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Settlement agreements part 2: the practicalities

May 10, 2016 by Guest contributor

Settlement agreements{{}}

How much should an employer offer to pay an employee under a settlement agreement?

There is no set formula in terms of what an employer ought to offer an employee by way of a severance payment under a settlement agreement. It will very much depend on:

  • The surrounding circumstances of the case;
  • The terms in the employee's contract; and
  • Any potential claims that the employee may have against the employer.

In terms of guiding principles, employers need to bear in mind that they are effectively compensating the employee for their forbearance in not filing a claim with the Employment Tribunal, arising out of their employment and the termination thereof and therefore the likely value of any such claim(s). Any ex gratia sum offered should reflect this.

The tax position

The employer ought to take specialist tax advice in relation to the taxable status of the payments being made under the settlement agreement. An ex gratia payment, genuinely representing compensation for loss of employment, can be made of up to £30,000 without deductions for PAYE.

Contractual payments

Depending on what is contained in the employee's contract of employment, the settlement agreement will also make provision for the following categories of contractual payment:

  • Notice (or payment in lieu thereof);
  • Bonus;
  • Private medical care insurance;
  • Life assurance;
  • Pension; and
  • Consideration for the employee reaffirming their confidentiality and post-termination restrictions.

The importance of obtaining legal advice

We recommend obtaining professional legal advice first before putting forward a settlement offer, given the potential pitfalls involved.

Further, we recommend the settlement agreement itself is drafted by a specialist employment lawyer in order to get the terms right.

The amount your legal advisor will charge to draft a settlement agreement varies and depends on the precise circumstances and the terms being sought under the agreement itself, including for example dealing with issues such as confidentiality, intellectual property rights and post-termination restrictions.

When should the employee expect to receive the settlement monies under the agreement?

The settlement agreement typically provides that any ex gratia amount is to be paid between 14 to 28 days of the agreement itself being signed.

In terms of contractual payments such as salary, accrued untaken holiday, contractual bonuses or commission, the agreement tends to provide that such payments will be made in the next payroll run on the usual payroll date.

Who pays for the legal advice an employee has to take on a settlement agreement?

An employee needs to obtain independent legal advice on a settlement agreement if it is to be legally binding.

Since it is in the employer's interests for the employee to sign the settlement agreement, in the overwhelming majority of cases, employers agree to make a contribution of between £250 to £500 plus VAT towards the employee's legal fees in needing to obtain independent advice as to the terms and effect of the settlement agreement.

It is not recommended to offer a higher cost contribution than this since, by doing so, the employer may effectively be paying the employee's additional legal fees for their independent advisor to negotiate an improved settlement on their behalf.

What if an employee is not prepared to sign the settlement agreement?

An employee may decide to turn down a settlement agreement if they consider the amount on offer insufficient, based on the advice they have been provided and based on the fact that the employer is not prepared to increase this.

An employee may also elect not to sign a settlement agreement, based on the advice of their adviser, as to its terms and effect, for example if they consider its terms to be too onerous.

As explained in Settlement Agreements Part 1, if an employee refuses to sign the settlement agreement then there is a risk that they may rely on it and the conversations surrounding it as evidence in bringing a grievance, resigning and claiming constructive dismissal, discrimination and bringing any employment proceedings.

Advantages and disadvantages of offering a settlement agreement

The ACAS guidance sets out a number of key advantages and disadvantages for employers that are considering offering an employee a settlement agreement.


A settlement agreement can:

  • Provide a swift and dignified end to an employment relationship that is not working; and
  • Avoid the time and cost involved in dealing with a grievance and/or defending a tribunal claim.


A settlement agreement can:

  • Involve substantial financial cost to the business in having to pay an agreed financial sum to an employee;
  • Expose the employer to potential risk in terms of any on-going employment relationship with the employee, if a mutually agreed settlement cannot be reached, with the potential that they may rely on the settlement agreement offered and any conversations or documents relating to it as grounds for resignation and making a claim in the employment tribunal; and
  • The potential risk to employment relations in the wider workforce if used inappropriately or as a substitute for good management practices.

