The High Court’s decision in Dixon v GlobalData Plc highlights the risks associated with informal promises and unclear drafting in settlement agreements, particularly where share options and discretionary powers are involved. The case revolved around whether a former employee was entitled to retain and exercise his share options after leaving the company, based on verbal assurances and ambiguous settlement terms.

What happened in this case?

The Claimant was a long-serving employee of Canadean Ltd, a market research firm later acquired by GlobalData. During his exit negotiations, the Claimant received verbal and written assurances from the group’s CEO, Mr Pyper, that he would retain his share options, and they would “vest in line with current conditions.” The options were subject to performance targets being met.

Relying on Mr Pyper’s assurances, the Claimant agreed to settlement terms under which his employment would be extended by four months beyond the initial proposed termination date, and he would be bound by post-termination restrictive covenants. The assurances about the share options were also incorporated into the settlement agreement. The Claimant assumed that this meant the position regarding the share options was “watertight.”  He did not review the underlying share plan rules, nor were they mentioned during negotiations.

The share options were divided into three tranches.

 

• The first tranche of share options vested before the Claimant’s employment ended in 2014 and the Claimant went on to exercise these options.  There was no dispute about this tranche.

 

• The Claimant attempted to exercise the second tranche of share options in 2020. However, the company argued that his options had lapsed when he left the company because the necessary discretion had not been exercised to permit the continued exercise of the share options post-termination. The Claimant sought an order that he was either entitled to exercise the options or receive damages.

 

• Due to the impact of COVID, it was clear that the performance targets for the third tranche of options would not be met, meaning that those options would lapse. In response, in 2020, the company introduced a replacement share plan to compensate the affected employees, including those who had left employment and had approved good leaver status. The Claimant was excluded from the replacement plan on the basis that the company believed his options had lapsed when he left the company. The Claimant argued that he was entitled to participate in the new scheme and, if not, his exclusion amounted to an irrational exercise of discretion for which he should be compensated.

 

What was decided?

The Court addressed several key issues:

Had discretion been exercised under the share plan in the Claimant’s favour?

Rule 7.1 of the share plan allowed the grantor to exercise its discretion to permit the continued exercise of options post-termination. The Claimant’s position was that Mr Pyper had exercised the rule 7.1 power. However, the Court found there was no evidence that Mr Pyper had sought to do this. To exercise the power, Mr Pyper would have had to specify the basis on which the options might be exercised, and he did not do this. Even if he had purported to exercise the power, it would have been invalid on the grounds of uncertainty.  Therefore, there had been no exercise of discretion permitting the Claimant to retain his share options and exercise them post-termination.

Did the CEO have authority to exercise the discretion?

Because discretion had not been exercised in the Claimant’s favour, the Court did not need to consider the question of whether Mr Pyper had the authority to exercise such discretion. However, the Court made some useful remarks on this point which are worth noting.

On the facts, it was clear that Mr Pyper would not have had actual authority to exercise the discretion. There was no evidence that the Board of the company had authorised him to do so. Yet the Court said that, given his seniority, it was likely that Mr Pyper would have had ostensible authority to exercise the discretion. This would have bound the company had the discretion been exercised.

If the Claimant did not retain his share options, was the equitable remedy of proprietary estoppel available to him?

In the alternative, the Claimant claimed a remedy based upon “proprietary estoppel.”  To succeed in such a claim, three elements must be satisfied:

 

• a clear and unequivocal assurance or representation;
• reasonable reliance on that assurance; and
• substantial detriment resulting from that reliance.

 

The Court found that all three elements were present. Mr Pyper’s assurances were sufficiently clear and unambiguous. The Claimant’s reliance upon the assurances was reasonable, given the overall context and his understanding. And finally, the detriment he suffered was substantial, namely, working for four additional months and agreeing to be bound by post-termination restrictive covenants. The company had acted unconscionably in not giving effect to Mr Pyper’s assurances. Therefore, the claim succeeded.

Did the “Micklefield” clause in the share plan defeat the claim of proprietary estoppel?

The company argued that rule 14 of the share plan prevented claims for loss of benefits due to termination (often referred to as a “Micklefield” clause). The company argued that this clause barred the proprietary estoppel claim. The Court disagreed, finding that the Claimant was not claiming loss due to termination. Instead, he was seeking relief in equity for the denial of promised rights, meaning rule 14 was not engaged. Even if it was, the Court said that the assurance made by Mr Pyper implicitly included a promise not to rely on rule 14. Therefore, the Micklefield clause did not defeat the claim.

Remedy

The question of remedy is to be determined at a later date, although the Court indicated that the Claimant would have been entitled to exercise the second tranche of share options had the assurance been honoured. The burden is on the company to prove that this would be disproportionate.

The position on the third tranche – which related to a new scheme introduced after the original plan had expired – was less clear and would be addressed separately.

What are the learning points?

This decision has wide-ranging implications for both employers and employees.

Key takeaways for employers include:

 

• Avoid making assurances unless they align with rules of the relevant share plan: equity awards are not just a matter of plan rules and contracts. As this case demonstrates, they are also be governed by equitable principles. You may find that an informal verbal promise made by a senior leader, or wording in a settlement agreement which does not reflect the position under the share plan, is enforceable through proprietary estoppel (and a Micklefield clause will not come to the rescue). If you intend to offer post-termination benefits, make sure this is clearly documented and consistent with the share plan rules.

 

• Exercise discretion properly: if discretion is required under a share plan, it must be exercised formally. Be clear on the conditions, basis, and timing of the exercise. Remember that senior leaders in the business may be deemed to have ostensible authority to bind the company in this respect.

 

• Think beyond exits: this case is not just relevant to exit negotiations. It potentially has implications for recruitment, retention bonuses, deferred compensation, and any situation where an employee relies on a promise of future benefit. Employers must consider whether their actions could give rise to proprietary estoppel even in the absence of a formal contract.

 

Key takeaways for employees include:

 

• Check the share plan rules thoroughly: understand the leaver provisions and what is required for a valid exercise of discretion permitting the retention of share options post-termination.  Ask to see evidence that the discretion has been so exercised, for example, request a copy of the relevant Board resolution.

 

• Make sure the settlement agreement drafting is watertight: do not assume that merely referencing the retention of share options in a settlement agreement is sufficient.

 

• Get the right parties on board: if the discretionary power lies with a parent company, it is advisable to either make them a party to the settlement agreement, obtain separate legally binding assurances from them or require the employing entity to procure a parent approval. Otherwise, the agreement may be unenforceable or lead to disputes.  If Board approval is required, then the employer should be asked to confirm that it has in fact been obtained. 

 

• Protect your future position: consider including protective drafting in the settlement agreement to ensure you are entitled to benefit from any favourable variation to performance conditions and to participate in any replacement scheme or benefits offered by the employer after you have left. For example, seek to include wording that you will be treated no less favourably than active employees.

