Chris Brunt is a Gibraltar employment lawyer, a barrister and an acting solicitor who will consider certain cases on a “no win no fee” basis. I would be happy to discuss your case with a free half-hour consultation. Call me on Gibraltar 200 73900 or email me at: chris.brunt@phillips.gi
Following on from my previous post on Redundancy in Gibraltar, I thought I would follow up with an article on what is the process that an employer will (or should) follow, assuming the employee is content with the decision to make their position redundant, of course. If however, you want to understand what a fair redundancy process might look like, see my previous, more in-depth article on the Gibraltar redundancy process: Redundancy In Gibraltar. and my previous post on Understanding Settlement Agreements (formerly known as Compromise Agreements) Here
So, assuming an employee is content that the redundancy process has been handled fairly and redundancy is the right option for them, what should an employee expect to be paid when being made redundant?
Generally speaking, with redundancy, the payment an employee would expect to receive is split into two separate types of payments – Taxable and non taxable payments.
Typically, a proposed date will be provided for an employee’s termination, that is, their final day at work and where a redundant employee would expect to receive:
- Payment of wages earned up to and including the termination date, plus,
- (depending on the circumstances, they may receive) a further payment in lieu of notice, and,
- any accrued but outstanding unpaid holiday pay.
Depending on individual circumstances, there may be other contractual payments due to a redundant employee (bonus, etc.). If in doubt, they should check, among other things, their employment contract.
The above payments will normally be paid on the final payroll run of the month that an employee last worked, or occasionally the following payroll month. As these amounts are in effect salary payments, they will be taxed at source as normal (PAYE).
The second payment an employee will expect to receive will be their redundancy payment. Under Gibraltar law, an employer is obliged to make a redundancy payment (if they have been continually employed for more than one year).
The amount an employer will have to pay an employee by law is the Statutory Redundancy appropriate to their individual circumstance and is calculated by reference to:
- their salary, and
- the number of complete years of continual service, and
- age at the time of the redundancy.
The employee should be presented with a breakdown of payments that they will expect to receive, the final salary payment (see above) and also the redundancy payment that they will also receive. This information should be provided in advance of the termination date by their employer. This information would also be set out in any Settlement Agreement (formally a Compromise Agreement) that an employee may be asked to sign. (More on this later).
It is worth noting, however, that unlike the final salary payment, which is taxable, a redundancy payment is intended to be paid tax-free. However, the employer will have to write to Gibraltar’s Commissioner of Income Tax to confirm that they can pay the redundancy payment to the employee without any tax deducted. This usually means, practically speaking, that the redundancy payment is paid separately and after the final salary payment.
Does an employee have to sign a Settlement Agreement when being made redundant?
It is not unusual for an employer who is making an employee redundant to expect them to sign a Settlement Agreement. A Gibraltar Settlement Agreement is, frankly, an agreement that an employer deploys to protect their own position and, generally speaking, not the employee’s.
Once the Settlement Agreement is signed, it will, among other things, waive any rights an employee would have otherwise had to bring a claim against the employer as well as reinforce confidentiality clauses and other clauses that are set out in the Agreement.
There usually are clauses in the Settlement Agreement setting out that if an employee breaches a fundamental term of the Agreement, the employee will be liable to repay certain sums paid to them, as well as being liable for all of the costs the employer has incurred as a result of the breach, including their reasonable legal costs for enforcing the breached Settlement Agreement. An employee will need to take independent legal advice to understand what exactly they are signing, including all the restrictions and obligations imposed on them by the Settlement Agreement.
Why then would an employee sign a settlement agreement if there are potentially onerous clauses in the Agreement?
Good question. If an employee is being made redundant and if he has been employed for more than a year, then generally speaking, he is entitled to a statutory redundancy payment by law. This means that an employer cannot make the payment of the employee’s legitimately earned wages and other contractual entitlements, as well as their statutory redundancy payment, conditional on signing a Settlement Agreement.
In such circumstances, an employee should consider requesting an enhanced redundancy payment that exceeds the statutory amount they are due.
If an employer requests an employee to sign a Settlement Agreement, when offering redundancy, and they are only offering the statutory redundancy amountthat they are required to pay by law, then an employee has a number of potential options (assuming they are content to be made redundant). In my submission, an employee could accept the statutory redundancy payment but decline to sign any Settlement Agreement, as the only apparent beneficiary of such an arrangement is the employer, who uses the Agreement to protect their position. Please note that the employer cannot lawfully withhold the employee’s pay or statutory redundancy payment in any case. Remember, the payment of lawful amounts owed to a redundant employee is not dependent on them signing a Settlement Agreement, the primary purpose of which is to protect the employer who is dismissing the employee.
What is an enhanced redundancy package?