Copyright © 2016 Julian Cox, head of employment at iLaw

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Settlement agreements part 1: what employers need to know

April 26, 2016 by Guest contributor

Settlement agreementsSettlement agreements can be an effective way to manage the termination of an employment contract but they have to be handled with care, says Julian Cox, head of employment at iLaw. In the first of his two blogs, Julian sets out what you need to know about settlement agreements

Spring coincides with the start of the new financial year for many businesses. It is often a time when employers review the performance of their business over the previous year and plan for the future. Depending on how the business has performed, some tough decisions may be required surrounding staffing levels, leaving some employees finding themselves in the unfortunate position of having to look for employment elsewhere.

Employees benefit from a raft of legal protection under the statutory framework of UK employment law. As a result, employers are often required to go through prescriptive disciplinary, capability or redundancy procedures if they are to avoid unwanted claims in the Employment Tribunal and legal costs associated with defending these proceedings. This takes up valuable management time. It is worth bearing in mind that a single case of unfair dismissal could cost your business up to £94,000 and there is no cap on compensation in discrimination cases.

Set against the landscape of current UK employment law, a settlement agreement is a useful instrument offering employers a quick and clean method of terminating an employee's employment without having to undertake potentially protracted disciplinary, capability or redundancy procedures.

However, for the unwary employer there are still some pitfalls that need to be avoided. Here's what's involved:

What is a settlement agreement?

A settlement agreement, or compromise agreement as they were previously known, is a legally binding, confidential agreement between an employer and an employee. The employer offers the employee a sum of money (a severance payment) and, in return, the employee agrees to waive any legal claim he or she may have against his/her employer, whether arising out of the period of employment or the termination thereof.

What is advantage of using a settlement agreement for employers?

In addition to the employee waiving any legal claim he or she may have against the employer, a settlement agreement can also provide additional protection for employers including the introduction or reaffirmation of:

  • Post-termination restrictions;
  • Duties of confidentiality; and
  • Non bad mouthing provisions.

Settlement agreements also give employers the additional comfort of knowing that the terms offered, and in particular the precise value of the financial settlement reached, will remain entirely confidential. This is particularly important where employers have other employees with grievances or employees that are looking to make a potential claim.

Under what circumstances might an employer use a settlement agreement?

Settlement agreements are used by employers in various situations; for example when they are faced with a group of employees that they want to make redundant and:

  • The employer is concerned about the grounds being relied upon for making them redundant; or
  • The length of time it will take to go through due and proper process, involving warning and collective and individual consultation before notice can be given.

Settlement agreements are also used when employers are faced with an underperforming employee and a performance improvement programme would otherwise need to be put in place and the employee given a proper opportunity to improve (which could take up to four to five months) before notice of termination can be given.

What are the risks of offering a settlement agreement?

A settlement agreement is not simply a magic wand that employers can wave to make a problem that involves an employee disappear. Indeed there are certain employment situations where offering an employee a settlement agreement can be dangerous, exposing the unwary employer to unanticipated liability.

Where an employer offers an employee a settlement agreement out of the blue, without previously raising concerns regarding their conduct or performance, there is a risk that employers may try to claim that such discussions and any supporting documents supplied are "off the record" or "without prejudice".

However, they are not entitled to treat them as having such legally protected status. Such documents would include both paper and electronic written correspondence, attendance notes of meetings and the settlement agreement itself.

Consequently, if the employee refuses to accept the settlement agreement, the employee may argue that, as a result of it being offered, the underlying relationship of mutual trust and confidence between employer and employee has irretrievably broken down.

The employee may therefore seek to rely on the settlement agreement, surrounding discussions and correspondence as supporting evidence as part of a formal grievance against the employer.

Further, if the grievance is ultimately not resolved to their satisfaction, they may use this evidence as part of a claim for constructive dismissal and/or discrimination in the Employment Tribunal.

It is also important to be aware that settlement agreements only guarantee conversations are legally "protected" in narrowly defined circumstances; where, arising out of the facts of the situation, the employee may have a claim of unfair dismissal claim against the employer.

If the employee has a "protected characteristic" (e.g. sex, pregnancy, race, disability or age) and is complaining of less favourable treatment or harassment, there is the risk of them bringing a claim of discrimination. In such circumstances, the settlement agreement and the correspondence and conversations surrounding it will not be afforded such legal protection. So, for example, if you offered a settlement agreement to a pregnant employee, then the agreement and surrounding negotiations are unlikely to enjoy legal protection.

