Tagged: settlement

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Settling a claim against a respondent you don’t trust

You can settle your case by withdrawing it, or agreeing to withdraw it, in return for your former employer’s promise to pay you some money. (It’s normally mainly money, though sometimes there will be other things you want, like a decent reference.)

But suppose you don’t trust your former employer further than you could spit a rat? That makes it difficult to set much store by their promise. What makes you think they will keep it?

There are two thoughts worth having in mind for this situation. One is that in the normal way of things, when you settle, what you’re doing is trading in your ET claim for a contract with the respondent under which they have to pay you some money. The contract isn’t actually money, but it entitles you to a defined sum of money; and if the respondent doesn’t pay what they’ve promised to pay, you have a claim for breach of contract that is much more straightforward than your ET claim would have been. So you’ve swapped a claim of uncertain value for a claim of very clear value. If it’s sensible bargain, it’s worth having even the respondent makes difficulties about paying – because if they do, you can be sure they’d have made just as much difficulty about paying an employment tribunal award.

So in general, ‘I don’t trust them to pay’ won’t be a good reason not to settle.

All the same, there are a couple of things you might be able to do to improve your position. One is to ask for a cash payment. If you’re settling for several thousand pounds, this will probably only work if you have a few days at least before the hearing: most respondents won’t come to tribunal with a fat wad of £50 notes in their pocket, just in case. Another option (which may be more practical if you’re negotiating at the door of the tribunal) is to ask for a cheque. You might want to ask for a personal cheque if you’re afraid that the company that employed you might cease to exist rather than pay you what it owes you. Or you could ask for an immediate BACS payment straight into your bank account.

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‘Without prejudice save as to costs’

Solicitors for employers quite often write letters with this heading. It means the letter – because it is an attempt to settle the claim – can’t be shown to the tribunal before or during the main part of the hearing. But the ‘save as to costs’ bit means that if you refuse the offer and then either lose, or get awarded less than they have offered, they may show the tribunal the letter in support of an application for costs at the end of the case. Their argument will be that your refusal of the offer amounted to unreasonable conduct of your case.

This is a tactic claimants can use, too – though they do so much less often.

If you think your employer has no reasonably arguable defence to your claim, you can try writing a letter headed ‘without prejudice save as to costs’ that offers to settle the claim, and warns them that if they don’t agree, you may apply for costs against them if you win and get what you’ve asked for.

This works best if the value of your claim is clear, and doesn’t involve much crystal-ball gazing. If you were unfairly dismissed and you’re claiming a long period of future loss, there will be altogether too much wiggle-room in estimating the value of your claim, even if the unfairness is obvious. But if you’re claiming a definite sum – say, for example, you’re claiming £652.24 in unpaid expenses, or you were only out of work for 2 months after an unfair dismissal before getting another job that paid just as well as the old one, so your loss is exactly quantifiable as your basic award plus 2 months’ net earnings – and the respondent has no sensible defence, it’s a tactic worth trying. There’s a sample letter at page 175 of Employment Tribunal Claims, 3rd edition (or you can download an earlier version from the first edition here).

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Compromise Agreements under the Equality Act 2010

A number of people have spotted a bug in the provisions of the Equality Act 2010 dealing with compromise agreements. It may be worth explaining what the problem is and how it might be dealt with.

When legislation provides employment rights it tends to lay down restrictions on how far employers and employees can contract out of them. This is why employees are not asked to sign employment contracts which say ‘I promise never to sue you for unfair dismissal or discrimination of any sort’ – such a clause would be invalid.

But in the context of litigation, it is important that parties can enter into binding legal agreements to bring the case to a close. Otherwise settlement would be impossible.

The way this is tackled in the Equality Act is that s144 makes any contract that claims to exclude or limit a provision of the act void, unless it falls within one of a number of specified exceptions. A valid ‘compromise agreement’ meeting the conditions set out at s147(3) is one of these exceptions.

One of the conditions is that the complainant must have received advice from an independent legal adviser, such as a lawyer; a trade union adviser or an advice centre worker.

