Settlement Agreements and Confidentially

Publicly confidential

What happens when sackings or job losses take place at some of the world’s best known employers?

The exact situation becomes publicly confidential via some form of settlement agreement.

Take David Moyes at Manchester United, one of the richest football clubs on the planet. His case illustrates precisely what occurs at well known sports clubs and other high profile organisations where the dismissal is likley to attract media interest.

Announcing their quarterly results, which saw another period of commercial growth, executive vice-chairman, Ed Woodward, confirmed that the former Manchester United and Everton manager received a seven, not an eight figure, pay off for the termination of his six year employment contract.

Although the exact figure is unknown and the numbers are still large, this represents a significant saving for the Club. More may be discoverable from the annual accounts, but the precise terms of the settlement agreement will always remain confidential.

Ed Woodward has confirmed the value of the payment will be under £10m, which appears good value for the football club when it could have been in the region of £22.5m.

The use of so called “Ejector Seat” clauses protect the employer and aligns poor employee performance with more modest severance packages, when compared to the original offer of employment.

Why the hush hush?

Manchester United, like many other employers high profile or not, will be taking staffing decisions on a daily basis across their workforces. This can include the most senior executives and staff right up to the very top positions in terms of seniority or importance. David Moyes is a case in point.

When taking these decisions, employers will be juggling various factors on a case by case basis, but ultimately once a decision is taken many employers want absolutely everything to be confidential.

There had been much speculation about the future of David Moyes after the team’s poor performance having lost to local rivals Manchester City FC and Liverpool FC. Yet despite that failure it appears to have been some form of key performance indicator which spelled the end for David Moyes’ tenure; namely qualification for the European Champions League.

What appeared to be a 2-0 defeat to his old club, Everton FC, which was the straw that finally broke the camel’s back, it seems that there may have been a bit more to the timing than simply the events of one match. That result guaranteed that Manchester United would not be participating in the elite and highly lucrative Champions League next season (for the first time in 19 years).

There has also been much speculation about the internal wranglings over who was at fault. Moyes, the manager, the players, the owners and even the previous manager all had the finger of blame pointed at them for last season’s poor performance.

There will be millions of fans globally who would have loved to have been a fly on the wall during some of the internal discussions with Moyes, who was quoted at one point as saying:

“I haven’t changed anything. These are the players who won the league last season”

If Moyes did later accept full responsibility, it certainly seems to be a change of position from that quote. It is highly doubtful that his advisors would have encouraged him to accept 100% responsibility for negotiating purposes at the very least.

Many point to the complete clear out and replacement of the coaching staff and the failed signing of one player, Marouane Fellaini, when blaming Moyes. However, equal numbers, if not more, believed that Moyes should have been given at least one more season. To sack after one season was simply “not Manchester United like” in some eyes.

Even if the manager was not to be given one more season, why the specific timing of the sacking as opposed to any other time?

It has been widely reported that the Champions League failure meant that the manager’s six year contract could be terminated with immediate effect with a pay-off of no more than 12 months’ remuneration, despite still having more than five years to run.

David Moyes was reported to be earning £4.5 million a year under his contract with Manchester United and that means over £20 million was left to run on the contract. Clubs in the past have left themselves in the unenviable position of having to make large pay-outs to under performing managers when terminating their contracts of employment.

A football club wanting to dismiss its manager is usually left with no option but to bite the bullet and pay out the remainder of his contract, or at least a significant part of it. Even when such payments are staggered in instalments, there is little incentive for managers to mitigate their losses by quickly seeking new employment.

Only the parties and their advisors will know the full terms of the relevant contracts and the settlement agreement, and certainly the timing will have been subject to legal advice in the Moyes case.

Equally, only the parties (and those close enough to them) will truly know the full circumstances and feelings around the dismissal.

Even now, weeks after the dismissal and after the end of an exciting title race involving other teams, speculation is abound with stories of rifts, mutiny, and players calling for the manager’s head. Yet from the Club directly and Moyes, nothing that tells the real story of the circumstances surrounding the dismissal.

The use of so called “Ejector Seat’ clauses, enable employers to terminate the fixed term employment contract due to specific and measurable level of underperformance for a pre-agreed fixed fee. The high profile use of an ejector seat clause at the biggest club in the UK may well see their usage increase, although such performance-related caps on severance remain relatively rare.

What is the difference between high profiles sackings and other day to day dismissals?

In many respects, nothing at all, save for sackings such as Moyes becoming publically confidential instead of just plain confidential where a settlement agreement is used.

Performance issues, perceptions, opinions, and opposing views that could lead to potential disputes, reputational damage and wasted management time to name just a few issues for employers. Many employees are rightly concerned about the impact on their immediate employment prospects.

The solution of choice for employers, a settlement agreement including highly restrictive confidentiality clauses that stop outgoing employees from discussing the fact, terms and circumstances leading up to dismissal and the settlement agreement. Job done, game over, and speculation will eventually die out in the case of Moyes.

There was simply too much at stake for Manchester United and Moyes not to enter into a settlement agreement.

It is surprising just how many settlement agreements omit key parts of these key confidentiality provsions, despite employers having exactly the same issues and intentions albiet on a low profile basis.

There are also many employees who sign up to these highly restrictive confidentiality clauses and go on to blantantly breach them, jeapordising any monies that they are entitled to.

It is doubtful that Moyes will be doing the same, given the level of money involved and the exact details that of course………. are publicly confidential! digg stumbleupon buzzup BlinkList mixx myspace linkedin facebook google yahoo