For May 2019, we have asked the employment team at Tughans Solicitors to provide practical answers to unusual, sensitive or complex work-related queries. We call this feature “how do I handle it?”  In this article, Jack Balmer, Associate Solicitor at Tughans, offers advice on how employers who wish to pay enhanced redundancy payments can get some certainty around ensuring that no further action is taken by employees once employment ends.  This month’s problem concerns:

“I am the HR Manager of a company going through a restructure which will probably result in redundancies. I would like to offer redundant employees an enhanced package, but with the reassurance that they won’t bring an unfair dismissal or discrimination claim or make statements that damage the company’s reputation after they leave. How do I handle it?”

I will assume that you have correctly established that a genuine redundancy situation exists, and that you are following a fair redundancy process. Redundancy can be a difficult and emotional process for both parties and can result in a complete breakdown of the good-will between employer and employee. In such cases, you are right to consider the risk of litigation and reputational damage which could arise.

There are two main avenues of securing an employee’s agreement to waive any existing or potential claims arising out of their employment or its termination. The first is by entering into an agreement via the Labour Relations Agency (“LRA”), known as a “Conciliation Agreement”. The second is to enter into a “compromise agreement” with the employee directly. Both will require you to provide some form of consideration, usually by way of an “ex-gratia” termination payment. The employee must take independent legal advice to waive claims under the compromise agreement and you will have to consider this when creating a process timeline for your restructure.  Whilst an LRA Conciliation Officer cannot provide the parties with legal advice, the officer can provide information on employment rights, potential claims that could arise, and how compensation could be calculated in the event of a successful claim.  This can aid in the decision-making process and facilitate the completion of a Conciliation Agreement.

To enter into a Conciliation Agreement, you will need to contact the LRA and provide them with relevant details, such as the intended date of termination and what payments the employee is due. Both the employee and the company’s representative will likely have to attend the LRA’s offices to execute the final agreement. This method can be of practical benefit where multiple redundancies are envisaged; the service is free, can be conducted off-site and the LRA may be able to facilitate the signing of multiple agreements on a particular day. You can suggest amendments to the LRA’s standard document, or have your solicitor do this for you.

Much like the Conciliation Agreement, a compromise agreement will set out the arrangements on termination, such as the date employment ends and any payments due. This type of agreement is often more detailed than the standard Conciliation Agreement, dealing with issues such as restrictive covenants, intellectual property, confidential information and agreed announcements or pro-forma references. Because of this, they are preferable for senior employees. As the employee will have to take independent advice, it is common practice for employers to contribute around £250-£350 + VAT towards the employee’s legal fees for doing so.

Once signed, both types of agreement will usually result in an employee waiving all potential claims against your company, arising from their employment or its termination, except for “latent” personal injury claims, claims relating to accrued pension entitlements or to enforce the agreement itself. This will close off any risk of an unfair dismissal or discrimination claim. If you want to prevent a departing employee from making damaging statements about your company, you should instruct your solicitor to include a “non-disparagement” clause in the agreement. Any ex-gratia payment you make to the employee should be contingent on their compliance with this clause. A well-drafted compromise/conciliation agreement will also include a clause which ensures that the agreement, its terms and the circumstances leading to it are confidential.

To avoid the risk of compromising the fairness of your redundancy process, you should only discuss an “exit package” with those employees who have been selected for redundancy. This will reduce the risk of your decision appearing pre-determined. You should set out clearly what payments are due and how they are taxed, keeping in mind the possible £30,000 tax-free allowance for termination payments, and the recently adopted changes around “post-employment notice pay”.

If you are negotiating the terms of the agreement with an employee, you should do so on a “without prejudice” and “subject to contract” basis to reduce the risk of accidentally creating a binding agreement before you’re ready, or your negotiations being admissible as evidence in a court or tribunal. With all of the above in mind, you should consider the benefit of expert legal advice.