What level of contribution to legal costs should be included in the agreement?
Contributions across employment and geographic sectors typcially range between £250.00 plus VAT and £500.00 plus VAT, depending upon the level of seniority, complexity and settlement sums involved.
It normally takes between one and two hours for the employee's adviser to finalise a settlement agreement. We typically advise micro or small business employers to make a contribution of £300.00 plus VAT to smooth the way towards an efficient, cost-effective conclusion.
If the offer has already been agreed in principle, we would normally expect the agreement to be completed by the employee's adviser within the employer's contribution to legal costs. If more substantial amendments are required, including negotiation of a more attractive termination payment, the employee should normally be expected to meet those costs from their own pocket.
Should the business offer to make a contribution to the employee's legal costs?
We typically advise employers to limit the costs contribution to the minimum required for the agreement to be completed efficiently and effectively.
For settlement agreements to be binding in law, it is a statutory requirement for all employees to take independent legal advice on the terms and effect of the agreement from a solicitor or barrister. The statutory requirement is limited to the employee obtaining advice on the terms and effect of the agreement only. The costs contribution does not extend to any earlier discussion or negotiation associated with the proposed termination arrangements or severance payments offered.
To reach a contractually binding agreement, it is almost always in the employer's interest to make a limited contribution to the legal costs of that advice accordingly. It is advisable to inform the employee that the offer includes a sum to cover anticipated legal costs. If a draft agreement has already been prepared it should include a short clause in the body of the agreement setting out the agreed contribution.
How should the legal adviser's invoice be prepared?
The legal adviser should be directed to send an invoice for no more than the limit of the legal costs contribution directly to you in accordance with the relevant clause of the agreement - addressed to the employee but clearly marked payable by the employer.
How should the offer be communicated?
This aspect of the settlement process can be something of a minefield and requires careful handling. You may require redundancy advice or guidance about the impact of any existing or anticipated disciplinary meeting associated with performnace or conduct.
While the circumstances may vary between employees, it is generally advisable to consider summarising the offer verbally in a meeting with the employee, which can lead to potentially valuable concessions or indications of the employee's position before he/she has taken legal advice.
The main financial provisions of the offer should normally then be promptly summarised in writing and provided to the employee clearly marked "without prejudice and subject to contract", with a clear timescale for acceptance of the offer and a brief overview of the process of reaching agreement.
The benefits of drawing up an early settlement agreement include a focus on the key issues important to the business and the liklihood of a swift resolution. We recommend advice at this stage, both in relation to the mechanics of the offer and how it can be safely approached with the particular employee concerned.
What is a Protected Conversation?
Employers may now have a Protected Conversation with an employee about proposed terms of termination of their employment in accordance with Section 111A of the Employment Rights Act 1996.
This means that the offer made and any subsequent discussion about it may not be admissible as evidence in any subsequent unfair dismissal claim. If the employee is not minded to accept the offer, you may safely continue as if the offer had not been made.
As the offer is protected, you may not refer to it in any future communications with your employee and you should advise the employee to refrain from doing the same. It is also advisiable to require the employee to keep the offer confidential and limit any discussion of it largely to their legal and/or immediate family.
How should the termination payments be calculated?
The correct application of income tax and national insurance contributions can make an offer more attractive to the employee and more cost-effective for the employer.
The rules regarding the taxable status of elements of termination payments are not always clear in thie application in each individual case. Payments associated purely with the loss of employment, also known as "ex gratia payments" may be paid free of tax up to £30,000, while other payments for notice periods and holiday are likely to be taxable.
As part of our fixed fee service we advise on which individual payments are properly taxable and which may be paid tax free. We have a settlement agreement calculator for redundancy paymenys, holiday pay, taxable termination payments for lower and higher rate tax payers and others to calculate the correct payment to make and to protect the business from exposure to tax from HMRC.
The cost of drawing up a settlement agreement, formerly known as a compromise agreement, is included in the package.