An enhanced redundancy package is a separate payment paid over and above the statutory redundancy payment amount (remember the employer is obliged to pay this), and which is added to the amount the employee receives. This amount is usually identified in the Settlement Agreement as an Ex-Gratia payment. As set out above, the redundancy payment (and also the Ex- Gratia payment) is intended to be paid to the employee tax-free, but ultimately the final decision is made by Gibraltar’s Commissioner of Income Tax on application by the employer once the Settlement Agreement is signed by both parties. The employer’s promise to apply to the Commissioner of Income Tax on the employee’s behalf to achieve tax-free status of the redundancy/ex-gratia payments will be/should be set out in the Settlement Agreement.
How would an employee know if they have been offered an additional Ex-Gratia payment?
Usually, an employer will explain to their employee, and provide them with a breakdown of what amount they will receive on termination, final salary and other payments, as described above. Also, they should set out the statutory redundancy payment, and if included, the ex-gratia enhanced payment they are proposing to offer the employee. Remember, while statutory redundancy payment is non-negotiable, the enhanced ex-gratia payment is absolutely negotiable.
If an employee is unsure of what they are entitled to by law, or wishes to understand whether they have been offered an extra enhanced ex-gratia redundancy payment, or a suitable enhanced redundancy ex-gratia payment, they should check with a lawyer. The author of this article would be happy to assist in this regard if required.
So then, as indicated above, if an employee is unsure as to whether the ex-gratia amount is reasonable or fair taking into account the employee’s particular situation, it is advisable that they discuss their individual circumstances with an employment lawyer in advance of agreeing the total redundancy package, as it may be possible for the employee (or their lawyer) to “encourage” the employer to increase the ex-gratia payment.
Legal advice
An employee offered redundancy should always seek legal advice in advance of agreeing to a settlement payment, as it is not always in an employee’s best interest to simply compromise their legal rights. This is because the employee may have a legal claim against the employer (which would be waived in the event a Settlement Agreement is signed). In fact, Gibraltar law ensures that any Settlement Agreement is contingent on an employee receiving independent legal advice in advance of signing the agreement in any event. As part of the Settlement Agreement process, an independent lawyer is required to provide an “Advisor’s Certificate” to the employer setting out that they have provided the employee with independent legal advice on the Settlement Agreement. It is worth noting that without this, the certificate of the Agreement is not valid.
An employee, therefore, should always be prepared to explain to their lawyer any circumstances in which they feel they may have a claim against their employer, for instance, for unfair dismissal in a redundancy case where there has been an insufficient or incorrect redundancy procedure carried out, including an insufficient or non-existent redundancy consultation process. Please see my article on Redundancy in Gibraltar here.
Post Restrictive Covenants
In some employment contracts, especially in the larger Gibraltar Companies (Like Gaming Companies), the employer will have inserted post restrictive covenants that prohibit an employee from certain activities, (and most relevant to an employee who is having his employment terminated by redundancy) from working for a competitor for a number of months following their departure from the business. There is usually a clause in the Settlement Agreement setting out that any post-restrictive clauses in the employment contract still apply. This is clearly a potential disadvantage to the employee. The author has a track record of negotiating this clause out of the agreement and ensuring that redundant employees are able to work for any competitor from day one if necessary.
Finally
Employers offer a fixed amount to cover the costs of an employee receiving independent legal advice on the terms and effects of a Settlement Agreement they have prepared for the employee to sign. The independent lawyer will invoice the employer directly for their fees after they have advised the employee and have submitted the signed Settlement Agreement to the employer (or the employer’s lawyer) on the employee’s behalf, along with their “Advisors Certificate”. There is usually nothing extra an employee needs to pay for their legal advice, but always check in advance.
Settlement Agreements are not only used for Redundancy
Just to add, Settlement Agreements are not only used by employers in Gibraltar to protect their position when making staff redundant, but are also used in other circumstances where an employee receives a monetary payment for agreeing to waive their employment rights, perhaps a threatened claim against the employer, or to withdraw a live claim against the employer in the Gibraltar Employment Tribunal. But the same principles as to the fairness or otherwise of a proposed Ex-Gratia settlement payment apply. If unsure, speak to an independent employment lawyer.
Chris Brunt is a Gibraltar Barrister practising Employment Law. If you require advice on a Settlement Agreement, please contact him.
Contact me for a free 30-minute consultation at Phillips Barristers & Solicitors, 292 Main Street, Gibraltar, GX11 1AA, on 200 73900. Or email me at chris.brunt@phillips.gi .
Disclaimer
All opinions are my own and are provided for information only and do not constitute legal advice. Please note that the information and any commentary on Gibraltar law contained in this article are provided free of charge for information purposes only. Every reasonable effort is made to make the information and commentary accurate and up to date, but I do not accept responsibility for its accuracy and or for any consequences of relying on it. The information and commentary do not, and are not intended to, amount to legal advice to any person on a specific case or matter. You are strongly advised to obtain specific, personal legal advice about your case or matter and not to rely on the information or comments on this site https://www.employmentlawgibraltar.com/
