Udidwot! - Handling a Settlement Agreement

Dear Rosalie

I agreed to let a Manager go with a settlement. Unfortunately, the people responsible for implementation had no experience of this and I was on holiday. They gave the Manager ten days to consider the deal, but announced that she was going and the name of her successor after five days. They also offered her £30,000 free of tax, but forgot that as a long serving person she is also entitled to 12 weeks’ notice pay, which I think ought to be taxed. She is not happy!

Rosalie replies:

You are in difficulty on both fronts.

The ACAS Code of Practice allows employees ten calendar days to consider a written offer. By announcing very prematurely, your people have shot themselves in the foot. It means that there is no way to pretend that she has a choice, and probably removes what protection you had about being able to keep this confidential, if she goes to Employment Tribunal for unfair constructive dismissal.

It is not unusual for Managers to be impatient to say something, but that is normally covered in the first instance by some agreed wording about “X is reconsidering her future” or “X is off work due to personal reasons”. An agreed announcement to go out immediately after the Agreement is signed, is a common part of the final Agreement, but only afterwards, not during the negotiations.

It is not permissible to avoid paying tax and national insurance on the notice pay element of a Settlement Agreement. If you had not made the error of your badly timed announcement, then your chances have now gone of passing the taxation issue off as an error, which might have been easily remedied with a bit of apology and explanation.

Settlement Agreements are not a DIY activity, as they need to be legally right and personalised to the individual and their circumstances. To be valid it needs to be signed by their solicitor, who are mostly pragmatic to get a deal done efficiently, they are supposed to look after their client’s interests. If you are unrealistic in your expectations, annoy the employee or just ’screw-up’, they will smell blood and negotiate hard for an much improved financial deal. Having a professional handle a Settlement Agreement demonstrates that an organisation is taking the Agreement seriously, both for them and the employee, and we work hard to make our Agreements easy to understand and sign.

Given the mishandling of the situation so far, you would be advised to try and make the best of a bad job. You should revise your offer to £30,000 plus the notice pay (minus tax and NIC deductions on the notice pay). You will probably need to apologise and issue some sort of corrective announcement/apology, although she may decide that ‘least said - soonest mended’ is her preferred approach. If you only have to concede on these points, you will have done well to limit the damage, caused by your ‘inexperienced’ Managers.  Use this as a learning experience, so that going forward you always get professionals involved in settlement agreements who know what they are doing.

The guidance provided in this article is just that - guidance. Before taking any action make sure that you know what you are doing, or call us for specific advice.