Joseph Lappin reviews how to use confidential settlement agreements correctly after accusations that P&O ‘blackmailed’ staff into signing away their employment rights.
This is a summary of a feature in the May 2022 edition of Employment Law Journal. The full article can be viewed here (subscription required).
What did P&O do?
In March this year, UK shipping company P&O Ferries sparked a widespread outcry after sacking 800 crew members. Staff were instructed to watch a pre-recorded Zoom meeting in which they were told that ferries would be primarily crewed by third-party staff in future and that current crew members’ employment was being terminated with immediate effect.
P&O offered the 800 crew members ‘enhanced’ severance packages with the intention of ‘buying out’ the crew members’ unfair dismissal claims and their right to protective awards for failing to consult with the unions. Reports suggest that all but one of the crew members have entered into settlement agreements with P&O, thereby waiving their employment claims against the company. P&O is likely to have insisted that crew members signed confidentiality and non-disparagement obligations.
The unions have accused P&O of ‘pure blackmail’ in asking the employees to sign away their employment rights in this way despite the company ‘flagrantly’ breaching the law. However, what is the legal position when it comes to offering staff settlement agreements? How do they work and what is appropriate when using them?
What is a settlement agreement?
A settlement agreement is a contract typically used to record the terms of departure, whereby the departing employee receives a termination payment in return for the waiver of statutory, contractual and common law claims against the employer. In return employers normally pay employees a lump sum of cash.
Whenever there is potential for a litigious dispute between employer and employee, employers will often prefer to settle the dispute rather than defend a claim in the courts or tribunals. Employers will take into account a number of factors in determining how much to pay an employee under a settlement agreement, including the merits of the employee’s claims and the employee’s loss of earnings.
Not all statutory claims can be settled under a settlement agreement. For example, claims for a failure by the employer to inform and consult with appropriate representatives or unions on collective redundancies cannot be settled. However, as P&O did with its crew members, employers can settle an employee’s right to bring a claim for failure to pay a protective award of up to 90 days’ pay under s192 TULRCA.
Is it wrong to ‘gag’ departing employees?
Often, settlement agreements will include provisions that prevent employees from disclosing certain information, including the circumstances surrounding the agreement. For this reason, reports in the media sometimes refer to termination payments made under settlement agreements as amounting to ‘hush money’.
In most cases, however, labelling a termination payment in this way is unfair. Such payments are normally made to compensate an employee for the loss of earnings they would otherwise have received had they remained in employment and for agreeing to waive their claims.
Settlement agreements should never be used to prevent proper disclosure about the agreement or the circumstances surrounding the agreement to professional advisers, such as legal, tax or medical advisers, who are bound by a duty of confidentiality. Employees also cannot be prevented from making disclosures where they are required by law to do so or from raising concerns about wrongdoing to a regulator or the police.
What’s appropriate when settling potential claims?
It will never be appropriate for employers to take unfair advantage of employees when negotiating the terms of a settlement agreement. Employees must always take legal advice before signing a settlement agreement and it is good practice for the employer to contribute towards the employee’s legal fees.
The P&O story is a curious case. The company’s decision to admit publicly that it acted unlawfully and decided to make severance payments under settlement agreements has attracted fierce criticism. However, for purely commercial reasons, employers often choose to make generous severance payments to staff rather than undertake internal HR processes that are likely to lead to dismissal and the risk of claims.
P&O has suggested that the sums it paid to crew members under the confidential settlement agreements exceed the value of any compensation a tribunal might have awarded the crew members if their claims are successful. The fact that all but one crew member have entered into settlement agreements would suggest that P&O is right about this.
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