Top five considerations for senior employees when negotiating settlement agreements

There are many reasons as to why an employee may leave their employment, including redundancy, poor performance, or simply a desire for change. Whatever the reason, leaving a job can be a stressful process, even for those at the top of the corporate ladder.  Our Employment Law team today reviews a variety of the main issues senior employees will need to consider when negotiating a settlement agreement with their employer, occasionally known as a severance agreement and formally referred to as a compromise agreement.

Compensation figure in a settlement agreement

The amount of compensation is likely to be at the front of many employees’ minds following a dismissal. How much you are entitled to be paid will depend on your contract of employment and the reason for termination, but the following should be considered:

• Pay for your notice period;
• Pension contributions for your notice period;
• Accrued annual leave;
• Redundancy pay; and
• Compensation for waiving any potential claims such as unfair dismissal, discrimination, and whistleblowing.

You may also consider negotiating a continuation of payments under any discretionary bonus or commission scheme, provided you are not already entitled to receive such payments under your contract of employment.

Additional Benefits to be included in a settlement agreement

There may also be some additional contractual benefits, such as private medical insurance and life insurance, which you should consider when negotiating your severance package. Refer to your contract of employment and any accompanying documentation to see if you are entitled to a continuation of any of these benefits after your employment ends, and when they can be expected to stop. 

Many companies also offer share option schemes for their senior executives. Whether you will retain the benefit of your share options may depend on the reason for termination and the relevant rules of the share scheme. The settlement agreement should specify any share option entitlements you have on termination and what will happen to them following termination. In some cases, your employer’s board may have discretion on whether to allow you to exercise your share options on termination and this could be a point of negotiation.

You may also seek to ask for additional benefits not in your contract of employment, but which may help you find another job, such as career coaching, outplacement costs, or funds to pay for retraining.

Notice period specified in your settlement agreement

Where you or your employer have given notice to terminate your employment, one of the first things that will need to be decided is how you will spend your notice period. There are several options, including:

• working your notice period;
• being placed on garden leave for all or part of your notice period; or
• receipt of a payment in lieu of notice.

Whilst it is not up to you to decide whether you will work your notice period, you may have some input. You should therefore give some thought as to what kind of arrangement is best for you. Do you want a clean break, or would you prefer continued employment and benefits for a little while longer? How soon you think it will take you to find a new job, or complete a successful handover, and the length of any post-termination restrictions may be relevant to your decision.

Restrictive covenants within a settlement agreement

It is common for employment contracts for senior employees to contain post-termination restrictions. There are many forms of post-termination restrictions including:

• non-compete, which prevent you from going to work for a competitor;
• non-solicitation, which prevent you from soliciting clients or other employees away from your former employer; or 
• non-dealing, which prevent you from doing business with clients of your former employer.

Though not always enforceable, these clauses can make it more difficult for you to get a job with another employer. You may therefore wish to negotiate out of them, or negotiate a reduction in the period for which they apply.

Reputation and announcement within a settlement agreement

It is important to ensure that you leave your employment with your reputation intact and in the best position to move forward in your career. An agreed departure announcement to remaining staff members and a reference which frames your departure in the best possible light can be invaluable when looking for another job.

Depending on the circumstances of your termination, you or your employer may also wish to have a non-disclosure agreement or non-derogatory clause in place. You should carefully read over any non-disclosure agreement proposed by your employer. If it is broadly worded, this could make it difficult to explain to a future employer why you left. You should also ensure that any non-derogatory clauses in your settlement agreement is mutual.   

It is important to seek legal advice as soon as possible when informed that you are being dismissed from your employment, and before you enter into negotiations. A solicitor can explain your rights to you and may be able to negotiate a more generous severance package. If you need advice or assistance in negotiating a severance agreement, contact our Employment Team today on on 023 8071 7717 or email employment@warnergoodman.co.uk.

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ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.