 

Dixon v GlobalData Plc

BDBF is a leading employment law firm based at Bank in the City of London. If you would like to discuss any issues relating to the content of this article, please contact Paula Chan (PaulaChan@bdbf.co.uk), Amanda Steadman (AmandaSteadman@bdbf.co.uk) or your usual BDBF contact.

 

On 1 October 2025, new legislation will come into force affecting the use of non-disclosure agreements (NDAs) in England and Wales.

Below, we set out a brief reminder of the current position on NDAs and the changes of which employers should be immediately aware. For further background on these changes, and for full information on the broader changes to NDAs expected under the Employment Rights Bill, see our full briefing here).

What is the current law on NDAs?

NDAs have become an increasingly common feature of employment related agreements, often used as part of settlement agreements on an employee’s exit or to otherwise bring disputes to a close. From both an employer and employee’s perspective, they can provide security regarding the use of confidential information and the privacy of a dispute, in many cases providing much needed closure for those involved. However, campaigns have highlighted concerns that such provisions are being misused to silence victims of serious workplace misconduct or cover up other wrongdoing.

Whilst the existing law prevents NDAs from prohibiting individuals from whistleblowing, or from making disclosures to the police and/or regulatory bodies where the complaint relates to a criminal offence, their use is otherwise broadly unregulated.

What is changing on 1 October 2025?

Under the Victims and Prisoners Act 2024, individuals will be able to make a “permitted disclosure” in specified circumstances, even if they signed an NDA that would ordinarily prevent their doing so. To the extent that the NDA purports to restrict this, the relevant term will be void..

This will come into force on 1 October 2025 and apply to all NDAs that are signed on or after that date. NDAs that already exist or which are signed before this date will not be caught.

What is a permitted disclosure?

A “permitted disclosure” is a disclosure made by a “victim of crime” (or a person who reasonably believes that they have been a victim of a crime) about criminal conduct, where that disclosure is made to certain specified persons or regulatory bodies.

A “victim of crime” means someone who has suffered harm as a direct result of being subjected to conduct constituting a criminal offence in England and Wales, or as a direct result of witnessing the criminal conduct. There are also other limited categories of connection with the criminal conduct, concerning familial relationships. The offence in question does not have to have been reported and no charge or conviction is required to have occurred. The harm suffered can be physical, mental, emotional or economic.

The specified categories to whom a permitted disclosure can be made about the relevant conduct are:

• Law enforcement.
• Qualified lawyers.
• Any regulated professional or regulator of professionals.
• Victim support services.
• Any individuals who are authorised to receive information on behalf of the above categories.
• Any child, parent or partner of the individual making the disclosure.

In each case, the disclosure is only a qualifying permitted disclosure where it relates to the relevant criminal conduct and is made for the purposes of obtaining support from the relevant function (or, where relevant, co-operating with their functions). For instance, sharing information with a qualified lawyer will only be a permitted disclosure where it is for the purpose of seeking legal advice about the relevant conduct. Where the recipient is a child, parent or partner, the disclosure must be for the purposes of obtaining support from that person.

Importantly, an NDA will not be prohibited to the extent that it precludes disclosures made for the primary purpose of releasing information into the public domain, for example to the media.

What does this mean for employers?

In many cases, employers are already prepared for employees not to be bound by NDAs when it comes to criminal or potentially criminal conduct. Such cases would often already be caught by whistleblowing exceptions.  Further, any NDAs negotiated by legal advisers must not prohibit reports to professional advisers, co-operation with a criminal investigation or reports to regulatory bodies and law enforcement agencies.

However, there are some important differences between the current restrictions and those which will be in force from 1 October 2025. Employers should particularly bear in mind the following:

• A worker may be considered a victim where they have been, or reasonably believe they have been, subject of criminal conduct. In the workplace, this could include serious acts of harassment (including sexual harassment), theft, violence or fraud. Any witnesses to such conduct would also be included, and the fact that no police report was ever made will not affect their protection. This could capture a broader range of individuals than employers may anticipate, particularly in cases of unproven allegations or disputed accounts of events.

• Unlike in the existing whistleblowing exceptions, there is no requirement for the permitted disclosure to be made in the ‘public interest’. This broadens the scope of what can be permissibly shared, particularly where information is shared for the purposes of obtaining legal, medical or personal support. Disclosure of criminal conduct to any of the regulatory categories of recipient is generally likely in any case to be in the public interest.

In light of these changes, employers will therefore need to review their current confidentiality clauses such as those contained in settlement agreements, employment contracts and any stand-alone NDAs, and remove (or clarify) any provisions that appear to preclude permitted disclosures under this new legislation.

BDBF is a leading employment law firm based at Bank in the City of London. If you would like to discuss any issues relating to the content of this article, please contact Rose Lim (RoseLim@bdbf.co.uk), Amanda Steadman (AmandaSteadman@bdbf.co.uk) or your usual BDBF contact

In Clifford v IBM UK Ltd the EAT upheld a decision to strike out a discrimination claim, holding that a waiver of future discrimination claims contained in an earlier settlement agreement was effective.

What happened in this case?

The claimant, Mr Clifford, started working for IBM in 2001 and began a period of extended sick leave in 2008.   In 2012, he raised a grievance about the fact that IBM had not increased his salary or paid holiday pay to him during his sickness absence.  He said this amounted to disability discrimination and he asked to be moved onto IBM’s disability plan (the Plan).  Under the Plan, Mr Clifford would be paid 75% of his former salary until the earlier of recovery, retirement or death.  

In 2013, Mr Clifford and IBM entered into a settlement agreement under which IBM agreed to:

• pay a sum to settle the complaint about the unpaid holiday pay, however, no payment was to be made in respect of the unawarded pay rises;
• place Mr Clifford on the Plan, under which he would receive around £54,000 per year until retirement (and the terms of the Plan stipulated that any pay increases were to be at IBM’s discretion); and
• pay employer pension contributions based upon his full salary of around £72,000.

In exchange, Mr Clifford agreed: 

• to waive his rights to bring claims about the matters raised in his grievance or any other claims that he had against IBM; 
• to waive his rights to bring any future claims that he may have connected to the matters set out in the grievance and/or the transfer to the Plan; and
• to waive his rights to bring a long list of other possible claims;

Yet, in 2022, Mr Clifford brought claims against IBM, alleging that it was discriminatory (and also a breach of working time rules) to have paid only 75% of his previous salary to him throughout the year.  He said he was entitled to 100% of pay in respect of periods of annual leave, which meant that IBM owed him around £69,000.  He also claimed that it was discriminatory not to have awarded pay increases to him while he was on the Plan.  He argued that the Plan was intended to give security to disabled employees, but inflation had reduced the real value of the benefit.  

