Mandelson’s settlement agreement – lessons for exiting employees?

At the end of last year, the UK government terminated the appointment of Peter Mandelson as the UK’s ambassador to the United States, following controversy surrounding his past links to Jeffrey Epstein.  His termination triggered settlement agreement negotiations.

According to documents recently released by the Cabinet Office, Mandelson initially demanded a payment of £547,201 (being the pay he would have received for the remaining four years of his fixed term contract).

Government ministers described the demand as “inappropriate and unacceptable”, particularly given the circumstances of his departure. After negotiations, Mr Mandelson ultimately accepted the much lower sum of £75,000.  This was made up of a payment in lieu of notice pay of £40,000 (3 months’ notice) plus an ex gratia sum of £35,000 (reflecting around 4.5 months’ net pay).  By keeping the payment under £100,000, the amount could be paid without needing Treasury approval.

Officials reportedly considered this outcome to be a success because it avoided any potential high profile and costly employment tribunal proceedings.

So, what can employees and senior executives exiting, or being offered a settlement agreement, learn from this high-profile exit?

The first thing to note is that where allegations have been made against an employee – which may result in their suspension, them being invited to an investigation or being faced with disciplinary action or even dismissal – it is still often possible to secure exit terms under a settlement agreement.  This is because there will usually always be some residual level of legal and reputation risk for the employer. A settlement agreement provides a clean solution which allows both parties to quietly move on.

The key focus especially where there are allegations of wrongdoing is to protect as far as possible the reputation and the ability of the employee to work again elsewhere.  In such cases, getting an agreed reference and protection against derogatory comments in a settlement agreement is often more valuable in the long term than an exit payment.

Whilst the amount of any ex-gratia payment (of which up to £30,000 can be paid tax free) is often a key element of most exits, the treatment of incentives and bonuses on senior exits can often be worth considerably more.

In terms of negotiation, a common tactic is always to go in higher than you ideally wish to achieve in terms of the ex-gratia element.  Often, in non-redundancy cases, the amount of the initial ex-gratia offer will not be the employer’s best/final position (even where they say it is).

Making a counter-proposal to a settlement agreement offer can be dangerous, because doing so can be classed as a rejection of that offer.  This means there is always the risk of the employer pulling the offer/not putting the offer back on the table in response to the employee making a counter-offer.  However, the more typical response will be either an increase in the ex-gratia element, or a repeat of the previous offer i.e. take it or leave it.

Even where you are being made redundant and you are being offered your employer’s standard enhanced redundancy package (e.g. x weeks’ pay per year of service capped at y years), it is sometimes possible to secure a higher payment if you can argue that you are not a standard redundancy situation, this will usually be where you suffered mistreatment prior to you being put at risk of redundancy.

Long-serving senior executives, where the employer is offering generous enhanced pay terms, may struggle to argue that any potential claims they may have are worth more than the enhanced redundancy pay being offered.

Tribunal awards for discrimination and whistleblowing detriment are uncapped, so these are good claims to leverage/threaten in negotiations as they tend to represent greater reputation risk for the employer than a capped claim for unfair dismissal.

Speaking to a recruiter to establish how long it is likely to take you to find another job is a key element in working out your likely future loss, which you can then compare against the value of what is being offered under your settlement agreement.

Although bonuses may be described as discretionary and only payable if you remain in employment at the time, it is often possible to secure a pro-rata bonus payment as part of the negotiation of a settlement agreement, especially where bonuses are known to have been accrued for by the company in its accounts.

With share options and similar incentives, ‘good leaver’ status can sometimes apply and be provided for in the settlement agreement, often enabling pro-rated vesting, rather than the loss of all unvested elements.

In my 35-year career, I have negotiated over 10,000 settlement agreements for senior executives and employees.  If you want to exit, or if you have been offered exit terms under a settlement agreement and you need advice, please get in touch.