Not all employment relationships have happy endings.
In most cases, if your relationship with your employee has soured, it will be in everyone’s interests to resolve the dispute by agreement. More often than not, that will mean parting ways.
And if you do part ways, then as a matter of good communication, you should record your agreement in writing.
Here is a checklist of elements you should consider including in that written agreement.
This may seem obvious, but I suggest putting in a specific date for the employee’s last day of work, so that everyone is clear. You may also specify whether their notice period is to be worked out or paid in lieu, or whether they remain away from work on “garden leave” for the duration of their notice period.
Reason for leaving
This is something that you and your employee will need to agree on. While you are mutually agreeing to the employee’s exit, you can choose to characterise the manner of their leaving.
That may seem artificial, but when the employee is looking for other work, they have to be able to explain the reason for leaving your employment.
If redundancy has been on the cards, then your employee may like to be regarded as redundant. In other cases, they may prefer to say they have resigned.
Communication to staff and clients
Following on from the previous point, you may want to reach agreement with your employee about what staff and clients will be told about the reasons for their leaving so that you and your employee speak consistently and avoid unnecessary embarrassment.
You may even suggest setting out the agreed communication (i.e. the wording of a letter or email), whom it will go to (i.e. specified staff or clients) and the date when that communication will be sent.
Reference or certificate of service
To facilitate finding new work elsewhere, your employee may ask for a letter of reference. They may also ask that you back up the written reference with verbal confirmation if they need you to be contacted by a recruiter or potential new employer.
You have to be careful to be honest when giving such references. That is why many employers prefer simply to give certificates of service. Whatever you are willing to do, include this in the settlement terms, along with when and how you will provide it.
Likely of most concern to both you and your employee is how much the employee will be paid after settlement is reached. This is usually the most difficult negotiating point as part of an employee’s exit.
You can get a sense of what might be fair by looking to the employee’s contract (including their notice period, holidays and other contractual entitlements), and similar cases where compensation for hurt and humiliation may have been paid.
The compensation component can be a useful bargaining tool, as it is paid tax-free, provided it is genuinely meant to compensate the employee for such harm.
If the employee has engaged a lawyer, they may also ask that some or all of their legal costs be paid.
You will have to decide what you consider to be fair, taking into account your risks, the benefits of settling and perhaps what you have done in similar situations in the past.
Handover of property
Normally, your employee will have various property of yours in their possession that they need to hand back. This may include keys, laptops, mobile phones, swipe cards, fuel or credit cards, company materials and more.
Be specific about what you need the employee to return and give a specific date for when that must be returned by. If you are happy for the employee to retain certain items, such as a mobile handset or company manuals, be sure to specify that in writing.
Equally, the employee may have items at the workplace that they need to collect. If the employee has been out of the office for some time, or does not want to face going into the workplace during normal working hours for fear of having to explain to other staff the reason they are leaving, you may need to arrange for them to collect this information after hours.
Alternatively, you may suggest that another staff member collect their things and drop them off to their home. Again, specify how and when this property will be collected or returned to them.
Confidential and full and final
These terms usually go without saying, but be sure to include them. That is, make sure you specify that neither you nor the employee will disclose the fact or the terms of the agreement. You want to keep this between yourselves, lest other employees hear of such a precedent.
Further, you want to know that the employee is not going to take any claims against you if you agree to a settlement. That is what is meant by ensuring that the agreement is a “full and final settlement” of all issues arising out of the employment relationship or its ending.
Not to disparage each other
Sometimes you may be concerned about what your employee will say about you to others in the marketplace or to other staff that remain employed by you. Equally, your employee may be concerned about what you might say about them.
By including a commitment not to disparage, or speak ill of, each other as part of the agreement, you give each other the comfort that your reputations will not be damaged by malicious talk.
You may want to ensure that both you and the employee do not have to sign the same physical copy of the agreement terms to indicate your acceptance.
It is permissible for you to sign a copy, then email that signed version in PDF format to the employee for their signature. Lawyers call these different versions “counterparts“. Make sure that you include a statement in the agreement that it can be signed in this way.
Countersigned by a mediator or not
Under section 149 of the Employment Relations Act, a mediator from the Ministry of Business, Innovation and Employment can countersign a settlement agreement. The effect of that is to prevent the parties from cancelling the agreement, even if the other party reneges on their part of the bargain. You need to use a certain form of settlement agreement if you choose this approach.
There can be benefits to not having the agreement countersigned, so you may want to consider whether this is best in your case.
By using the above list of elements, you will be well on your way to covering the key items you need to consider when settling an employment dispute.
However, no two disputes are ever alike. So be sure to use this as a general guide, and get some advice if you think you need to tailor the agreement in a way to meet every specific circumstance.