IBM applied to have the claims struck out arguing, amongst other things, that they were precluded by the waivers contained in the settlement agreement, which extended to future claims concerning similar matters raised in the grievance or the transfer to the Plan.  Mr Clifford sought to resist the strike out, pointing to the EAT’s decision in Bathgate v Technip UK Ltd, which said that settlement agreements cannot settle unknown future claims.  Mr Clifford also argued that both the blanket waiver (which purported to waive all and any claims) and the kitchen sink waiver (which purported to waive all claims set out in a long list of claims) were ineffective.  Therefore, Mr Clifford said that the waivers in the settlement agreement were invalid and did not prevent him from pursuing the claims.

The Employment Tribunal Judge struck out the claims, holding that future claims about holiday pay and pay increases had been expressly waived in the settlement agreement and that waiver was effective.  The Judge distinguished the EAT’s decision in Bathgate, which was directed at future claims which had not yet arisen and were truly unknowable.  By contrast, in this case, the issues of holiday pay and pay increases were known about at the time of entering into the settlement agreement and had been raised in Mr Clifford’s grievance and subsequent appeal.  The settlement agreement was clear that he could not bring future claims arising out of similar matters to those that had been settled. 

Mr Clifford appealed to the EAT.

What did the EAT decide?

It is worth noting that between the Employment Tribunal and EAT hearings in this case, the EAT’s decision in Bathgate(which had been relied upon by Mr Clifford) was overturned by the Scottish Court of Session.  The Court of Session held that the Equality Act 2010 permitted the settlement of unknown future claims, provided that the claims are clearly particularised and the objective meaning of the word used encompasses settlement of the relevant claim.  However, a general waiver of all claims would not be sufficient.  You can read our full briefing on the Court of Session’s decision here.

The EAT dismissed Mr Clifford’s appeal, holding that his claims were precluded by the waiver in the settlement agreement.  The EAT reached the following conclusions:

• The EAT agreed with the Court of Session in Bathgate that there was nothing in the Equality Act 2010 which precluded the settlement of unknown future claims, provided that clear language was used.    Here, the waiver wording had clearly covered future discrimination claims connected to Mr Clifford’s grievance and/or transfer to the Plan.  

• Although the Equality Act 2010 stipulates that settlement agreements must relate to “particular complaints”, Bathgate (and previous authorities) had made it clear that this requirement does not mean the parties must have known about the complaint or that its grounds were in existence at the time of entering into the agreement.  If Parliament had intended to prevent the settlement of unknown future claims then it could have spelt this out in the Act, but it had not done so.   

• Nor was there any basis for distinguishing Bathgate from Mr Clifford’s case – both concerned future discrimination claims that had not arisen at the time the settlement agreement was entered into.  The fact that Mr Bathgate’s employment had ended, and Mr Clifford’s employment was continuing, was not pertinent.

• The EAT also noted the Court of Appeal’s decision in Arvunescu v Quick Release (Automotive) Ltd, where it held that future claims may be settled by way of a COT3 agreement.  The EAT held there was no sensible basis upon which to distinguish COT3 agreements and settlement agreements in this respect.  You can read our full briefing on the Court of Appeal’s decision in Arvunescu here.

In any event, even if the waiver had not been valid, the claims had no reasonable prospect of success on the basis that a failure to increase an already very generous benefit would not have amounted to discriminatory treatment. 

What are the learning points for employers?

This decision makes it clear that unknown future discrimination claims may be settled by way of a settlement agreement, provided the claims are particularised in the agreement, either by way of a generic description of the claim or by reference to the relevant statutory provision.  Helpfully for employers, this decision is binding on Employment Tribunals, whereas the similar decision of the Scottish Court of Session in Bathgate was only persuasive.  

However, employers should take care not to rely on general waivers of all claims – these continue to be unenforceable. 

BDBF is a law firm based at Bank in the City of London specialising in employment law.  If you would like to discuss any issues relating to the content of this article, please contact Principal Knowledge Lawyer Amanda Steadman (amandasteadman@bdbf.co.uk) or your usual BDBF contact.

Clifford v IBM UK Ltd

In Clifford v IBM UK Ltd an Employment Tribunal Judge has ruled that a waiver of future claims contained in a settlement agreement was effective, meaning that the claimant’s claims were struck out.

What happened in this case?

The claimant, Mr Clifford, started working for IBM in 2001.  He was disabled and began a period of extended sick leave in 2008.   In 2012, he raised a grievance about the fact that IBM had not increased his salary or paid holiday pay to him during his sickness absence.  He said this amounted to disability discrimination and he asked to be moved onto IBM’s disability plan (the Plan). Under the Plan, Mr Clifford would be paid 75% of his former salary until the earlier of recovery, retirement or death.  

In 2013, Mr Clifford and IBM entered into a settlement agreement under which IBM agreed to:

• pay £8,685 to settle the complaint about the unpaid holiday pay, however, no payment was to be made in respect of the unawarded pay rises;
• place Mr Clifford on the Plan, under which he would receive around £54,000 per year until retirement (and the terms of the Plan stipulated that any pay increases were to be at IBM’s discretion); and
• pay employer pension contributions based upon his full salary of around £72,000.

In exchange, Mr Clifford agreed: 

• to waive his rights to bring claims about the matters raised in his grievance or any other claims that he had against IBM; 
• to waive his rights to bring a long list of other possible claims;
• not to raise any further grievances where such grievances were “substantially similar” to the original grievance; and
• to waive his rights to bring any future claims connected to the matters set out in the grievance or the transfer to the Plan. 

Yet, in 2022, Mr Clifford brought claims against IBM, alleging that it was discriminatory (and also a breach of working time rules) to have paid only 75% of his previous salary to him throughout the year.  He said he was entitled to 100% of pay in respect of periods of annual leave, which meant that IBM owed him around £69,000.  He also claimed that it was discriminatory not to have awarded pay increases to him while he was on the Plan.  He argued that the Plan was intended to give security to disabled employees, but inflation had reduced the real value of the benefit.  

IBM applied to have the claims struck out arguing, amongst other things, that they were precluded by the waivers contained in the settlement agreement, which extended to future claims concerning similar matters raised in the grievance or the transfer to the Plan.  Mr Clifford sought to resist the strike out, pointing to the recent EAT decision in Bathgate v Technip UK Ltd, which said that settlement agreements cannot settle future claims which had not arisen at the date of the agreement and that both blanket waivers (which purport to waive all and any claims) and kitchen sink waivers (which purport to waive all claims set out in a long list of claims) were ineffective.  Therefore, Mr Clifford said that the waivers in the settlement agreement were invalid and did not prevent him from pursuing the claims.

What was decided?

The Employment Tribunal Judge struck out the claims, concluding that they had no reasonable prospect of success. 

