Redundancy: ex gratia payment / foregone equity?

[Harris_I]

I have searched in the archives but can't seem to find what I need to know.

My employer and I are reaching an amicable agreement on my departure: the role in the UK is becoming redundant as my responsibilities are being moved overseas. After redundancy, the firm is happy for me to consult as a contractor on individual projects (the first of which is due to start imminently).

They have offered me an ex gratia payment stating that it takes account of my length of service and my 3 months contractual notice (although they will terminate the contract immediately and I will be free to go). However I was under the impression that an ex gratia payment should not be linked to a contractually agreed notice period? I am yet to see a copy of the compromise agreement and so cannot confirm if this is the case just yet but it would be good to confirm my understanding.

Secondly, and more importantly, when I joined the firm 5 years ago I was induced to join the firm by a promise of participation in the firm's share scheme. The specific wording was "At present, this scheme is under review and awaiting approval, however subject to plan approval we will be looking to offer you share options in [....] of x% of total salary (£....) in year one. Details of the scheme shall be provided to you in due course."

5 years later, and having asked for it multiple times, the equity has still not been forthcoming. I may need to mandate an employment lawyer but I wanted to check if there were any such lawyers on PH to provide some general guidance in case I end up chucking good money after a lost cause. The downside to mandating a lawyer to argue this is the risk of torpedoing my consulting arrangement.

Should an ex gratia payment take account of a lost equity opportunity? Does the fact that the firm's equity scheme has still not kicked in after 5 years negate a potential claim?

[Steve Campbell]

I'm no lawyer here, but I would expect you would need to prove that the scheme was actually approved & in use (but you had been excluded) to have any opportunity for recompense related to that element : "subject to plan approval". Was the firms share scheme approved ?

[Harris_I]

It was not. Every six months I would check back in and ask where are my shares to be told they're on the way, the scheme is with the board awaiting approval. I was reliant on their offer to me even though the scheme was not already in place when I joined.

[psi310398]

I've sent you a PM.

IANAL but the compromise agreement as I understand it needs to reflect an extra-contractual arrangement, normally that the firm is breaking its contract with you and compensating you for doing so, rather than sticking to terms of the contract i.e. by giving notice and paying what it owes. I am assuming that your question relates to "tax-freeness" of any compensation payment above the tax-free threshold.

The problem with HMRC and their seeing it as salary is if your contract of employments says this is what will happen. They even get snippy if it is what usually happens i.e. it is custom and practice.

I'd also get advice about waltzing into a contract doing substantially the same work the day after...

If a substantial amount is at stake, I'd take professional advice. Your lawyer's engagement with the firm does not need to be confrontational and your lawyer may be able to suggest a way to your firm of avoiding HMRC Pooh-traps.

And a couple of grand versus a large unwelcome tax bill is worth every penny IMO.

HTH

Peter

[Harris_I]

Thanks Peter, useful stuff. I will need to be careful to ensure I am entitled to the tax free element of the ex gratia payment. The amount of equity promised to me was above this threshold hence I would expect to get taxed above the threshold. The big question for me is if there is a case for me to hold them to their original inducement since it was never fulfilled. Although I intend to take legal advice, no-one ever wins in court (except the lawyers) so will be hoping for sensible and reasonable compromise on both sides.

[anonymous-user]

Sorry to hear about your circumstances. They are now called settlement agreements and as you've said, the settlement will fall into 2 categories - your contractural rights (payment in lieu of notice and holiday pay) which are taxable, and your enhanced+statutory payment which isn't. Well, you get up to £30k tax free which you should persuade your employer to make use of. It's good for them and for you. If you go back, the Revenue are likely to come after you for the tax, and your employer for their share. You can ask your employer to pay you the gross amount so you have the money when the tax man asks for it. Or of course work elsewhere.

With regards the settlement agreement, you'll need to appoint an employment lawyer to review the offer for it to be considered legal. That's because you are waiving your rights to persue them for unfair dismissal. Normally the employer pays for this. The plus side is your lawyer will tell you all this and negotiate a better deal on your behalf. You don't even need to get involved.

[anonymous-user]

Just to add, you should have a "without prejudice" meeting to discuss with the employer to tell them what you are looking for. It's an opportunity for both sides to talk and discuss an amicable separation. Think about what you want in advance and write it down.

[Harris_I]

Good advice, thanks.

[anonymous-user]

As usual, some of the advice on this thread, although well meant, is based on misunderstandings and myths, and so is mostly wrong, or sufficiently half wrong to cause problems if followed. I assume that when you use the strange term "mandate an employment lawyer" you mean hire one. I do not know why people feel the need to use faux-legalistic BS language when talking of such things, but never mind that. My advice, as an experienced employment lawyer, is to go and hire an experienced employment lawyer. You may say "Mandy Rice-Davies", but in life you tend to get what you pay for, and taking the advice of kind hearted people on a car forum who have not much idea what they are talking about is about as sensible as asking people on a car forum about how to get your broken leg fixed. It appears that you are in a well paid job, so looking for freebies is a bit cheesy. If you want some recommendations, PM me.

