Settlement agreement void because employee did not have independent advice

Out-Law News | 03 Nov 2020 | 10:01 am | 3 min. read

The Irish Labour Court has declared that a settlement agreement between an employee and their employer was void because the employee was not given the opportunity to seek independent legal advice before signing it.

The Labour Court overturned an earlier decision of the Workplace Relations Commission (WRC), which held that it did not have jurisdiction to consider Wasim Haskiya’s claim of unfair dismissal against Keelings Retail Unlimited Company as he had signed a settlement agreement.

The Labour Court decided the waiver of rights that was relied on by Keelings in the agreement for the purpose of disposing of any potential claims was void as Haskiya had not received independent legal advice before signing. The court went on to determine that the dismissal was unfair.

Employment law expert Jason McMenamin of Pinsent Masons, the law firm behind Out-Law, said: “Employers should seek legal advice before asking employees to sign a settlement as a number of criteria need to be fulfilled for the settlement agreement to be enforceable."

“One of those key criteria is that employers should ensure that the employee has been advised in writing that they can seek independent legal advice in relation to the agreement and that they are provided with an adequate opportunity to do so prior to agreeing to the terms of settlement. The settlement agreement itself should also refer to this right. Otherwise, the employer may not be able to rely on the agreement, if it is later challenged,” McMenamin said.

Engineer Haskiya had worked for Keelings for over two years when he was told that his position was to be made redundant. The company offered him statutory redundancy and an ex-gratia payment, setting out the details in a settlement agreement.

Keelings claimed Haskiya was given two days’ paid leave to consider the agreement and to take legal advice on the matter, and that he then returned a signed copy of the agreement.

Before the WRC Keelings argued that the terms of the agreement clearly set out Haskiya’s waiver of rights under employment protection legislation including the Unfair Dismissals Act 1977-2015. Both sides agreed that while the terms of settlement did not specifically refer to legal advice, Haskiya had been given paid leave to seek such advice. On this basis, the WRC held that it did not have the jurisdiction to go behind the agreement entered into by the parties.

Before the Labour Court, Haskiya said he felt under pressure to sign the settlement documents and that there was a threat of loss of payments in the event he did not accept Keelings’ offer. He said English was not his first language and that he was not familiar with Irish employment law, and that he had been unable to obtain legal advice in the two days he had to do so.

The court approved decisions reached in previous cases that found that parties can lawfully agree to settle or compromise claims based on statute. However, it added there was a difference between a genuine bargain to settle or dispose of a claim, which is lawful and enforceable, and an attempt to exclude or limit an act in order to dispose of potential claims which is void and of no effect.

The court found that Keelings had made no effort to establish whether Haskiya had had professional advice before signing the agreement, and also that neither witness could confirm that the documentation supplied when he was informed of the redundancy included the severance agreement.

Accordingly, it said it could not find that Haskiya’s agreement to waive his statutory rights was supported by adequate consideration; that the waiver arose from an agreement reached as a result of meaningful negotiations and professional advice having been sought and given; that the waiver was based on a free and informed consent given by Haskiya with full knowledge of his legal rights; and that Keelings had made adequate efforts to ensure that he was capable of giving an informed consent.

In these circumstances the court found the agreement void. Having regard to the fact that Keelings had placed sole reliance on the waiver document as a defence to the unfair dismissal complaint, the court concluded that the dismissal of Haskiya was unfair.

The court took into account Haskiya’s earnings prior to dismissal, his efforts to mitigate his losses and the fact he had turned down three offers of alternative employment and measured the level of compensation of €50,000 – just short of one year's salary – as fair and reasonable on that basis. The court ordered Keelings to pay compensation in that amount less the ex-gratia payment of €20,000 made to Haskiya on termination, making the net compensation amount €30,000.