Similarly, where an employee is a whistle-blower, they may have an automatic unfair dismissal claim and then the settlement agreement and any correspondence and conversations surrounding it, will not be afforded the veil of protection and may be used in evidence as part of a tribunal claim, should the employee decide to reject the settlement on offer.

ACAS guidance on settlement agreements

ACAS has published its own guidance on settlement agreements. It sets out examples of "inappropriate behaviour" on the part of employers that would result in the settlement agreement and any correspondence and conversations surrounding it not being legally protected.

Examples include:

  • Bullying, harassment and intimidation (e.g. pressurising a black employee, who has raised a complaint of race discrimination, into signing the settlement agreement or risk dismissal);
  • Victimisation;
  • An employer informing an employee, prior to the instigation of disciplinary proceedings, that if they do not accept a settlement agreement then they will be dismissed; and
  • Not providing your employee with a reasonable amount of time to consider the settlement agreement on offer. The ACAS guidance recommends a period of ten calendar days to consider a settlement agreement.

Because of the potential pitfalls involved in offering a settlement agreement, we recommend that appropriate legal advice is obtained before doing so.

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12 laws of rugby every spectator should know

February 05, 2016 by Rory MccGwire

12 laws of rugby every spectator should know{{}}With the Six Nations championship due to start tomorrow, Law Donut has been asked to explain the laws of rugby in the same clear way that we explain legal minefields such as shareholder disputes and divorce settlements. We are happy to oblige. Rory MccGwire, founder of Atom Content Marketing and the Donut sites, is a rugby coach and a (very) amateur ref:

Whenever I watch rugby on TV, and whenever I referee a match, there are screams of "Referee!?!" from all sides. So here are 12 laws to explain why, sometimes, referees blow their whistles, and why other times they let play carry on. Let's start with the more simple rules:

  1. Obstruction: You cannot obstruct an opponent. You can only tackle the person with the ball. (Penalty)
  2. Tackle: You cannot tackle early, late, or above the shoulders/armpits. You must wrap with your arms, and not simply collide. (Penalty)
  3. Dangerous play: In rugby you cannot do anything that is unfair or dangerous. (Penalty)
  4. Offside: Make sure the ball and the player in your team playing the ball are ahead of you; otherwise, you may be offside. But scrums, lineouts, rucks, mauls and kicks all have their own offside rules. (Penalty)
  5. Advantage: When a law is broken, the ref plays 'advantage' if there is a chance that the offended-against team may gain an advantage. If no advantage is quickly gained, the ref will blow their whistle for the original offence.
  6. Forward pass: A forward pass is not permitted. This is simple to judge if the passing player is standing still, but is not if he is sprinting. Here's why. Imagine a player running at 20mph and passing backwards over his head at 5mph: this totally legal (ie backwards) pass actually went forwards at 15mph. This explains why some referees allow some passes that, to the spectators, look forward. The direction of the passer's hands is usually key. (Scrum)
  7. Knock on: You are allowed to fumble the ball and regain control. But if the ball hits the ground or another player before you regain control, it is a knock on. (Scrum)
  8. Roll away: When a player is tackled to the ground, he may immediately pass or place the ball. He cannot play the ball again until he is on his feet. Meanwhile the tackler must release the tackled player and get to his feet before he can play the ball. The tackler cannot just lie there and get in the way, so you hear refs shouting "Tackler roll away". (Penalty)
  9. Ruck: A ruck happens when at least one player from each team are in contact with each other over a ball that is on the ground. Once a ruck is formed, you cannot handle the ball until it emerges from the ruck - either from heeling the ball back, or driving the opponent off the ball. (Penalty)
  10. Hands away: The first defender who arrives after the tackle has a golden opportunity to win the ball, because he is allowed to keep his hands on the ball even after a ruck has formed. Whereas other players can only use their feet in the ruck. You often hear a ref shouting "Ruck formed, hands away". (Penalty)
  11. Maul: A maul forms when an attacker is held up by a defender, and a second attacker binds onto the ball carrier. You often hear a ref shouting "Maul formed". The attackers need to get the ball out quickly, otherwise the ref will award a scrum to the defenders. (Scrum)
  12. Materiality: We play rugby for fun. So to help the game flow, referees use a concept called materiality - particularly in more junior rugby, where the players are still learning the rules and are frequently a little offside (etc). If these minor offences do not materially affect the balance of the game, the ref can allow the game to continue and give warnings rather than stopping the game every 10 seconds. But the whistle still goes for errors such as knock-ons and any deliberate foul play. (Unfortunately few parent-spectators know about this concept, which leads to a lot of frustration on the sidelines.)

