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How to Advise on Settlement Agreements

November 2, 2017,
Andrew Gray,
settlement agreement
settlement agreement

Andrew Gray offers some tips on best practice for solicitors acting for both employers and employees

Creativity is not something which is normally associated with us solicitors, but I encourage all those who are advising on settlement agreements – either for employers or for employees – to think tangentially. Doing so will be to the benefit of our clients and our pockets.

Unknown unknowns

When presented with the terms of a settlement agreement by your client, please remember that this is not a fait accompli. Most employers and employees have no idea of what is possible in a settlement agreement. With the exception of a few necessary specific terms, a settlement agreement is a standard contract, the terms of which can be pretty much anything (within reason).

We employment law advisers must remember that, just because most law firms use precedent settlement agreements, it does not mean that we must act in such a regimented manner. It is our responsibility to open our client’s eyes as to what is possible. Henry Ford famously said: “If I had asked people what they wanted, they would have said faster horses.” The same applies here. If your client asks for a horse, explain to them that a car is possible, giving them the option.

Negotiate and renegotiate

Particularly when acting for an employee who has been presented with a settlement agreement by their employer, usually out of the blue, you will find that often no negotiations have taken place. Usually an employee client will tell you – with glee – that their ‘beneficent’ employer has agreed to pay you £250 in respect of their legal fees. Next, they will usually tell you that they expect to pay nothing for your services: they have been fired; they don’t have a job; and they won’t pay out of their pocket to the rich lawyer.

The timid among us might accept these instructions. Some would then dust off their firm’s standard precedent advice on settlement agreements (which will have more caveats than a homebuyer’s survey), then sign the adviser’s certificate, never to see the client again. I encourage my firm’s lawyers to challenge our client’s instructions. The poor client is unlikely to have faced such a situation before and, having taken instructions from the employer for so long, they are, in a lemming-like way, taking this final insult without a fight.

Explain to your client that you are a seasoned negotiator and that you are likely to be able to enhance the deal. Offer a fixed fee for renegotiating the terms. Most clients would spend £250 if there was a better than 50 per cent chance that their settlement terms would be enhanced by more than £250. If you manage to squeeze out more money from their soon-to-be former employer, your client will be appreciative.

Departure announcement

In most settlement agreements there is no mention of how the departure of the employee will be handled inside the employer organisation, while complying with the confidentiality clause. The employee has a similar predicament: what to say when asked.

When I explain the confidentiality clause to my clients, I remind them of the maxim from Fight Club: the first rule of settlement agreements is not to talk about settlement agreements; the second rule of settlement agreements is not to talk about settlement agreements.

But this is nonsensical. I encourage all advisers, on either side, to prepare a draft announcement, even for junior employees. Doing so may help all parties to move on.

Timing of the termination

As much as an employee loves a chunk of cash from the former employer, they are often more eager to secure a new job. Securing a new job is infinitely easier when you already have a job. Hasty employers often want to be rid of the employee as soon as possible and are happy to throw some money at them. What if, instead, the employer essentially keeps the employee on garden leave to enable the employee to find a new role?

Explain to your client that you are a seasoned negotiator and that you are likely to be able to enhance the deal

Inevitably, an employee without a new job will demand a larger payment from their employer. An employee with a new job, perhaps now on more money, will treat any payment from the employer as a bonus. A bold employee adviser might even suggest a lower lump sum, but with an extended termination date. That would be novel.

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