As far as the claims concerning holiday pay were concerned, the transfer of Mr Clifford to the Plan amounted to a consensual variation of contract, under which all the normal features of the employment contract disappeared, and he only had the right to be paid 75% of his previous salary throughout the entire year.  Therefore, pay for any holidays would have been at the rate that he was actually paid.   

As to the claim concerning the failure to award a pay increase, the Employment Judge said that, properly understood, this was a complaint that the benefit was not generous enough.  The Plan conferred no right to a pay increase, only a discretion to award an increase.  However, Mr Clifford had not sought to argue that IBM had exercised its discretion in a capricious or arbitrary way – his only claim was for disability discrimination.  The Judge said that the terms of something which is only given as a benefit to disabled workers, and not to non-disabled workers, cannot amount to less favourable treatment related to disability.  Rather, it is more favourable treatment.

In any event, future claims about holiday pay and pay increases had been expressly waived in the settlement agreement and that waiver was effective.  The Judge distinguished the decision in Bathgate, which was directed at future claims which had not yet arisen and were truly unknowable.  By contrast, in this case, the issues of holiday pay and pay increases were known about at the time of entering into the settlement agreement and had been raised in Mr Clifford’s grievance and subsequent appeal.  The settlement agreement was clear that he could not bring future claims arising out of similar matters to those that had been settled. 

What are the learning points for employers?

It is worth noting that the Judge did not go as far as saying that all types of future claims could be waived in settlement agreements.  Indeed, he said that whether or not future claims could be settled as a matter of principle was an “academic dispute” in the context of this claim.  Here the “future claims” which were held to have been validly waived arose out of matters which were well known to the parties and had been the subject of a grievance, appeal and settlement agreement.  This put them in a different category to claims concerning matters which had not yet arisen, and which were truly unknown.  

The Judge also sought to introduce public policy considerations into the debate.  He drew a distinction between settling a future holiday pay claim and settling a future sexual harassment claim.  There was every reason of public policy for the settlement of past holiday pay claims to extend to future claims on the same issue, otherwise the employer would be compelled to litigate rather than settle.  By contrast, it would “inevitably be contrary to public policy” if a claimant settling a sexual harassment claim was prevented from bringing a future sexual harassment claim, since this would doom them to suffer future harassment without remedy. 

Where does this leave employers entering into settlement agreements? 

• Actual claims and complaints can settled and must be identified in the settlement agreement either by a description of the claim or reference to the relevant statutory provision.

• Future claims that are known and in existence at the point of settlement (but about which no complaint had been raised) may be settled, provided that a description of the claim or the relevant statutory provision is included in the settlement agreement.

• The recent decision of the Court of Appeal in Arvunescu v Quick Release (Automotive) Ltd suggests that future claims that are unknown but in existence at the point of settlement may also be settled.  However, that case concerned settlement by way of a COT3 agreement, where blanket waivers are permitted.    You can read more about the Arvunescu decision here.

• This latest decision suggests that future claims that are a known risk but not in existence may also be settled provided that they are expressly addressed in the settlement agreement and there are no public policy reasons why that should not be the case.  However, this is a first instance decision and does not bind other Tribunals so it is possible that a case with similar facts would be decided differently by another Tribunal.

• Claims which are unknown and not in existence are truly unknowable and may not be settled according to the decision in Bathgate.

BDBF is a leading law firm based at Bank in the City of London specialising in employment law. If you would like to discuss any issues relating to the content of this article, please contact Amanda Steadman (AmandaSteadman@bdbf.co.uk) or your usual BDBF contact.

Clifford v IBM UK Ltd

In the recent case of Scheldebouw BV v Evanson, the EAT upheld an Employment Tribunal’s decision that a settlement offer made by an employer in the context of amicable exit discussions was not “without prejudice” because there was no dispute between the parties at that stage.  Accordingly, the fact of the offer could be referred to in Tribunal proceedings.  

What happened in this case?

Mr Evanson worked for Scheldebouw BV as its Chief Risk Officer from January 2005 until his dismissal on 19 March 2019.  

In 2018, the company decided that it no longer needed a Chief Risk Officer and so it initiated exit discussions with Mr Evanson.  A meeting was held on 12 October 2018.  Neither party asked that the meeting be held on a without prejudice basis.  A “gentlemen’s agreement” was reached on the majority of the exit terms, save for the sum to be paid in respect of accrued but untaken holiday.  

In the meeting, the company offered to pay the sum of £68,000 in lieu of the unused holiday, yet Mr Evanson believed he was entitled to more.  However, the parties were confident that the holiday pay issue could be resolved, and they agreed to enter into a settlement agreement.  In December 2018, a draft settlement agreement was prepared and sent to Mr Evanson.  However, a final agreement was not achieved, and the company eventually dismissed him in March 2019.  

Mr Evanson claimed unlawful deductions from wages in respect of the unpaid holiday.  In his claim form, he referred to the company’s initial offer of £68,000.  The company applied to have this removed from the claim on the grounds that the offer had been “without prejudice” – meaning it was off the record and should not be before the Employment Tribunal.

What was decided?

The Employment Tribunal disagreed with the company, finding that the offer was not truly “without prejudice”.  In order for without prejudice privilege to apply, it is necessary for the parties to be attempting to resolve a “dispute”.   At the point that the offer of £68,000 was made, it could not be said that the parties were in dispute.  The parties were confident that exit terms would eventually be agreed and did not contemplate (and could not reasonably have contemplated) that litigation would follow if an agreement could not be reached.  It was only after the draft settlement agreement was rejected that a dispute arose.  

The company appealed to the Employment Appeal Tribunal (EAT). However, the EAT upheld the Tribunal’s decision and said the offer of £68,000 was not off the record and, therefore, could be referred to in Mr Evanson’s claim.  Importantly, the EAT found that the decision to enter into a settlement agreement was made for commercial reasons and did not indicate that litigation was in contemplation. 

What are the learning points for employers?

In order for without prejudice privilege to be engaged, a settlement offer must be aimed at resolving an existing “dispute”.  A dispute will always exist once litigation has started.  However, a dispute may also exist before litigation has started if the parties had contemplated (or might reasonably have contemplated) that litigation would follow if settlement was not forthcoming.  It is not necessary for a threat of litigation to have been made in order for the parties to reasonably contemplate that litigation may follow.  

However, where the parties did not contemplate (or could not reasonably have contemplated) that litigation would follow if the negotiations fell apart, then a dispute will not exist.  Against this background, simply labelling a settlement discussion, letter or agreement as “without prejudice” will not be enough to engage without prejudice privilege.

Where there is no dispute, there remains the ability to have “pre-termination settlement discussions” under section 111A of the Employment Rights Act 1996.  However, these discussions are off the record for the purposes of ordinary unfair dismissal claims only and could still be referred to in other types of claim, such as discrimination claims.  Therefore, it is better to ensure that without prejudice privilege applies wherever possible, since this will protect the communications from disclosure in any proceedings.  

