If your employer has offered you a Settlement Agreement and you are in need of Independent Legal Advice then you have come to the right place. At AS Solicitors we advise and negotiate Settlement Agreements for employees at all levels of seniority.
What is a Settlement Agreement?
A Settlement Agreement (formally known as a Compromise Agreement prior to the Enterprise and Regulatory Reform Act 2013) is a legally binding agreement between employer and employee under which a financial offer is be made by an employer in return for an employee agreeing to settle their potential claim(s).
An employee will receive a severance payment, and very often an agreed reference, in return the employee agrees to waive their right to pursue a case at an Employment Tribunal or Court on the grounds covered by the agreement.
The employer will usually require the terms of the agreement to be confidential. However, the scope of this clause can be reduced to allow the employee to speak to those closest to them and be able to tell future employers about the circumstances of their previous employment.
A Settlement Agreement may also contain a clause preventing the employee from making derogatory comments against the employer. Such clause can be changed to prevent the employer from also denigrating the employee.
How is a Settlement Agreement different to a Compromise Agreement?
Prior to 29th July 2013, Settlement Agreements were known as Compromise Agreements. There is little difference between a Settlement and Compromise Agreement, the main being under the new provisions discussions surrounding a Settlement Agreement cannot be used as evidence within Employment Tribunal proceedings, unless the employer has behaved “improper” in such negotiations.
When will a Settlement Agreement usually rise?
A Settlement Agreement is offered when the employer wishes to terminate a contract on terms mutually agreed with the employee. The terms of the agreement are mutually agreed so there is a clean break with no opportunity for the employee to make a claim against the employer at an Employment Tribunal.
Employers offer Settlement Agreements for a variety of reasons. One reason being, the employer may not wish to follow what could potentially be a long process, such as a performance review or a full redundancy process, before being able to terminate the employment. Another being, they may want to circumvent a claim for constructive dismissal and/or discrimination.
What requirements need to be satisfied in order for there to be a valid settlement agreement?
- It must be in writing.
- It must relate to a particular compliant or proceeding (in other words, thought must be given, and be documented as having been given, to the possible claims that the employee will waive by signing the agreement).
- The employee must have received Independent Legal Advice from a relevant adviser.
- The employee’s adviser must be identified and have a current contract of insurance (or professional indemnity insurance) covering the risk of a potential claim against them by the employee for the advice.
Common Clauses included within a Settlement Agreement
- Compensation for loss of employment. The basic tax position is that the first £30,000.00 can be paid without deductions for tax or NIC provided it is an ex-gratia payment (compensation for losing employment rather than contractual payment).
- Details with regards to working Notice.
- A contribution to legal fees. Your employer will usually pay your legal fees.
- It is normal for the employee to provide your employer with a tax indemnity as set out in the Agreement. The employee must be advised as to what tax they should expect to pay if HMRC challenges the payments under the agreement
- A list of potential claims that the employee agrees to settle.
- Imposition of restrictive covenants or modification of a covenant. Such clauses may prevent the employee working for a rival company.
- If the employee’s contract has no mention to payment in lieu of notice (PILON), then the employer may pay the Notice as a gross amount.
- Confidentiality Clause.
- Pension contributions should continue during the employees Notice unless the employment contract states otherwise. The employer may agree to pay a lump sum into the employee’s pension as part of the settlement terms.
Do I need a solicitor?
- By signing the agreement the employee gives up the right to bring an employment related claim against the employer. A specialist employment solicitor will provide Independent Legal Advise making sure the employee fully understands the agreement and consequence of signing the agreement. For the Agreement to be recognised in law a solicitor or adviser must sign off the agreement.
- Before signing the Agreement a specialist employment solicitor will also advise on the merits of any potential claim the employee may have against the employer and the amount of money likely to receive at an Employment Tribunal.
Will I get a good reference for a new employer?
It always a good idea to agree the reference and attach this to the Settlement Agreement ensuring the employer cannot derogate from the agreed reference.
If I reject the Settlement Agreement and claim, can I rely on the Agreement as evidence in Court?
If the employee rejects a Settlement Agreement and wishes to make potential claim at an Employment Tribunal they may be entitled to rely upon any off the record conversions and documents at Court. This will depend upon the type of claim the employee intends to make and whether your employer’s conduct amounts to improper. i.e bullying, harassment, intimidation and not giving a reasonable time to consider whether to accept the Settlement Agreement ( ACAS recommends 10 calendar days).
Do I Have to pay?
The employer usually pays a contribution towards the employee’s legal fees. This can vary from £350 to £500 (plus VAT) depending on the complexity of the issues. This is likely to cover all the employee’s legal fees in straightforward matters.
How Can AS Solicitors help me?
If negotiated properly, a settlement agreement can be a very effective way to ensure that you are adequately compensated for the termination of your employment.
AS Solicitors have successfully negotiated many settlement agreements for employees including:
- Enhanced compensation payments and outstanding bonus payments.
- Agreed references;
- Confidentiality and non-derogatory comments protection (a clause to stop your employer from bad mouthing you after you have left).
- The extension of certain benefits after termination, such as health insurance and gym membership.
We do not charge for providing independent legal advice on the contents of a Settlement Agreement. Our fees are usually covered by payment from your employer.
If your employer has provided you with a Settlement Agreement and you require Independent Legal Advice please telephone us on 020 8318 4345 and book a FREE appointment to see our specialist employment law solicitors.