This is where the bug lurks. The range of possible independent advisers is limited by s147(5), which says:

Despite subsection (4), none of the following is an independent adviser in relation to a qualifying compromise contract—
(a) a person who is a party to the contract or the complaint;
(b) a person who is connected to a person within paragraph (a);
(c) a person who is employed by a person within paragraph (a) or (b);
(d) a person who is acting for a person within paragraph (a) or (b) in relation to the contract or the complaint;
(e) a person within subsection (4)(b) or (c), if the trade union or advice centre is a person within paragraph (a) or (b);
(f) a person within subsection (4)(c) to whom the complainant makes a payment for the advice.

So in order for the agreement to be valid, the complainant must receive independent advice. But by giving advice, the lawyer falls within s147(5). That disqualifies them from being an independent legal adviser.

This is obviously not what was intended. The explanatory notes to the section tell us:

476. The section describes who can be an independent adviser and includes a power to add new descriptions of people who may be independent advisers in the future. It makes clear that a conflict of interest prevents a person being an independent adviser.

Unfortunately, on a plain reading of the legislation, this is not what it achieves.

In practice, we suspect that this will not be a problem. Tribunals and courts are likely to take a purposive approach to the legislation (i.e. interpret it in light of what it was plainly intended to do). They will probably read s147(5)(a) as meaning a party to the litigation, other than the person receiving the advice. This is a fairly interventionist reading, but the alternative interpretation is so daft, and so plainly not what was meant, that we think it is likely to be adopted.

The other point is that, from the claimant perspective, even if the compromise agreement is invalid, it almost certainly does not matter. S 144(1) says:

A term of a contract is unenforceable by a person in whose favour it would operate in so far as it purports to exclude or limit a provision of or made under this Act.

The provisions of a settlement agreement that a claimant cares about are not those that exclude or limit the provisions of the Equality Act. In the vast majority of cases (including every case that either of us can remember dealing with or hearing about), the only clause that does exclude or limit a provision of a relevant Act is the one requiring the claimant to withdraw his claim, or settle at the same time other claims within the tribunal’s jurisdiction that he may have. The provisions about paying the settlement amount; requiring a particular reference and so on, do not exclude or limit the operation of the Act, and are therefore the same whether or not the compromise agreement is valid.

So if the compromise agreement is invalid the potential issue is that the Respondent cannot force the Claimant to withdraw. That’s obviously a potential issue for the Respondent, but need not trouble the Claimant.

In fact, even from the Respondent’s perspective, we don’t think there’s a real problem. Although they can’t force the Claimant to withdraw, they could apply to the tribunal for the claim to be struck out under Rule 18(7) on the basis that it was being conducted unreasonably.

But if even a small risk is unacceptable, a claim can always be settled via ACAS. ACAS Agreements are a separate exception to the contracting out rules and unaffected by this problem.

Further discussion of this issue can be found at the Cloisters website, where Robin Allen QC reaches a similar conclusion, for somewhat different reasons and the Martin Searle website, which has a good summary of the debate.

As so often, we were alerted to the issue by Daniel Barnett, through his newsletter.

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Settling cases with multiple parties

Most employment cases involve one claimant and one respondent. But many involve more – multiple claimants, multiple respondents or both.

There are many ways in which this makes things more complicated. One area to be particularly careful of is settlement. It is important to make sure that you understand precisely what you are doing, and that everyone else does too.

Sometimes, one Respondent will want to settle the whole case. In other words, make a deal that covers him, and everyone else. In other cases, a Respondent will settle on the basis that you withdraw against her, but continue against the other Respondents. Sometimes, the Respondents will collectively agree to settle, with everyone being a party to the agreement.

Similarly, where there are multiple Claimants, a Respondent may offer settlement, but only if both Claimants agree. After all, the main point to settling for a Respondent tends to be the opportunity to get rid of the case. Settlement with one of two parties, is therefore much less attractive than settling with both.

All sorts of combinations and deals are possible. So what you want to do will depend on your circumstances. The important thing is to make sure that you, and everyone else, understands what is on the table. And that the written agreement accurately reflect your final deal.

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Penalty clauses

When settling claims, employers quite often try to include, alongside a confidentiality clause, a term that says if you breach the confidentiality clause, you will have to repay the settlement sum in full. Any such term is extremely unlikely to be enforceable. The sum is often said to be due “as a debt,” which sounds very stern and official but won’t make it any easier to enforce.

