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  • Overview

    An exit/severance offer is usually made with the condition that you enter into a settlement agreement which will require you to give up all your legal rights to pursue your employer for a claim or claims in the Employment Tribunal, including any claim for contractual entitlement to bonus, shares, commission, accrued holiday and unlawful deduction of wages. It is therefore important that you understand exactly what you are entitled to before agreeing an exit package.

    Notice, holiday and benefits
    You will need to check whether you have a payment in lieu of notice (PILON) clause in your contract of employment. If you do, this entitles your employer to pay you notice instead of you working your notice.

    Why is this important? If your contract does not contain a PILON clause you will be entitled to be compensated for accrued holiday and contractual benefits for the notice period even if you do not work it. You may also be able to include the notice monies within the £30,000 tax-free element of the compensatory award. If you do have a PILON clause in your contract of employment then unfortunately you will not be entitled to claim any benefits or accrued holiday for the notice period.

    Bonus and commission payments
    You may be entitled to receive all or part of any bonus or commission payments. This is subject to the terms of your contract and you being in employment at the time.

    In the event of a discretionary bonus arrangement, if the bonus has been paid out consistently in preceding years and is based on meeting specific targets which have been achieved, there is a very good argument to say that the bonus should be paid.

    Shares and options
    If you have been given shares or options, or participated in a share save scheme then how these are treated on the termination of your employment will be determined in most instances by the scheme rules. It is important to insist that you are treated as a ‘good leaver’ because frequently there will be provisions that are beneficial if you have ‘good leaver’ status.

    Compensation for loss of employment
    There are two types of compensation you should be looking to be compensated for:

    (a) compensation based on your length of service, age and the current statutory maximum weekly pay of £464; and

    (b) compensation for loss of earnings.

    You need to be mindful however that compensation for loss of employment for unfair dismissal is capped currently at £76,574 or a year’s loss of earnings whichever is the greater. So, if your annual salary is £65,000, the maximum you could hope to achieve if you were to pursue a claim for unfair dismissal, would be £76,574 for loss of employment.

    Ultimately your negotiating power around compensation for loss of earnings needs to focus on how long it will take you to secure new employment. Against this you need to be pragmatic and realistic as there is a statutory obligation to mitigate your losses once your employment ends.

    If you would like to further discuss any of the information detailed above, please contact Susanna Gilmartin from our Employment team.

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