employee but marked payable by the employer it's not taxable. It stems from the fact that said legislation requires the employee to receive the advice.JNW1 said:
If the company has followed a proper process I don't really understand the need for a settlement agreement but then I'm not an employment law solicitor!
Just on the issue of legal advice, if your friend has legal expenses cover as part of his house insurance it may well cover any costs associated with an employment dispute. Obviously not an issue if the employer covers any legal expenses but perhaps worth bearing in mind if they don't.
On the first point, even if they think they haven't done anything dubious, employers often prefer to pay a bit more for the settlement to obtain the certainty it brings. Even if an employer was absolutely in the right in every sense, if an employee brings a claim (most likely alleging that the redundancy was unfair) it's a pain and expensive to defend (and they don't get their costs back if they win in the Employment Tribunal). The mere fact that a settlement is offered shouldn't be taken as an implication that things haven't been proper - it's very common.Just on the issue of legal advice, if your friend has legal expenses cover as part of his house insurance it may well cover any costs associated with an employment dispute. Obviously not an issue if the employer covers any legal expenses but perhaps worth bearing in mind if they don't.
On the second, the employer will definitely cover at least some of the fees for advice - it's universal (and they very often cover all of it if the matter is straightforward, even if the employee has to go back to them after getting an estimate from their solicitor to ask for more for this).
Edited by bladebloke on Thursday 28th June 07:01
Forums | Speed, Plod & the Law | Top of Page | What's New | My Stuff