Edited by anonymous-user on Tuesday 4th July 08:16

[anonymous-user]

Harris_I said:

...no-one ever wins in court (except the lawyers)...

Oh really? Last week, I obtained a judgment for a client for 18 million quid. I got paid a decent whack for doing that. But it is my client that gets the 18 million quid. Is that what you call losing?

A compromise in your case is the obvious choice, but why make such silly and inaccurate pub-blah generalisations?

[paulrockliffe]

Breadvan72 said:

As usual, some of the advice on this thread, although well meant, is based on misunderstandings and myths, and so is mostly wrong, or sufficiently half wrong to cause problems if followed. I assume that when you use the strange term "mandate an employment lawyer" you mean hire one. I do not know why people feel the need to use faux-legalistic BS language when talking of such things, but never mind that. My advice, as an experienced employment lawyer, is to go and hire an experienced employment lawyer. You may say "Mandy Rice-Davies", but in life you tend to get what you pay for, and taking the advice of kind hearted people on a car forum who have not much idea what they are talking about is about as sensible as asking people on a car forum about how to get your broken leg fixed. It appears that you are in a well paid job, so looking for freebies is a bit cheesy. If you want some recommendations, PM me.

Edited by Breadvan72 on Tuesday 4th July 08:16

I'm not an employment lawyer, but I am married to one and have picked up enough over the years to know that this is the post to follow. Most of the posts above this one are misleading at best. eg the 30k is a life-time allowance, a proper solicitor will ask if you've been made redundant before and want to know what happened then before advising on that.

[Harris_I]

Breadvan72, I very much appreciate your expertise and that's what I was hoping to find on the melting pot that is PistonHeads, although I find the rudeness quite puzzling. I'm certainly not looking for a freebie, more for someone of your quality to point me in the right direction. As for the phrase "mandate a lawyer", I'm sorry my choice of words offends, but in my field we mandate lawyers, banks and consultants when seeking external advice. We hire a lawyer when we seek to employ someone in-house. Just a convention without any right or wrong usage. I shall do my best to avoid using the word on here from now on.

Regarding going to court, this should be an absolute last resort when all else has failed. For 18 million quid I wouldn't hesitate. Most people I know who've gone to court over comparatively trivial sums have regretted an expensive and drawn out process. Let's replace the words "no-one ever wins" with "rarely is the outcome wholly positive".

And yes, I'm now mand...., sorry hiring, a lawyer...

Once again, I do appreciate your input.

[paulrockliffe]

You mean you're hiring a Solicitor surely? :-)

[anonymous-user]

Harris_I said:

... Most people I know who've gone to court over comparatively trivial sums have regretted an expensive and drawn out process.

That serves them right for going to court over trivial sums. Those people were mad, or they had a rubbish lawyer, or they had a good lawyer but did not listen to his or her advice. Crazy people who think it sensible to litigate about stuff tend quite often to get crazy/rubbish lawyers, partly because if the crazy people speak to good lawyers the crazies don't like being told "you would be crazy to sue on this one".

I should be glad of crazy people as they keep me employed, even though I spend most of my time telling them not to be so crazy.

[anonymous-user]

paulrockliffe said:

I'm not an employment lawyer, but I am married to one and have picked up enough over the years to know that this is the post to follow. Most of the posts above this one are misleading at best. eg the 30k is a life-time allowance, a proper solicitor will ask if you've been made redundant before and want to know what happened then before advising on that.

Erm, no it isn't. It is limited to amounts received from the same or associated employment or to a tax year. e.g. 2 redundancies from different employers in the same tax year have a total limit of £30k tax free, and 2 redundancies from the same/associated employment over different tax years are summed against the £30k

It's governed by sections 401 to 404A of ITEPA 2003, the relevant part being 404.

Separately all PILON will be taxable from next year.

[anonymous-user]

wsurfa said:

Separately all PILON will be taxable from next year.

Hmmm, I thought it already was as it's considered income and only the "compensation" part for losing one's job was tax free (up to £30k) ?

[anonymous-user]

wormus said:

Hmmm, I thought it already was as it's considered income and only the "compensation" part for losing one's job was tax free (up to £30k) ?

Currently it depends on your contract and custom and practice - if your contract makes no mention of PILON (and it isnt in a handbook) and your firm does not regularly use it, then it could be included if you were terminated without notice.

To 'simplify' (i.e. guarantee more cash) HMRC will count all PILON as earnings and hence subject to deductions

[andy-xr]

There arent any shares. Get your notice and your redundancy money plus any holidays owed paid to you, if you're going down the 'compromise agreement' route have your employer pay for the legal advice that makes it signoff'able. It can be done by phone, shouldnt take more than an hour or two.