Understanding Mutually Agreed Resignation Schemes (MARS)
Mutually Agreed Resignation Schemes (MARS) provide a framework whereby employees can agree to part ways with their employer on amicable terms. They often come about where an employer is experiencing financial difficulties and wanting to save costs; the MARS act as a vehicle for reducing a workforce, without the need for lengthy processes such as redundancy and lay-offs. In this blog, we will take a closer look at what MARS are, how they are formalised and the importance of receiving legal advice.
What are MARS?
A MARS is a formal agreement whereby an employee agrees to voluntarily resign in exchange for some kind of benefit from their employer. Usually, this benefit takes the form of a tax-free payment.
Typically, a MARS is appropriate where an employer is experiencing financial difficulties and needs to cut costs by reducing its workforce. A MARS is beneficial for the employer as they avoid having to go through the lengthy process of redundancy and lay-offs, and beneficial for the employee as they can voluntarily resign in exchange for a tax-free compensation payment. The general position is that an employee can receive up to £30,000 tax free in respect of a compensation/redundancy payment from their employer.
The terms of the formal agreement are often formalised in what is called a ‘settlement agreement’ which sets out the terms of the resignation. Typical clauses found in such agreements include:
- Compensation Payments – as above, when it comes to MARS, usually, the employee agrees to resign in exchange for a tax-free severance payment;
- Waiver of Claims – a settlement agreement will include a clause whereby the employee agrees to waive their right to pursue any claims they might have against their employer, for example an unfair dismissal or unlawful discrimination claim;
- Confidentiality Clause – usually, a settlement agreement will include a confidentiality clause, which means both the employer and employee must keep the terms and existence of the settlement agreement confidential; and
- Non–Derogatory Clause – a settlement agreement usually always includes a non-derogatory clause which provides that both the employer and employee must not make any derogatory statements about one another, moving forwards. This would exclude whistleblowing.
The Role of Legal Advice
By law, it is a condition that a settlement agreement between an employer and employee must be explained to an employee by an independent legal advisor (for example, a solicitor). Therefore, if you have agreed to voluntarily resign and this agreement is formalised by way of a settlement agreement, you must ensure you have received independent legal advice on its contents and effect before signing. If you are not happy with the terms of your agreement, your legal advisor may be able to assist you in negotiating the terms with your employer.
Our team of Employment Law experts are able to provide you with this advice and can assist you with any negotiations. We will explain the agreement to you clearly and take time to understand any questions you have.
We appreciate that settlement agreements need to be dealt with swiftly and can arrange appointments quickly or for the same day, if necessary. Appointments can be in person, online or by telephone.
Who Covers the Cost for the Legal Advice?
Although not a legal requirement, it is standard practice for your employer to contribute towards the costs of obtaining legal advice in respect of your MARS settlement agreement. In my experience, this contribution is typically upwards of £500 plus VAT. The settlement agreement should include a clause which provides for the level of contribution.
At Ellis Jones, we will guarantee to cap our legal fees for explaining the agreement to you, at the employer’s contribution. Your employer will be invoiced directly and there will be no further cost to you, unless you intend to enter into negotiations with your employer.
How Can Ellis Jones Help?
If you have been offered a settlement agreement under a MARS or any other situation, and require legal advice please do not hesitate to contact us on settlementagreement@ellisjones.co.uk or 01202 057754 to speak to a friendly and reassuring adviser from our Employment team.
How can we help?
When you submit this form an email will be sent to the relevant department who will contact you within 48 hours. If you require urgent advice please call 01202 525333.