With thanks to Andy Nelson, Chris Groves and Tony "Specsavers" Rigg (all from St Brendans RFC in Bristol), and Chris Smith and Emma Jones, all of whom can share the blame for anything contentious. And for those of you who want to remind me that women also watch, and play, rugby (and, in the case of the England team, with much more success than the men), the male pronoun is just for ease of writing. Honest.

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Navigating the legal minefield of the work Christmas party

December 08, 2015 by Guest contributor

Navigating the legal minefield of the work Christmas party{{}}The annual workplace Christmas party is traditionally a way for colleagues to celebrate their successes over the past year and let their hair down in the build up to the holidays.

Although some businesses put on a lavish event, often it's just a meal with a few drinks. The majority of these work "dos" are appreciated by employees and go without a hitch, but occasionally problems do arise and employers can be held vicariously liable, because the party will generally be considered to be an extension of the workplace. Avoid a litigious start to the new year by guarding against some of the main issues.

Sex discrimination and harassment

Some of the most clichéd Christmas party shenanigans, such as asking a colleague for a kiss under the mistletoe or distributing photocopies of one's posterior, can potentially lead to sex discrimination or sexual harassment claims under the Equality Act 2010.

Sexual jokes, remarks, so-called "banter" or simply mild flirtation may cause offence or discomfort and employers should ensure that party attendees are aware of the boundaries. Suggestive "selfies" or risqué photos taken at a party and circulated on social media by colleagues can also lead to headaches that continue beyond the hangover. Even a sexually suggestive "Secret Santa" gift can lead to legal problems.

Case in point: Livesey v. Parker Merchanting Ltd [2004].

Religious and philosophical belief discrimination

Although mass consumerism has diluted its origins for many, Christmas is still a Christian religious festival and some of the traditions may potentially cause offence to people who follow other religions, atheists and agnostics.

Under the Equality Act 2010, employers must ensure that staff who hold different religious or philosophical beliefs do not suffer discrimination at a work Christmas party. This might mean providing non-alcoholic drinks (eg for teetotalers or Muslims), halal or kosher meat, vegetarian or vegan meal options. If the event is being framed specifically as a Christmas party, attendance should not be mandatory (ie to avoid causing offence to anyone who does not celebrate Christmas).

Case in point: Elgedawy v Hanover Park Commercial Ltd.

Age, race, disability, sexual orientation, marital status, pregnancy and transsexuality

These are the other protected characteristics, on grounds of which it's unlawful to discriminate under the Equality Act 2010, and employers should take reasonable steps to ensure that staff are not affected by "banter" or inappropriate humour relating to any of these characteristics. Furthermore, if any employees with disabilities are attending, disabled access should be provided at the venue. And if partners are invited, "plus one" invitations should not make assumptions about gender.

Case in point: Nixon v Ross Coates Solicitors & Anor [2010].

Health and safety

Whether the work Christmas party is held on or off-site, the employer will generally still be responsible for the health and safety of their attending employees under the Health and Safety at Work etc Act 1974. As alcohol is often involved, the likelihood of slips and trips can increase, and there is even the possibility of high spirits taking a change of direction and ending up in a fight. Employers should also consider how their staff members will get home safely. Another health and safety concern relates to food, and employees with certain food allergies should be catered for.

Case in point - Westlake v ZSL London Zoo.

Data protection and social media

Mobile phone cameras and social media can bring further festive gloom for employers, who need to ensure they abide by the Data Protection Act 1998. In particular, care must be taken if photos of attendees are posted on social media sites or distributed to colleagues, especially if there are inappropriate or compromising. Also, comments posted to social media feeds by employees whose virtual tongues have been loosened by alcohol may cause post-celebratory issues.

