Further to our recent posting on settlement agreements, a recent EAT case provides some useful points for Employers who may wish to utilise this method when dealing with an employee.
As previously highlighted a settlement agreement is most commonly used at the end of a redundancy or disciplinary process. The employer will look to make an ex gratia payment to the employee in addition to their statutory entitlements (notice pay, accrued annual leave etc.) and in return the employee will waive their entitlement to take a claim against the employer.
This quid pro quo is used normally in cases where the dismissal of the employee is not legally justified, and the employer is adamant they wish to dismiss. it can be beneficial to the employer as it can be money well spent when looking to restructure the business, or to avoid costly litigation on a matter.
The Employee can also benefit considerably from this as they can avail relatively quickly of a tax efficient financial settlement, whereas were they to pursue the matter in tribunal it could take upwards of a year for a hearing date and up to six months for a decision to be published. It also reduces stress and allows an employee to move on with their career without receiving any adverse publicity on their professional reputation.
In the recent case of Burke v Langton Hotel Limited (UD836/2010) the employer was engaged in a re-organisation of the work in late 2008, and informed the employee (as well as fellow employees) that in order to maintain a full working week it may be necessary to carry out additional duties, and asked that employees reply as to their willingness to undertake additional duties. The employee, employed as a store manager, gave no such reply and in 2009 when faced with making one of two employees redundant the Director based selection on employee flexibility and the employee was made redundant.
The employee addressed the matter with his trade union, who arranged a meeting between the employee and the employers. Both parties were in separate rooms with the union liaising between them. The union informed the employee that the employer was not of a mind to change their decision and that they were offering a redundancy package with an exgratia payment on the basis that he signed a settlement agreement, and that he should consider this. the following day the employee was informed that if he did not sign the agreement there would be no ex gratia payment, and the employee signed the agreement.
The document stated that he was entitled to seek independent legal advice and the Trade Union explained to him that in return for the money he would be signing away his rights and would have no come back. in the case of Talbot (Ireland) Ltd v Minister for Labour and Others [1985] 4 JISLL 87 we see this being fundamental to any agreement being declared valid as Barron J stated “anyone with full knowledge of his or her legal position is fully entitled to enter into any bargain he or she wishes and there is nothing in the Redundancy Payments Act 1967 to the contrary”
In their determination the tribunal noted that the employee was informed of their requirement (albeit not in writing) to get legal advice, and whilst the tribunal had "s0me concern as to the extent of the advice, if any, received by the appellant on the entitlement being waived, his evidence to the Tribunal was that he understood the document."
The Tribunal dismissed the claim as being heard on the basis that the settlement agreement expressly forbid this, however they also stated that the redundancy was in the Tribunals eyes genuine and that the employee was fairly selected for redundancy.
As highlighted earlier this case is useful for employers as there needs to be some sort of communication with the employee as to what this agreement means and the potential effects of signing such an agreement, as Settlement agreements by their nature are in direct contravention of the Unfair Dismissals Act, 1977, and Bunreacht Na hEireann as it bars an employees constitutional right of access to the courts. However they are valid where the employee enters into the agreement in full knowledge of their legal position.
