Receiving a settlement agreement from your employer can be difficult, upsetting and you are likely to have questions. You may soon be unemployed and have lots of personal concerns to grapple with.
This process can also be confusing and the implications will not be clear to you. What we have set out below are answers to common questions we get in relation to settlement agreements, to help build your understanding.
If you have been given a settlement agreement, then please get in contact with us. We strive to get back to you immediately and have a track record of fast turnarounds and getting you the best terms possible. We deal with settlement agreements frequently and when you speak to us, we will put you at ease, answer your questions, and help you resolve the issues you are facing at work (and even better, in virtually all cases, our fees for advising on settlement agreements will be covered by your employer).
What is a Settlement Agreement?
Formally known as a Compromise Agreement, a settlement agreement is a type of contract used between an employer and an employee (or worker) to record terms of settlement.
Settlement agreements are used when an employee/worker agrees not to pursue certain claims against their employer /ex-employer.
What is a Settlement Agreement used for?
They are used to settle employment law disputes.
For example, a settlement agreement will record the terms of settlement between an employee and employer and may be used to end the employment, where the employee will “exit” the business and agree not to bring any claims in exchange for a sum of money.
What makes a Settlement Agreement binding?
A settlement agreement is capable of waiving a person’s right to bring statutory claims.
For there to be a valid waiver of claims, the following conditions must be met:
- The agreement must be in writing.
- It must relate to a particular complaint or particular proceedings.
- The employee/worker must have received independent legal advice on the settlement agreement and in particular on its effect on their ability to pursue the statutory rights in question.
- The legal adviser must be identified in the agreement.
- The legal adviser must have insurance in place to advise on the agreement.
- The agreement must state that the conditions regulating settlement agreements in the relevant legislation have been met.
Do I have to take legal advice?
As set out above, one of the requirements to ensure a settlement agreement is valid is that you must take independent legal advice on is “terms and effect.”
This means, to be valid and binding, a relevant legal adviser (such as a Barrister or Solicitor) must give you advice on the terms of the agreement, in particular, explaining that your ability to pursue claims will be waived.
Who pays for the Independent Legal Advice?
In most cases, the employer.
As obtaining independent legal advice is a requirement for the settlement agreement to be binding, employers (almost always) agree to pay for the independent legal advice.
Do I have to agree to the Settlement Agreement?
No, you do not have to agree to the terms. However, it is unlikely an employer will agree to make certain payments to you, without using a Settlement Agreement.
Can the offer made be Negotiated?
Yes, like any type of agreement, the terms (including any financial sums on offer) can be negotiated.
Specialist Employment Lawyers will be well-versed in advising on and negotiating better terms in relation to Settlement Agreements.
How can I Negotiate better terms?
This depends on the situation. The best tactics vary (tactic selection is important). We cover this topic in more detail HERE.
You will first need to understand how good the original offer made is.
A Specialist Employment Lawyer will be able to guide you through how best to obtain better terms of more money (or both).
We suggest you make it clear in any enquiry to your Specialist Employment Lawyer of choice that you have a settlement agreement and arrange a call to discuss.
What are common payments agreed via a Settlement Agreement?
This can vary depending on the person’s remuneration and if the Agreement is being used to end the employment.
If the Agreement is being used to record the terms of an exit (when the employment relationship is being ended) then payments usually agreed and recorded are:
- Your salary and benefits up to an agreed termination date.
- Your notice pay.
- Holiday pay.
- Your expenses.
- A redundancy payment.
- Pension arrangements.
- Shares/long-term incentive plans.
- An ex-gratia payment (often referred to as a Termination Payment).
Can any of the payments be made Tax Free?
An ex-gratia payment can usually be paid tax-free up to £30,000.
The first £30,000 of compensation for loss of employment can be paid free of tax, but this does not include notice pay, holiday pay, or other pay owed (such as a bonus of commission) which will be subject to tax in the normal way.
What are common clauses not relating to payments in a Settlement Agreement?
Again, this can vary, but examples of common clauses are:
- A termination date (the date the parties agree for the employment to end).
- The reason for termination.
- Waiver of claims.
- Legal fees (how much the employer will pay/contribute to legal fees).
- The return of company property.
- The return or deletion of company files/information.
- Non-derogatory comments (restricting you from making derogatory or disparaging remarks about your employer).
- Restrictive covenants.
- A reference.
- A tax-indemnity.
- Employee warranties.
The meaning of these clauses will be explained when receiving your independent advice on the terms and effect of the settlement agreement.
How can I get advice?
We are specialists in dealing with Settlement Agreements and can advise you on the terms or help negotiate better terms.