Case in point: Game Retail Ltd v Laws [2014].

Copyright © Alex Heshmaty, legal copywriter and journalist. Alex runs Legal Words, a legal copywriting and marketing agency based in Bristol.

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Putting an end to CV fraud

December 07, 2015 by Guest contributor

Putting an end to CV fraud{{}}In an era of social media where we increasingly share every detail of our lives online, the amount of misinformation that appears on a candidate's CV is extraordinary. From bumping up a poor degree to exaggerating about essential qualifications, it appears that some individuals often play fast and loose with the facts.

For start-ups that are recruiting staff, there's a real danger of employing a fraudulent candidate; and the risks include having to pay for the cost of recruiting another candidate or even legal action.

The solution is to create a culture within your business that values in-depth candidate checking.

In 2014, 63% of all the confirmed employment frauds reported to Cifas, the UK's fraud prevention service, was due to individuals lying about their education, former employment or qualifications.

While most employers and recruitment professionals are aware of the need to verify a candidate’s CV, checking often goes beyond simple verification of academic performance. Many job roles require checks of criminal records, credit history and CRB status.

With staff shortages, many companies are looking to recruit quickly and good candidates can often pick and choose between roles; many start-ups are under pressure to skimp on these vital checks in order to get new staff on board quickly.

The issue is compounded by the fact that once an individual has any kind of employment track record, the temptation is to assume that the previous employer has undertaken the necessary checks.

We often hear of high-profile individuals that have managed to build decade-long careers despite a basic lack of credentials - such former Yahoo boss Scott Thompson who had to step down in 2012 when it emerged that he had falsely claimed to have a computer science degree.

As start-ups struggle to address this, there have been growing calls for the reintroduction of regulation that was abolished 20 years ago. While most employers and recruitment specialists adhere to both the Employment Agencies Act and the Conduct of Employment Agencies and Employment Businesses Regulations, a lack of licensing enables bad practice to persist.

The checking process also needs to be embedded within end-to-end recruitment activity. So rather than a simple "yes" or "no" check-box which provides too much temptation to take shortcuts, companies need a simple way of uploading checks and associated documentation to their database or CRM system.

This way, anyone running the recruitment process in a company can look at a candidate’s information, academic credentials and credit check; even CRB documents will be immediately visible.

Robust checking can add a couple of days to your recruitment process. However, it is only by creating the right culture within your start-up – one that values accuracy and depth of candidate review over speed at any cost - that employers can confidently meet evolving employment targets.

By combining this culture with a recruitment process that enforces compliance and enables essential verification documentation to be easily retained and shared, we can all take steps to eradicate CV fraud.

Copyright © 2015 Toby Conibear, European business director at Bond International Software.

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Understanding the different types of minimum and living wages

November 12, 2015 by Guest contributor

Living wage{{}}As of 1 October 2015, the annual round of National Minimum Wage (NMW) increases came into effect, with the rate for anyone aged 21 and over going up to £6.70 from £6.50. The most significant increase was to the apprentice rate, which was hiked up from £2.73 to £3.30.

But many workers on the minimum wage will not have to wait another year to see further increases. Employees aged 25 years or over will benefit from the new “National Living Wage” (NLW) which is set to be introduced from April 2016 and will override the NMW rates for anyone in this age bracket. Employers will need to pay a minimum of £7.20 per hour to any of their staff who are 25 and over from April. The Low Pay Commission will recommend future rises to the NLW, with the expectation that it will reach £9 per hour by 2020.

NLW is not replacing NMW and the latter will continue to apply to any employees under the age of 25. However, many retailers have pre-emptively raised the pay packets of their lowest earners to the NLW or higher, irrespective of age. Costa are reportedly paying £7.40 to their trained baristas (£8.20 in London) and Aldi has vowed to introduce a new £8.40 minimum rate for its employees from February 2016.

It should be noted that the NLW, which employers will be required to pay by law from April 2016, is distinct from the living wage set by the Living Wage Foundation. The rate set by the foundation - described as “an independent calculation that reflects the real cost of living” - currently stands at £8.25 (and £9.40 in London).

Alex Heshmaty is a legal copywriter and journalist. He runs Legal Words, a legal copywriting and marketing agency based in Bristol. [email protected].

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