A Guide to Settlement Agreements Under Irish Law
A settlement agreement, often described as a ‘compromise agreement,’ can be a convenient way for employers and employees to settle any arising or existing disputes between them without the need to revert to the Workplace Relations Commission or Labour Court.
The primary benefit of both an employer and an employee reaching a settlement agreement is a guarantee as to outcome. An employee may take his/her case to the Workplace Relations Commission, often on very strong grounds, but fail to achieve the desire or expected outcome. An employer may be quietly confident that they are in a position to defend the relevant claims of an employee but at what operational, financial and reputation cost?
Very often it is in everybody’s interest, save for the employment lawyer’s intent on litigating the matter, to reach an agreed outcome which will then be enforced through a settlement agreement.
Without Prejudice and Subject to Contract
Typically, the parties working towards a settlement agreement will do so on a without prejudice basis. This means, essentially, that neither party can rely on the negotiation or any terms put forward until such time as all terms are agreed.
It is very often the case that employees are under the belief that the settlement amount offered, under a settlement agreement, can in some way be used as leverage against the employer if the matter progresses to adjudication at the Workplace Relations Commission. This is an erroneous belief as any conversations towards reaching the final agreement are private and confidential as between the parties.
Essential Elements of a Settlement Agreement
It is important at the outset that the settlement agreement correctly identifies the parties. This may seem a given but, in many instances, there can be some ambiguity as to who the official employer is, particularly in circumstances where the employing entity is part of a group structure. Furthermore, the details of the employee may have changes since their initial employment. It is essential that both parties confirm the identifying information given to them.
Very often an employer will look to have the settlement agreement provide cover to any of its associated group companies or affiliates as well as their respective directors, officers, employees or shareholders arising out or in connection with or as a consequence of the employment and/or termination pursuant to the settlement agreement.
Many lawyers will insert a clause to acknowledge that the parties are duly authorised and legally competent in executing the Agreement. Such a clause can be helpful where there may exist some ambiguity as to the identity of the employer particularly in relation to companies which have extensive ancillary networks and confirmation is required that the individual executing the document is a duly authorised agent of the company.
Termination under a Settlement Agreement
A settlement agreement sets out that an employee acknowledges that his/her employment with the employer shall terminate from some agreed affective termination date. It is our experience that, typically, the employee is not required to serve their notice nor does the employer expect the employee to do so. In general, both parties wish to conclude the matter as promptly as possible. Despite this, employers should be mindful that the employee’s entitlement to salary and all other benefits associated with his/her employment shall continue until the effective termination date.
There is often ambiguity as to whether an employee is entitled to any claim submitted and this should be provided for or agreed on in advance.
Settlement Agreements And Tax Under Irish Law
Very often the employer shall seek to pay the employee in lieu of the employee’s contractual notice period entitlement which is often individually listed in the settlement agreement figure. Any payment made to an employee under a settlement agreement is typically subject to deductions of any taxes, levies or charges as required by law. Some employees are often under the mistaken impression that the termination amount shall be a lump sum payable to them without any deductions. It is for the employee’s solicitor to adequately brief them of this fact and, in many instances, advise them to take separate financial advice as to the expected amount they would be in a position to derive from the settlement agreement after relevant deductions are made.
Termination Amount under a Settlement Agreement
For the purposes of calculating a termination payment amount, we typically see employers base their calculation on a multiple of the employee’s monthly salary. The amount agreed on can vary considerably from one settlement agreement to another and is typically determined based on a value the employer places on avoiding potentially contentious proceedings. The more confident an employer considers themselves to be in a position to refute any complaints raised against them, the lower the appetite to make a generous offer.
Typically we see the following line items listed in a termination payment:
- Statutory redundancy payment, if applicable;
- An ex gratia termination payment;
- Payment in lieu of notice;
- Accrued bonus payment, if applicable; and
- Accrued but untaken holiday pay.
It should be noted, as previously mentioned, that the termination payment will be subject to any and all lawful deductions.
Typically, a settlement agreement would include some express language noting that no other sums shall be payable to the employee, or costs incurred, in respect of any other item or matter in connection with the employment relationship to include notice periods, expenses, fees, commission or bonuses. Employees may often raise questions as to whether certain expenses thereto unknown to the negotiating parties will be addressed. Such a clause precludes their future consideration.
Consideration under a Settlement Agreement
The making of an ex gratia payment to the employee comes with the expectation that the employee will accept such payment in full and final settlement, satisfaction, release and discharge of any submitted or future claims, actions or causes of action relating to the employee’s employment with the employer.