Penalties and liquidated damages

It is well-established in contract law that a term in a contract that requires a party who breaches the contract to pay a specific sum to the other is only enforceable if it is a genuine estimate of what the breach of contract will actually cost the innocent party. So if your contract requires you to give 3 months’ notice of resignation, then a clause that says if you leave without notice you will have to repay your previous 12 months’ salary in full will be an unenforceable penalty clause – unless for some reason it really will cost your employer that much if you leave early.

If on the other hand your contract says that if you leave without notice, you will have to pay your employer £3,000, and £3,000 is a genuine estimate of the additional cost to them of employing an agency temp while they recruit to fill your post, that is a ‘liquidated damages’ clause, and enforceable.

Similarly with confidentiality clauses. It will rarely cost your employer anything – more than some annoyance and possibly embarrassment – if you breach the confidentiality clause in the agreement settling your claim. It is certainly most unlikely that a court would uphold their claim to the return of the whole settlement sum: see CMC Group plc v Michael Zhang EWCA [2006] Civ 48.

You may find this a useful bit of learning if you receive a penalty notice from the company running a private car park, too.

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It’s not over till it’s over

If the claimant and respondent in an employment tribunal case are going to negotiate, the time they are most likely to do it is in the last few days before the hearing.

This is also the time when final preparations for the hearing need to be done. By the last few days before the hearing, you should have agreed a bundle and exchanged witness statements, and you will be about to start familiarising yourself with the bundle and doing your final preparation for the hearing. If the bundle and witness statements aren’t in place by this point, you’re badly behind already and need to work fast.

This creates a dangerous pit-fall. Negotiations tend to take on a momentum. There often comes a point where, although you don’t yet have a deal, both sides are pretty sure that it is only a matter of time and a bit more haggling until they do. It is terribly tempting when that point arrives to put preparation on one side on the assumption that the hearing is not now going to happen.

It’s a good temptation to resist. Negotiations can, and sometimes will, come horribly unstuck at a very late stage on a point that no-one had realised was important until it was raised. In particular – this is a common mistake among representatives – don’t underestimate the importance of the non-financial terms of the settlement. It is easy to sit back with a sigh of relief once a sum of money has been agreed, only to find that you can’t agree on the terms of a reference, for example, or the wording of the confidentiality clause, or the question who is responsible in the event that there is any tax to pay on the settlement.

If you are badly behind in your preparation, try, so far as you are able, not to let the other side get wind of the fact. If they know that you’re now hopelessly ill-prepared for the hearing, it follows that it will be a disaster for you if the negotiations break down. You might as well admit in a game of poker that you’ve got a very weak hand.

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ACAS Conciliation Periods Extended

2004 was a good year for bad ideas in the employment litigation field. One of the minor bits of foolishness was to limit the involvement of ACAS in most cases to specific conciliation periods. This meant that, in many cases, by the time both sides were ready to talk ACAS had already withdrawn their help.

ACAS did have a discretion to extend the conciliation periods, but tended to exercise it carefully in an attempt to implement the government’s intentions.

Since the government has now reversed themselves and intends to abolish conciliation in the new Employment Bill, ACAS has decided to change its approach. From the 1st April it will exercise its discretion to extend the conciliation period in all case. In practice, this means that there will be no time-limit on ACAS conciliation.

Thanks to Daniel Barnett, who’s bulletin brought us the good news.

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Post decision negotiation

Once the tribunal has made its decision on a case, there is normally nothing left to negotiate.

The most common exception to this rule is where the tribunal’s decision is only on liability. Once, for example, a tribunal has concluded that Bill was unfairly dismissed, it is often possible for Bill and his ex-employer to reach agreement on remedy. The tribunal will frequently assist with this, by also giving guidance on matters affecting the remedy decision. For example, a tribunal will often give a judgment in the form “Bill has been unfairly dismissed. We consider that he contributed to the dismissal to the extent of 20%. A remedies hearing will be listed, unless the parties inform us that it is unnecessary.”

It is always, of course, possible to return to the tribunal for them to decide the proper remedy, if agreement is not reached.

