Signed and settled – what now?

You have agreed the terms of a settlement agreement which you have signed. Your termination date has passed and you have received the settlement monies due to you under the agreement. Both parts of the deal appear to have been completed so you can carry on regardless, right?

Wrong! You will remain bound by the terms of a settlement agreement and any breach can result in your former employer taking a variety of legal action against you. What then, should you be aware of?

Restrictive covenants


These will usually have a time limit but until that has passed you should not do anything that may constitute a breach. Any breach could be met by your employer applying for an injunction, taking legal action for damages or requesting repayment of sums under the agreement if it contains such a clause.

Restrictive covenants must be reasonable and must protect a legitimate business interest – a 12 month restriction on not working within a 100 mile radius of your former employer may seem excessive to a junior employee but may be considered reasonable to a senior executive. Our experienced advisers will examine the extent of the respective covenants and advise you accordingly.

Confidentiality


The settlement agreement will almost certainly contain a clause restricting post-employment disclosure of confidential information obtained during your employment. If there is no express term, there is an implied duty which should not be breached.

Furthermore, there will also be a restriction on disclosing the existence and/or terms of the settlement agreement. This is of fundamental importance if you are in contact with former colleagues or if you are asked by a prospective new employer ‘on what terms did you leave your former employment.’ You should think carefully about what you disclose in order to comply with such a clause and perhaps more fundamentally to you, to set the right impression to your prospective new employer.

A recent example saw a former Bank of Scotland employee deprived of her settlement package due to her posting confidential information on Facebook.

Derogatory statements


It is very tempting to make derogatory statements about your former employer once you have received your settlement package and have found new employment, perhaps with a competitor.

There will be a clause which prohibits any derogatory statements being made and this should be carefully observed by you. Failure to do so could be considered a breach of the agreement and could lead to a breach of contract claim.

The restriction will potentially include oral and written statements, including those made using social media. The above example of the bank employee breaching confidentiality would apply equally to derogatory statements.

Tax indemnity


Depending on the taxation treatment of your settlement package the agreement may contain a tax indemnity clause. This clause will provide that in the event that the tax man demands payment of the PAYE on the whole, or part of, your settlement package you will indemnify your former employer against this.

Such a clause would be enforceable through the civil courts as a breach of contract/debt claim. You should therefore ensure that if your agreement contains such a clause, you are in a position to repay the likely tax liability in the event that the indemnity is called upon. Our professional advisers are able to explain how this would work in practice and how you can protect your position.

Warranties


The agreement may contain a variety of warranties that, by signing the agreement, you are giving to your former employer.

A common warranty is that which states that you have entered into the agreement in good faith, have not breached your contract of employment and do not have an alternative job offer. If this is not true, you should not be signing the agreement.

This was demonstrated in the high profile case of a football manager’s departure. The club and the manager entered into negotiations as the manager said he wanted to move closer to his family. A settlement agreement was negotiated, signed and the manager left the club by, on the face of it mutual consent.

Almost immediately, the manger was announced as the new manager of a rival club. The former club took action and sought an injunction based on breach of warranty and misrepresentation. The former club were not successful in obtaining an injunction but were awarded substantial damages and costs.

A story from earlier this year.

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