If you are unsure about whether you are in “dispute” with a departing employee, it would be sensible to obtain legal advice before making any settlement offers.  

Scheldebouw BV v Evanson

BDBF is a law firm based at Bank in the City of London specialising in employment law.  If you would like to discuss any issues relating to the content of this article, please contact Principal Knowledge Lawyer Amanda Steadman (amandasteadman@bdbf.co.uk) or your usual BDBF contact.

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In Garrod v Riverstone Management Ltd the EAT has held that a settlement offer made to an employee after she had complained about discrimination, but before she had started legal proceedings, was genuinely without prejudice and not unambiguously improper.  As a result, the employee was unable to refer to the settlement offer in her legal claim. 

What happened in this case?

Ms Garrod was employed by Riverstone Management Ltd as its Company Secretary.  She returned from maternity leave on 15 July 2019 and three months later, on 17 October 2019, she told her manager that she was pregnant with her second child.  On 30 October 2019 she raised a grievance complaining of mistreatment, pregnancy and maternity discrimination and of bullying and harassment by her manager for almost five years.

A week later she was invited to attend a meeting with, Mr Sherrard, an HR and employment law adviser, for a “preliminary discussion”.  Riverstone offered to pay £500 plus VAT towards the cost of a legal adviser to attend the meeting if Ms Garrod wished.  This was declined.  In the end, Ms Garrod attended the meeting with her husband.  Both Ms Garrod and her husband had degrees in law.  Ms Garrod had undertaken some further training to become a solicitor and her husband had a PhD in law.

The meeting took place on 8 November 2019.  After a general discussion about her grievance, Mr Sherrard said he would like to have a “without prejudice” discussion.  It was later found that Ms Garrod understood what this term meant, even though it was not explained to her.  Mr Garrod went on to describe the employment relationship as “fractured” and “problematic” and said the company wished to make an offer to terminate her employment and he put forward the figure of £80,000.  Ms Garrod felt ambushed by this part of the meeting and began to cry.

No agreement was reached.  Instead, the grievance hearing went ahead on 3 December 2019.  On 16 January 2020, the grievance was rejected in its entirety.  Her grievance appeal was also rejected and on 16 March 2020, Ms Garrod resigned and later alleged that she had been constructively unfairly dismissed.  In her claim before the Employment Tribunal, Ms Garrod made reference to the without prejudice meeting with Mr Sherrard.  Riverstone applied to the Tribunal to have those references removed on the basis that this was a privileged meeting.

The Employment Tribunal Judge agreed that the “without prejudice” rule had been engaged because there was an existing dispute between the parties and the communications made at the meeting were part of a genuine attempt to settle that dispute.  Even though litigation had not started by this point, the Judge agreed that the parties had (or might reasonably have) contemplated that litigation would follow if there was no settlement.  Finally, the Judge did not accept that the rule should be disapplied on the basis of any “unambiguous impropriety”.  Therefore, the Judge allowed the application and ordered that the references to the meeting should be removed from Ms Garrod’s claim.  Ms Garrod appealed.

What was decided?

Ms Garrod argued that the Employment Tribunal Judge had been wrong to find that there was an existing dispute between the parties which engaged the without prejudice rule.  She relied on the earlier decision in BNP Paribas v Mezzoterro, where it was held that the fact an employee has raised a grievance did not necessarily mean that that the parties were in “dispute”. 

The EAT rejected this ground of appeal.  Firstly, the Mezzoterro decision did not mean that an employee who had raised a grievance could never be in dispute with their employer, rather, it was not necessarily the case.  In this case, the Tribunal Judge was entitled to conclude that the dispute was already in existence at the time she raised her grievance and at the time of the meeting.  In Mezzoterro the without prejudice meeting was at the very heart of her claim i.e. her sex discrimination and victimisation claims were based on the allegation that her employer sought to terminate her employment after she had raised a grievance about discriminatory treatment.   By contrast, Ms Garrod did not rely on the without prejudice meeting as an unlawful act giving rise to a separate claim.  Instead, the reference to the meeting was “part of the narrative making that the point that Ms Garrod’s grievance was not dealt with to her satisfaction”. 

Ms Garrod also argued, that even if the parties were in dispute, it did not necessarily mean that litigation was in prospect.  The EAT also rejected this, noting that the references made in the grievance to the infringement of legal rights and Acas Early Conciliation were “clear signposts to the possibility of litigation”.  That Ms Garrod had had legal training was a relevant factor as it meant it was reasonable to conclude that she meant what she said. 

The EAT also held that the Employment Tribunal Judge was entitled to conclude that the proposal made at the meeting was genuinely aimed at settlement of the dispute, noting that there was nothing unusual about an employment dispute being settled by an agreement to terminate the employment on financial terms.  This was the case even though Ms Garrod had wanted to remain in her job.

Finally, Ms Garrod argued that Employment Tribunal Judge was wrong not to have found that there was unambiguous impropriety.  She argued that responding to the grievance by proposing termination was an act of victimisation (although, ultimately, she was not permitted to amend her claim to argue this).  The EAT rejected this ground of appeal, noting that the without prejudice rule should be disapplied only in the very clearest of cases of very serious wrongdoing.  The Tribunal Judge was right to conclude that this was not such a case.  The EAT concluded that making a settlement offer which could, on one view, provide a clue to a party’s discriminatory attitudes fell far below the threshold needed to disapply the without prejudice rule.

What are the learning points for employers?

This is a useful decision for employers as it highlights that parties may be in a dispute once a grievance has been brought, meaning that a without prejudice discussion may be possible.  After the Mezzoterro decision, there was some concern that the raising of a grievance would not be sufficient to engage the without prejudice rule. 

However, employers should be careful not to assume that a grievance always means you are in dispute.  It will depend on the specific facts.  Here, the fact that the grievance outlined the legal claims and referred to Acas Early Conciliation all tended towards there being a dispute that would end up in litigation.  Further the fact that Ms Garrod was a sophisticated claimant with legal knowledge meant that it was fair to assume she meant what she said in her grievance.

The decision also highlights that, once engaged, the without prejudice rule will only be disapplied in limited circumstances.  An allegation that a settlement offer betrays an employer’s discriminatory attitudes is not enough.  However, it is worth remembering that Ms Garrod’s attempt to add a victimisation claim based on the settlement meeting itself was refused by the Employment Tribunal.  This meant that her references to the meeting were merely part of the general “narrative” of her claim and she was not harmed by having to remove references to it.  In a different case, a claimant’s claim may be rest more squarely on what happened at a settlement meeting (as was the case in Mezzoterro) and there would be a greater risk of the rule being disapplied. 

