Have you been given a settlement agreement at work?

Settlement agreements are intended to settle disputes between an employer and an employee and swiftly and amicably end the employee’s employment contract. If you have been given a settlement agreement, it is only effective once you have received advice from a relevant independent advisor. It is important to ensure that what you are being offered is fair and we can advise you on this.

A settlement agreement must comply with minimum legal requirements. If it does not, an employee may still be able to pursue a claim against their employer.

Your employer will be expected to contribute a minimum of £300 plus VAT towards your costs. The amount the employer is prepared to pay will be set out in the settlement agreement. It is usually possible to conclude this without any further cost to you. 

How does a settlement agreement work?

Previously known as a Compromise Agreement, a settlement agreement offers an employee a financial payment (salary, notice pay, compensation payment, for example) in exchange for agreeing that they will not pursue any legal claims against the employer. It is usual for an agreed reference to be inserted into the agreement.

You will normally be expected to waive your rights to all potential future claims, whether you are aware of them or not. There are, however, some exceptions to this, particularly in relation to accrued pension rights and personal injury claims.

Compensation amounts of up to £30,000 are tax-free (amounts payable above that and those under your terms of employment, such as notice or bonus payments, are normally taxed in the normal way, but there are exceptions). Payment of your settlement sum will usually occur 2-4 weeks after the agreement has been signed or your employment termination date (whichever is later).

A settlement agreement typically includes:

  • Termination of employment
  • Termination payment
  • Employee warranties
  • Settlement of claims
  • Tax indemnity
  • Confidentiality obligations
  • Agreed reference
  • Post termination restrictions
  • Payment of legal costs

The Settlement Agreement Process

  • When you have a draft settlement agreement you should contact us to make an appointment.
  • We will arrange an in-person or online meeting and will ask you to send us a copy of your draft settlement agreement in advance.
  • During the meeting the solicitor will ask about your employment history and advise you of any potential claims you have.
  • They will run through the settlement agreement to explain any confusing clauses and advise you of any that should be altered or removed.
  • They will advise you whether the amount being paid by your employer is reasonable and you can decide whether you wish to accept the financial package offered.
  • If you decide not to accept the package offered, we will advise you of your options. These include instructing us to negotiate a higher sum on your behalf.
  • Once you are happy with the financial package and the wording of the agreement, you will sign it.
  • The solicitor will then sign an Adviser’s Certificate confirming you were advised of the terms and effect of the agreement.
  • We will then send the adviser’s certificate and the executed agreement to your employer for them to sign.
  • Your employer will sign and return the agreement and the matter is then closed.

How ELS Solicitors can help

Our team of dedicated employment law solicitors can help and advise you on your rights and whether your settlement agreement is fair. We can help you with negotiations, if necessary, execute the agreement, and provide you with the adviser’s certificate.

Your employer will be expected to contribute a minimum of £300 plus VAT towards your costs and it is usually possible to conclude this without any further cost to you. This would normally cover your initial consultation and providing the adviser’s certificate. We will advise you if your circumstances are likely to make this process more costly.

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    May 5, 2023

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