Typically, a settlement agreement will specify the statutes that are being alluded to, to include:
- The Redundancy Payments Act;
- The Minimum Notice and Terms of Employment Acts;
- The Payment of Wages Act;
- The Unfair Dismissal Act;
- The National Minimum Wage Act;
- The Organisation of Working Time Act;
- The Protection of Employment Act;
- The Employment Equality Acts;
- The Data Protection Acts;
- The Terms of Employment (Information) Acts;
- The Protection of Employment (Exceptional Collective Redundancies and Related Matters) Act;
- The Protected Disclosures Act;
- The European Communities Protection of Employees on Transfer of Undertakings (Regulations) Acts;
- The Maternity Protection Acts;
- The Adoptive Leave Acts;
- The Parental Leave Acts;
- The Carer’s Leave Act;
- The Protection of Employees (Part Time Work) Act;
- The Protection of Employees (Fixed Term Work) Act;
- The Industrial Relations Act; and
- The Workplace Relations Act.
The settlement agreement shall include a provision that, in the event of the employee breaching the undertakings given and typically without prejudice to any of the other rights or remedies of the employer, the employee shall immediately return to the employer an amount equal to the termination agreed under the settlement agreement.
Very often a settlement agreement will include a clause that commits that the employee will indemnity the employer and keep them indemnified in respect of any Income Tax, levies or PRSI contributions relating to the termination payment under the agreement.
A settlement agreement will typically include a clause to the effect that the agreement itself shall not be construed as an admission of a breach of statute or law by either party or a breach of any duty or obligation by the employer against the employee. Crucially, a settlement agreement is entered into by both parties without any degree of admission of liability to the other.
Non-disclosure Clause in a Settlement Agreement
A settlement agreement will usually include a clause to the effect that the terms of the agreement are confidential as between the employer and the employees and that neither shall divulge or publish, directly or indirectly, any information whatsoever regarding the substance, terms or existence of the agreement.
Such a requirement can be breached to the extent as so required under law or court order or by a governmental administrative body of a competent jurisdiction. Typically some leeway or latitude is given to permit the employee to notify or acknowledgement the existence of the settlement agreement to immediate family members, legal and other professional advisors.
Pensions and Benefits Considerations under a Settlement Agreement
A settlement agreement will typically terminate the employee’s active membership of any pension scheme related to his/her employment with the employer. It should be acknowledged that the employer will cease to make any contribution to any pension, disability, death in service benefit and life insurance for and in respect of the employee from the termination date.
Employees are generally advised to seek the advice of an independent pension and benefits professional.
Return of Company Property
A settlement agreement should include a clause whereby the employee agrees that, on or before the close of business of the termination date, as required or requested by the employer, to deliver to the employer such property, equipment, records, correspondence, documents, files and any such other information relating to the employee’s employment or otherwise belonging to the company.
Very often a settlement agreement will include such language that the employee confirms that he/she has not taken any unauthorised copies of any papers or documents from the company.
Independent Legal Advice
It would be a substantial risk for an employer to permit an employee to enter into a settlement agreement without that employee having received independent legal advice. Therefore, virtually all settlement agreements will include a provision to the effect that the employer has provided a contribution to the legal costs of the employee in seeking legal advice. It is advisable that the name of the solicitor and his/her firm is included in the settlement agreement for an extra lawyer of security.
Usually, the employer will request that the advising employee’s solicitor sends his/her invoice to the employer directly therefore providing the employer with proof of payment.
Non-Disparagement after a Settlement Agreement
A majority of settlement agreements shall include such language that neither the employee nor the employer shall make any negative or adverse remark, whatsoever, concerning the other party. To give comfort to the employer, such language is often inserted to ensure that this clause applies to the employer’s other employees, directors, officers, agents or shareholders.
Typically, a commitment is given by the employer that it shall use its reasonable endeavours to ensure that neither of its employees, shareholders, directors, officers or agents shall make any negative or adverse remarks concerning the employee.
Typically, an employee will seek a reference from the company on or before departure.
In order to prevent any future disagreement, it is advisable that the specific language to be provided by way of the reference is agreed and inserted in an annex to the main settlement agreement.
An employee may take his or her case to the WRC, but fail to achieve the desire or expected outcome. Very often, employers feel as if they are already on the back foot, when defending claims within, what they perceive as, the “employee-friendly forum” of the WRC.
As previously mentioned, the primary benefit of both an employer and an employee reaching a settlement agreement, on foot of a workplace dispute is to guarantee a known outcome for both parties.
The terms of that agreement are for both parties to negotiate, which is why it is critical for both the employer and employee, to seek sound independent legal advice, as to their rights and obligations. Employers or employees seeking guidance on settlement agreements should contact a knowledgeable Employment Law Solicitor.
Barry Crushell is a Partner in the Dublin office of Tully Rinckey and Chief Operating Officer for European Operations. Tully Rinckey Ireland provides a wide range of Irish and international clients the full spectrum of legal services they need to achieve their commercial objectives in an increasingly complex and globalized world. Our lawyers advise clients across multiple practice areas, including business, corporate, corporate immigration, employment, intellectual property and tax law.