A helpful decision overall, but employers should still take care when seeking to have early settlement discussions before litigation is in clearly in prospect.  Although there is the ability to have “pre-termination settlement discussions” under section 111A of the Employment Rights Act 1996, such discussions are inadmissible in ordinary unfair dismissal claims only.  Therefore, it is better to ensure that the without prejudice label will stick wherever possible, since this will protect the communications from disclosure in any proceedings.  We would recommend seeking legal advice where you are unsure whether the rule will be engaged. 

Garrod v Riverstone Management Ltd

Brahams Dutt Badrick French LLP are a leading specialist employment law firm based at Bank in the City. If you would like to discuss any issues relating to the content of this article, please contact Amanda Steadman (AmandaSteadman@bdbf.co.uk) or your usual BDBF contact.

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Employers should take note of a recent EAT decision that employees cannot waive the right to pursue claims which are unknown at the time of signing a settlement agreement.  Attempts to secure a release from all potential claims by way of blanket or “kitchen sink” style waivers are not effective.

What happened in this case?

The Claimant was employed as a Chief Officer on a number of different vessels.   In January 2017, the employer notified the Claimant that he was at risk of redundancy and offered him settlement terms, which he accepted.  The Claimant entered into a settlement agreement with the employer, under which he settled all claims against them.

Under the settlement agreement, the employer agreed to pay notice pay, enhanced redundancy pay plus an “additional payment”, which was to be calculated by reference to the terms of a maritime collective agreement.  However, the collective agreement stated that additional payments were only due to officers under the age of 61.  The Claimant was aged 61 at the time of his dismissal.  Therefore, the employer decided not to pay the additional payment to the Claimant after all.  He was notified of this on 26 June 2017, around five months after his employment had terminated.

The Claimant claimed that the decision not to pay the additional payment amounted to direct and/or indirect age discrimination.   The employer accepted that the reason the additional payment was not paid was age.  However, it sought to defend the claim on two jurisdictional grounds:

• first, that the Claimant had entered into a settlement agreement under which he had waived his rights to pursue claims against them; and
• second, protection under the Equality Act 2010 did not apply to the Claimant as he was a seafarer.

The Employment Tribunal held that the settlement agreement constituted a full and final settlement of the Claimant’s claims.  It had listed various types of claim, including age discrimination claims and it also included a blanket waiver which excluded “all claims…of whatever nature (whether past, present or future)”.  The Tribunal held that the claim would not have been precluded by virtue of the fact the Claimant was a seafarer, because the claim concerned post-employment discrimination.  However, the end result was that the claim could not proceed.

The Claimant appealed against the decision that the claim had been validly settled.  He argued that the Equality Act 2010 did not permit the settlement of claims before they had arisen, and that settlement was limited to claims which were known to the parties.  The employer cross-appealed against the decision that the Claimant was entitled to bring a claim under the Equality Act 2010 even though he was a seafarer.

What was decided?

The EAT allowed both appeals, meaning the end result was the same: the Claimant could not proceed with the claim. However, its decision about the scope of settlement agreements is of significant interest for employers.

The EAT held that in order for a settlement agreement validly to settle a claim under the Equality Act 2010 it must “relate to a particular complaint”.   The EAT noted that previous case authorities had said that:

• actual complaints must be identified in a settlement agreement either by a description of the claim or reference to the relevant statutory provision;
• known potential claims may be settled provided that a description of the claim or the relevant statutory provision is stated, although this could not be achieved by the use of a blanket form of waiver; and
• even unknown claims could be settled provided that the language was absolutely plain and unequivocal.

However, the EAT took issue with the last of these principles.  In the EAT’s view, there was no clear authority for the proposition that the words “the particular complaint” includes a complaint that may or may not occur at some point in future.  Rather, on a proper reading of the authorities, they only went as far as saying that known complaints which had not yet been brought before an employment tribunal may be settled.

Here, the Claimant had entered into a settlement agreement under which he waived his right to pursue a long list of claims, including age discrimination.  The EAT concluded that the words “the particular complaint” indicated that the parties must anticipate the existence of an actual complaint or circumstances where the grounds of the complaint already existed.   Blanket waivers of all and any claims are not enforceable.  Further, waivers listing all and any type of complaint by reference to their nature or section number (also known as “kitchen sink” waivers) are no better.   In fact, the EAT said there is no difference between a blanket waiver and a kitchen sink waiver.  Both are general waivers – all that distinguishes them is the particularity with which they have been drafted.   Neither are enforceable.

The EAT went on to say that it was apparent that Parliament’s intention had been that the ability to waive statutory employment claims would only be available in respect of complaints that had already arisen between the parties.  To extend this further would expose claimants to the risk of signing away their rights without understanding what they are doing. Indeed, in this case, the Claimant had purportedly signed away his right to sue for age discrimination before he even knew whether he had such a claim.

The EAT held that the terms of the settlement agreement did not preclude the Claimant from pursuing a claim.  However, the Claimant was thwarted in the end as the EAT also allowed the employer’s cross appeal, finding that he was a seafarer at the time of dismissal.  This meant that he was precluded from bring a claim.  The fact that the claim concerned post-employment discrimination made no difference.

What are the learning points for employers?

In our experience, employers tend to specify the particular claims of concern in settlement agreements and then hedge their bets by including a kitchen sink waiver, a blanket waiver, or both.  Employers may continue to do this in the hope that it deters any future claims, however, this decision indicates that such waivers are not enforceable.  This means that employees will not be barred from pursuing statutory employment claims which are not known about at the time of entering into a settlement agreement.  The EAT acknowledged that this may be inconvenient for parties wishing to have a truly clean break.

However, waivers of unknown claims (save for personal injury claims) may still be still valid from a contract law perspective.  Therefore, employers may wish to include a repayment clause under which the employee is required to repay the termination payment in the event of a breach of the settlement agreement.  Although this will not prevent them from pursuing a relevant claim before an employment tribunal, it may be enough to deter them from doing so.

It is possible that this decision will be appealed to the Scottish Court of Session.

Bathgate v Technip UK Ltd and ors

BDBF is a leading law firm based at Bank in the City of London specialising in employment law. If you would like to discuss any issues relating to the content of this article, please contact Amanda Steadman (AmandaSteadman@bdbf.co.uk) or your usual BDBF contact.

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Employment Law News

 

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Employee’s breach of a confidentiality clause in a COT3 agreement did not release employer from obligation to pay further settlement monies

If an employee breaches a confidentiality clause contained in a COT3 agreement or, more commonly, a Settlement Agreement, what are the employer’s options? The answer is that it will depend on the importance of the clause or the severity of the employee’s breach.  A recent High Court decision offers a salutary lesson on the need to draft settlement documents carefully to ensure the employer has the best possible protection.

What does the law say?