Negotiation is rare where the whole case has been decided by the tribunal, but it is not impossible. For example, where part of the claim is for pension loss, all the tribunal can award is a lump sum reflecting that loss. But the parties can agree that this sum, or an equivalent sum be paid into the pension fund itself. The fact that this sort of post-decision deal is unusual does not mean it is impossible if both parties want it.

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Last-minute negotiations

If you are trying to settle a case the day before the hearing, bear in mind that you cannot safely assume that the case is settled before either (i) both sides have signed a compromise agreement, or (ii) both sides have told ACAS that they are happy with the same COT3 wording. If you haven’t got to this point before everyone goes home for the evening, you have to assume that the case may yet go ahead. In that event you will need to go to the tribunal: probably you will be able to to put the finishing touches to the agreement then, but if negotiations come unstuck at that late stage you will need to be ready to fight the case.

This means that it is important to make sure that everyone knows how much time you have to achieve a settlement. If your client is going to be out of contact for any reason after a certain time, you need to know this. But don’t confine your inquiries to your own side: the settlement process will be just as surely derailed if when you think you are nearly there, the solicitor on the other side suddenly can’t get hold of her client. There is no reason why you shouldn’t say something like ‘I think we are nearly there, but I’m conscious of the time – can you make sure your client is going to be available to give you instructions until as late as necessary this evening?’ If it turns out that the decision-maker is planning to catch an afternoon flight in order to attend the hearing, then he will be out of contact once he gets on the plane. The sooner you know that that is your effective deadline for settlement, the better. If you are using ACAS, find out as well how late your ACAS officer will be available.

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Standard settlement agreements

Many organisations have standard templates for documents. In particular any organisation doing significant employment tribunal work will almost always have a standard agreement to use for settlement.

These are often useful. Most settlements are fairly standard – the claimant will withdraw her claim, the respondent will pay her some money. There is little point in reinventing the wheel over this for every case.

Having said that, every settlement is the unique conclusion of negotiation. Do not regard your own standard template as a straightjacket. And take with a large pinch of salt any suggestion that changing a standard term is impossible.

There are three common problems you may encounter:

The big firm problem

Documents reflect the personality of the organisation that produces them. A large respondent solicitor will not have a standard compromise agreement that slants in favour of the claimant. Many of the terms – relating to things like confidentiality, tax liability, etc. – will probably be written in a way that subtly benefits the employer. Sometimes the bias is less than subtle.

This means that it is almost always a good idea, when settlement negotiations reach the final stages, to get in first with your draft agreement. There is a significant advantage to arguing about adding things to your draft, rather than trying to remove things from theirs.

If you are negotiating over their draft, it is normally sensible to focus your attentions on a few key areas. Even where there is a general pro-employer bias is likely that it only has a significant effect in a couple of areas. For example, many standard agreements contain a tax indemnity. These normally state that, although the parties do not believe that tax will be payable on the award, if it is the employee will pay it. In many, many cases this will be entirely irrelevant, since it is absolutely clear that no tax will be due. If this is the case, the provision can be safely left in, since it will never come into effect. It will often be more sensible to do so in order to focus effort on altering a particularly arduous confidentiality clause.

Of course, there is no need to immediately reveal what provisions you might be willing to let by. A sensible negotiating technique can be to object to both the tax and confidentiality clauses, with the intention of trading one for the other.

The comfort blanket problem

The second problem is that standard documents tend to be approved at a relatively high level in an organisation. If you are negotiating with a fairly junior member of a firm, he may well be reluctant to depart from what more senior lawyers have set out as the appropriate way of settling a case. Standard documents also act as a comfort blanket and an insurance policy. Nobody is going to be criticised later for using the standard document. If they change it, particularly if the change involves a concession, they run the risk of criticism later. This is a particular problem if the individual concerned does not fully understand the standard document or the changes you are proposing.

This is little that can be done about this problem except to be aware of it and to try to engage with the issues if they arise. It should also be born in mind that “I can’t change this. It’s our standard document” is a useful first line of defence even when the opposing lawyer is quite happy to make changes if necessary to get a deal.

The cross-referencing problem

This is a purely technical issue. By the time you have finished negotiation you will often have taken out some clauses, while inserting others. This can easily damage any cross-referencing. If the agreement contains language like “In accordance with section 2(3)”, make sure that 2(3) is still the relevant section or the meaning of the agreement can easily be destroyed.