Effective Settlement Agreements, Part 1 – Promises, Promises (UK)
We had several hundred sign-ups to our webinar on effective settlement agreements this week, so unfortunately did not get to deal with all the questions fed in through the chat box thingy on the screen. As promised, here are some of the answers – more to follow shortly.
Should I agree to say in a settlement agreement that the company will use “reasonable endeavours” to make sure that no-one says anything derogatory about the departing employee?
You will often be asked to do this, but no. The same is true in spades of any request that the employer commits outright that no such remarks will be made.
As a purely legal and not physical entity, the company can act only through its people and it has no direct control over them. Any clause stating that “the employer will not make derogatory comments about the employee” puts the company at risk because if an employee does so anyway, whether or not he has been warned off it, then his remarks may well be deemed those of the employer, especially if he is senior and/or the remarks have any connection to the employee’s work. Offering “reasonable endeavours” is not quite so bad, but inevitably it begs the question of what reasonable endeavours actually were or should have been made.
The most obvious starting point for any attempt to stop your employees doing something must be that you tell them not to do it, but in a case like this, how? Do you send everyone an email in your best agreed terms to say with almost complete sincerity that Mr X is sadly moving on to other life experiences [insert choice of platitude here], sure you will all join us in wishing him well and by the way, anyone making derogatory remarks about him from now on is for the high jump, yes? This will raise far more eyebrows/questions than it answers. The immediate assumption will be that there must have been something really grim around his departure to warrant such an instruction. I have not known any employee or lawyer to maintain the wish for a company-wide shot across the bows of this sort once the reality of what they seek is explained, so it is worth taking a firm line on this one And if you won’t tell all your people not to make snide remarks about their former colleague, what else would count as reasonable endeavours? So that is the issue – you would have committed the company to do something which will simply not happen.
Then you have two options instead:
undertake the purely passive commitment not to encourage, procure or assist any officer or employee to make such comments about X; and/or
where there has been a bust-up with a small and finite group who are all aware of the issue, you can usually agree to remind them (and them alone) in writing not to make such remarks. They will find this profoundly irritating, but it is hardly a difficult obligation for either them or the company to comply with and therefore one you should not contest too hard if it will get the deal done. The more difficult those colleagues are about agreeing not to do something they should not be doing in the first place, the more suspicious of their intentions will be the exiting employee, and that does not bode well for a swift agreement.
If I am seeking to impose new restrictive covenants on a departing employee, should these be in the settlement agreement or set out separately?
As a matter of law, it doesn’t matter. You can list them in the main body of the agreement, in a schedule to it, or in a wholly separate document provided (if it is the last) that there can be no later argument as to what document is referred to. Of those options, the schedule is probably the most common as it strikes the best balance between clearly incorporating those terms into the settlement agreement and not upsetting the overall length of the operative terms.
Whichever you do, do not forget that you will need some consideration expressly attached to the employee’s agreement to those new covenants. It may help their enforceability at the margins and will limit HMRC’s ability to view the compensation sum as the “purchase price” for them and hence as taxable.