If the confidentiality clause is of vital importance, such that it is regarded as a “condition” of the contract, then the employee’s breach entitles an employer to treat the contract as “repudiated” (thereby releasing it from any future obligations under the contract, such as the payment of further settlement monies).  Additionally, the employer could sue for damages for breach of contract.

However, if the confidentiality clause is not of vital importance, such that it is regarded as an “intermediate” term of the contract, then the employer’s remedy depends on the nature of the employee’s breach.  If the employee’s breach is serious enough to deprive the employer of the whole of the benefit of the contract then it will be regarded as a “repudiatory breach”, which would allow the employer to treat the contract as repudiated and also claim damages for loss.  If the breach is not a repudiatory breach, the employer will remain bound by contract and its only remedy would be to sue for damages for breach of contract.

What happened in this case?

The employee, Mr Steels, settled an employment dispute with his former employer, Duchy Farms Kennels Ltd (DFK), in exchange for a settlement payment of £15,500 to be paid in 47 weekly instalments.  The dispute was settled by way of a COT3 agreement which contained a boilerplate confidentiality clause.  That clause required Mr Steels to keep the fact and terms of the settlement confidential.  Later, DFK discovered that Mr Steels had disclosed the fact and amount of the settlement to one of DFK’s former employees. 

DFK stopped paying the weekly settlement payments on the grounds that Mr Steels had breached the COT3 and it was, therefore, released from its side of the bargain.  Mr Steels applied to the County Court to enforce the COT3.  DFK responded by seeking a declaration that the breach of the confidentiality clause meant that the remaining settlement monies were no longer payable. 

The County Court held that the confidentiality clause was not a condition of the COT3 agreement, but was, instead, an intermediate term.  As it could not be said that Mr Steels had committed a repudiatory breach, this meant that DFK remained bound by the contract and had to continue paying the weekly settlement payments.  DFK appealed to the High Court.

What was decided?

The High Court agreed with the County Court and dismissed DFK’s appeal.  The High Court said the confidentiality clause was a boilerplate clause.  It had not been expressed to be a condition of the agreement and nor was there any indication that confidentiality was of vital importance to the employer.  Importantly, the Court reached this conclusion despite the fact that the COT3 had been drafted by lawyers and referred to keeping the agreement “strictly confidential” and not just “confidential”. 

Having decided the confidentiality clause was as an intermediate term, the Court turned to whether Mr Steels’ actions amounted to a repudiatory breach. The Court said the test was whether a reasonable person would have regarded Mr Steels as having “clearly shown an intention to abandon and altogether refuse to perform the contract”.  This was not the case here.  The breach did not, and was not likely to, cause commercial harm to DFK and the risk of unmeritorious copycat claims was remote.  In any event, anyone who had known that Mr Steels and DFK had been in a dispute would have been able to deduce that there has been a settlement even without a breach of the confidentiality clause.

What are the learning points for employers?

When drafting settlements, it would be wise for employers to:

• expressly state that the confidentiality clause is a condition of the agreement;
• state the importance of the confidentiality obligation to the employer;
• stipulate that payment of any monies (and performance of any other of the employer’s obligations) is conditional upon the employee’s strict compliance with the clause; and
• make specific provision about what happens if there is a breach (e.g. repayment of any monies paid to date and that no further payments will be payable).

In this way, the confidentiality clause is more likely to be regarded as a condition of the agreement entitling the employer to repudiate the contract in the event of a breach, should it wish to do so. 

Duchy Farms Kennels Ltd v Steels

If you would like to discuss any of the issues raised in this article or how BDBF can help to review your template Settlement Agreement,  then please contact Amanda Steadman (amandasteadman@bdbf.co.uk) or your usual BDBF contact.

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Employment Law News

 

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Stricter controls on the way for non-disclosure agreements in the employment context

It’s hard to believe that the #MeToo movement took off little more than two years ago.  Not only has the movement empowered victims to speak up against harassment and encouraged employers to reflect on their approach to dealing with such allegations, it has driven the Government to focus on what it can do about the practice of using non-disclosure agreements (NDAs) to hush up complaints.  In this briefing we consider the status of the various legislative proposals on the table, the latest guidance and the next steps for employers.

Government consultation on use of NDAs  – proposed new legislation

Earlier this year, the Government consulted on proposals to improve the regulation of NDAs in cases of workplace harassment or discrimination.  That consultation received 582 responses, the majority of which supported the protection of vulnerable workers from the improper use of NDAs by employers.  In July 2019, the Government responded to the consultation confirming that it would introduce new laws to provide that:

• NDAs cannot be used to prevent disclosures to the police, regulated health and care professionals and/or legal professionals;
• the limitations of NDAs are clearly set out in both employment contracts and settlement agreements;
• individuals signing up to NDAs in settlement agreements must receive independent legal advice on the nature and limitations of the clause; and
• NDAs that do not meet the legal requirements would be subject to enforcement measures.An offending clause in an employment contract would give rise to a claim for compensation and an offending clause in a settlement agreement would be void.

The fly in the ointment is that the Government committed to introducing these reforms “when Parliamentary time allows”.  Unsurprisingly, given the preoccupation with Brexit, these new laws have not yet seen the light of day.  It remains to be seen which parties will commit to introduce any or all of these reforms in their manifestos for the forthcoming General Election (and when they would be introduced).

Women and Equalities Select Committee report on use of NDAs – further proposals for reform

Despite this uncertainty, the Government has recently gone on to make further commitments for reform in this area. In June 2019, the Women and Equalities Select Committee (WESC) published a report on the use of NDAs in harassment and discrimination cases.  Gareth Brahams of this firm gave evidence to the WESC as part of its inquiry into this issue – you can read his evidence here.

The WESC report made 45 recommendations to Government concerning the regulation of NDAs and other related matters.  In October 2019, the Government published its response to the WESC report.  Notably, the response sets out further commitments to:

• consult on whether to require employers to provide a basic factual reference about a worker (on the basis that a failure to provide a reference can be problematic for victims of harassment or discrimination);
• consider whether to require employers to investigate all harassment and discrimination complaints, even where a settlement is reached;*
• consider whether to require employers to appoint a director or equivalent to oversee the anti-discrimination and harassment policies and the use of NDAs in relevant cases;*
• consider the adverse effects on individuals of publishing employment tribunal judgments online (e.g. blacklisting) and what, if any, safeguards could be adopted; and
• consider extending the time limit for bringing claims in the employment tribunal from 3 months to 6 months in cases involving sexual harassment or pregnancy or maternity discrimination.*

*Note that these proposals are already under consideration as part of a separate consultation on sexual harassment, pregnancy and maternity discrimination which closed in October 2019.

New guidance for employers on the use of NDAs

Another key commitment emerging from the Government’s responses to both the consultation and the WESC report was the publication of new guidance for employers and their advisers on the drafting and use of NDAs.   The Government identified various stakeholders who would be responsible for discharging this commitment, including the Equality and Human Rights Commission (EHRC), ACAS and the Solicitors Regulation Authority (SRA).

