Redundancy, Termination of Employment and Settlement Agreements

Redundancy – Legal and Tax Advice on your Settlement Agreement

Many employees in Kildare and Dublin are currently facing the prospect of redundancy.  It is a distressing time and the last thing you want to think about is getting legal advice and tax advice.  However, it is important to ensure you are legally protected and that any settlement payment is made in the most tax efficient manner.

At Patrick J Farrell and Company LLP, we offer a one stop shop for employment law advice and tax advice.  Our employment lawyer Helen Coughlan and tax advisor Emma Farrell work together to help you achieve the best settlement possible.  We review the settlement agreement from a legal and tax perspective and represent you during the settlement negotiations.  To set up a remote appointment, email emma.farrell@pjf.ie or helen.coughlan@pjf.ie.

We have represented many employees who have been made redundant, particularly in the finance and tech sectors.  At the moment we are seeing redundancies arising the tech sector in particular, with employments being terminated in Meta, Google, Twitter, Intel and Stripe.

Redundancy tax advice

Often, a redundancy will result in a termination payment or a settlement payment to be made under a Termination Agreement.  It is very important that the agreement is worded correctly in order to maximise the available tax reliefs for redundancy payments and other types of settlement payments.

A ‘statutory redundancy’ payment is generally exempt from tax.  Many employers make an additional ex-gratia payment to an employee in excess of this amount and there are other reliefs that can apply in that instance – the basic exemption, increased basic exemption and Standard Capital Superannuation Benefit (known as SCSB). It is also possible for an employer to pay the legal fees and re-training fees of their former employees in a tax efficient manner.

It is important for your tax advisor to review and consider the tax calculations to ensure that you are getting the benefits of the best possible tax relief.  It is also crucial for your tax advisor to review and update the draft severance agreement to ensure that it is consistent with the tax legislation.

Redundancy legal advice

In most cases, it will be a requirement of your employer that you take independent legal advice before signing a compromise agreement on your redundancy, and with good reason.  You will be signing up to legal obligations and it is important to understand these and take them seriously.  For example, you will often be required to waive any right you have to make a claim against your employer in future.  Sometimes your employer will want you to sign up to a ‘non-compete’ clause whereby you agree not to work for a competitor.  For tech sector employees in Ireland, this is often unworkable.  The agreement could also include clauses about employment references, payment in lieu of notice and clauses prohibiting you from making disparaging remarks about your employer (particularly on social media).

If you require assistance, email emma.farrell@pjf.ie or helen.coughlan@pjf.ie to set up a remote appointment.

Frequently Asked Questions
Redundancy, Termination of Employment and Settlement Agreements

What is redundancy?
Redundancy occurs when an employer needs to reduce their workforce, often due to business closure, reorganisation, or a reduction in work. It is not related to the employee’s performance but rather to the employer’s need to cut costs or restructure operations.

What are my rights if I am made redundant?
If you are made redundant in Ireland, you are entitled to a statutory redundancy payment provided you have been employed for at least two years. Additionally, you should receive appropriate notice, a written statement outlining the redundancy, and access to any support services your employer offers, such as outplacement assistance.

How is a redundancy payment calculated in Ireland?
A statutory redundancy payment in Ireland is calculated based on your age, length of service, and weekly pay, subject to a maximum limit. Specifically, you receive:

• Two weeks’ pay for every year of service.
• One additional week’s pay. Your employer may offer enhanced redundancy payments above the statutory minimum, depending on your employment contract or company policy.

What is termination of employment?
Termination of employment refers to the end of the working relationship between an employer and an employee. This can occur through resignation, dismissal, redundancy, or mutual agreement. The process and rights associated with termination vary depending on the reason for ending the employment.

What are my rights if I am unfairly dismissed?
If you believe you have been unfairly dismissed in Ireland, you may have the right to bring a claim to the Workplace Relations Commission (WRC). Unfair dismissal occurs when the employer does not have a valid reason or does not follow a fair process. You may be entitled to compensation or reinstatement.

What is a settlement agreement?
A settlement agreement is a legally binding contract between an employer and an employee that outlines the terms of the employee leaving the company. It typically includes a financial settlement and may cover confidentiality clauses, non-disparagement agreements, and the waiver of any potential claims against the employer.

Do I need a lawyer to negotiate a settlement agreement?
While it is not a legal requirement to have a lawyer when negotiating a settlement agreement, it is highly recommended. A solicitor can ensure that your rights are protected, that the agreement is fair, and that you fully understand the terms before signing.

What should I do if I receive a redundancy notice?
If you receive a redundancy notice, you should:

• Review the redundancy policy and your employment contract.
• Request a redundancy package in writing.
• Seek legal advice to understand your rights and entitlements.
• Consider negotiating the terms of your redundancy or settlement agreement.

Can I appeal a redundancy decision?
Yes, you can appeal a redundancy decision if you believe it was unfair or if the proper procedures were not followed. Review your employer’s appeal process, submit your appeal in writing, and provide any evidence that supports your case.

What is the difference between redundancy and unfair dismissal?
Redundancy is a fair reason for dismissal related to the employer’s need to reduce the workforce. Unfair dismissal occurs when an employer terminates employment without a valid reason or without following a fair process. Redundancy can still be unfair if not handled correctly.

How long do I have to make a claim for unfair dismissal or redundancy?
You typically have six months from the date of your dismissal to file a claim with the Workplace Relations Commission (WRC). It is important to seek legal advice promptly to ensure you meet all deadlines and requirements.

What are the tax implications of a settlement agreement?
Generally, compensation for loss of office (redundancy) and payments in lieu of notice are tax-free up to €30,000. Any amount above this threshold may be subject to income tax and Pay Related Social Insurance (PRSI) contributions. It is advisable to consult a tax professional to understand the implications specific to your situation.