The EHRC has now published its guidance on the use of confidentiality agreements in discrimination cases.  The guidance is non-statutory – this means that an Employment Tribunal or Court is not obliged to take it into account but it may be used as evidence in legal proceedings where relevant. The guidance usefully clarifies the law on the use of NDAs (as it currently stands) and offers wide-ranging recommendations of best practice in this area.  Employers should note the following key best practice points on the use and drafting of NDAs:

• avoid using NDAs as a matter of course – weigh up whether they are really needed on a case by case basis;
• where it is felt that an NDA is needed, stick to what is necessary and appropriate to the particular circumstances of the case – if in doubt seek legal advice on the wording;
• apply carve outs to the NDA to permit the worker to have discussions with various parties such as: regulators, the police, immediate family members and a potential employer;
• avoid using warranties which require the employee to promise that they are not aware of anything that would be a protected disclosure or a criminal offence as this could silence the employee from speaking out (and it is unlawful to prevent a worker from making protected disclosures or reporting criminal offences);
• where an NDA is used, there should be a mutual obligation on the employer to keep matters secret;
• ensure that the use of the NDA is signed off by a director (or equivalent) or other senior manager and not by someone implicated in the complaint itself or involved in the hearing of the complaint; and
• ensure workers are given time to read and reflect on any NDA and discuss it with their adviser if appropriate.

More generally, employers are advised to monitor discrimination complaints and the use of NDAs to help identify any systemic issues.  For large employers this means holding a central record of NDAs which is overseen by the board of directors (or equivalent).  Further, employers are advised to investigate all allegations of discrimination and harassment – even where there is a settlement – and take any reasonable steps to prevent the discrimination occurring again in future.  The EHRC notes that a failure to do this may make it harder for employers to defend future discrimination complaints.

Separately, ACAS has announced that it will publish its own guidance on the use of NDAs, although it is not known when.  The SRA has indicated that it will update its warning notice to solicitors (published in March 2018) to align with the forthcoming legislative reforms.  The Law Society has also committed to update its practice notice on the subject.  Once the legislative reforms are in place, the Government has said that it will run an awareness raising campaign for employers to highlight the changes and the new sources of guidance.

What action should employers take now?

As well as continuing to monitor developments in this area, employers should:

• ensure they have read and acted upon any guidance from a relevant regulator (for example, in-house lawyers will be expected to comply with the guidance issued by the SRA);
• update template employment contracts and settlement agreements with a view to being able to comply with the new legislative requirements in due course; and
• read the EHRC’s guidance and benchmark internal practices and procedures against it.

BDBF can help your business navigate these changes. If you would like to discuss how we can help, please contact Amanda Steadman or your usual BDBF contact.

 

 

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Tottenham Hotspur wins case over taxation of Peter Crouch’s termination payment

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Tottenham Hotspur did not need to pay employer’s National Insurance contributions in respect of the payments it made to Peter Crouch and Wilson Palacios when they transferred to Stoke City – those payments were termination payments despite both players agreeing to go.

Both Peter Crouch and Wilson Palacios were employed by Tottenham Hotspur on fixed term contracts. In 2011, Spurs sought to reduce their wage bill, so it suggested that Crouch and Palacios transfer to Stoke City. Neither player was keen to go, but Crouch eventually agreed on the basis that he would be paid compensation under a settlement agreement for ending his contract early. Palacios seems to have made a similar decision. Payments were made to both players accordingly.

HMRC challenged the payments, arguing that they should have been subject to employer’s National Insurance contributions. HMRC argued that, as the players’ contracts contained a term permitting early termination by mutual agreement, payment on that basis was a contractual payment rather than compensation on termination.

The First-Tier Tax Tribunal held that the payments were not subject to employer’s NICs as they were compensating Crouch and Palacios for the termination of their rights under their contracts. The Tribunal noted that all contracts can by their nature be terminated by mutual consent, so the inclusion of an express term to that effect did not change things.

At first blush, this decision is good news for employers – particularly Spurs, who saved a significant sum of money. However, the benefit is only temporary given that all taxable termination payments will be subject to employer’s NICs from April 2018.

Tottenham Hotspur Ltd v HMRC [2016] UKFTT 0389

 

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Budget 2016: Amendments to taxation of termination payments

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Anyone who has ever been party to a settlement agreement will most likely be aware that an employee gets the first £30,000 of any termination payment tax-free, with any excess subjected to income tax as normal. The current position is that, even for the portion of a termination payment which exceeds the threshold and is taxable, National Insurance Contributions (NICs) are not payable.

In the 2016 Budget, the Chancellor George Osborne has announced that this will change. From April 2018, the rules for employers’ NICs will mirror those for income tax, so that employers must factor in NIC payments for the portion of any termination payment which exceeds £30,000.

 

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Settlement agreements, pre-termination negotiations and cooling off periods

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The ACAS guide on settlement agreements recommends that employers allow employees a minimum of 10 calendar days to consider a settlement agreement and to receive legal advice. That is a lot longer than many employers would want to give staff, so the question is can this guidance be ignored?

Under the new regime, employers can now approach staff with a view to terminating their employment in exchange for a financial package with a greater degree of certainty that if the employee rejects the offer and is eventually dismissed and sues for unfair dismissal the tribunal will not find out about the offer. There are some exceptions to this, one of which being if an employee alleges the employer behaved improperly. Improper behaviour includes putting undue pressure on a party, for example, not giving the employee a reasonable period of time to consider the offer.   Breach of the ACAS code is evidence of improper behaviour.

In short then, if you do not allow the employee ten days to consider but they ultimately accept an offer, there is no additional legal exposure. This is what will happen in most situations.

If the employee rejects the offer, does it matter if the Tribunal finds out that the offer was made? Our answer would be that it depends on how the offer is put.  If you say to an employee “take this offer or we will go through the disciplinary process and fire you for gross misconduct” then yes it would matter, but then even if you gave the employee ten days to think about it you would still be applying improper pressure so the tribunal would find out about the conversation anyway.

If you put the offer along the lines of: “if you do not take this offer, we will start the disciplinary process. We cannot prejudge the outcome but dismissal is one of the things that could happen but equally you may be found innocent and no action taken” and give the employee five rather than ten days to think about it, it is unlikely this will make the difference between the tribunal finding the dismissal to be fair or unfair.

To conclude then, other things being equal it is better to allow an employee ten days to think about the offer but other things are rarely equal when you are talking about introducing this length of delay.  In most cases, the modest benefits of complying with the ACAS code will be outweighed by the cost and loss of momentum caused by this kind of delay.  In many cases, you will be better off ignoring the guidance.

 

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