A Settlement Agreement (formally known as a Compromise Agreement) is usually entered into when an employee’s employment terminates. An employee agrees to the termination of their employment and the settlement of certain claims, and, in return, the employer will normally pay the employee compensation.

Some of the key points that we look out for, which other advisers often miss, are as follows:

• Can you extend any benefits beyond your termination date e.g. private healthcare? Often employers are willing to do this because their insurance premium has already been paid and they recognise the employee may be in a vulnerable position in between leaving their employment and joining a new employer, should they have an accident or become unwell in the interim; 
• Are there restrictive covenants in your contract of employment that you would like your employer to waive? Often employers are willing to waive covenants such as non-competition and non-dealing (but less usually will they waive non solicitation covenants) to persuade you to enter into the agreement; 
• Does the agreement settle claims that it is not intended to settle, e.g. sometimes the agreement will be drafted on the basis that the employee loses benefits such as stocks and shares? If these are applicable, they need to be referred to expressly in the agreement;
• What will the employer say both internally and externally regarding your exit? An agreed form of wording, in addition to a reference which would be sent to prospective employers and recruitment consultants, should be included in the agreement;
• Is there clarity in the agreement about the precise payments that the employee will receive e.g. we do not consider it enough for settlement agreements to simply state that the employee will receive a payment in lieu of their accrued but untaken holidays? Instead, it should specify how many days holiday will have accrued and be untaken and the corresponding payment; and
• Has the tax treatment of the various payments been correctly recorded e.g. whilst contractual payments should be taxable, genuine termination payments and injury to feelings payments unrelated to termination may in some circumstances be paid tax free?
• Is the settlement agreement being used to sever your employment as part of a wider corporate or commercial transaction? If so, you need to make sure that the entire agreement clause towards the end of the settlement agreement refers specifically to the other corporate or commercial documents. Otherwise, there’s a risk of you losing the benefits you would ordinarily be entitled to under these agreements e.g. the money you expect to receive for the shares being sold.

1. In the first instance we will have a call/meeting/video call with you to discuss the circumstances leading to the Settlement Agreement being offered, the legal claims you may have and the value of those claims. That enables us to advise you about strategy for negotiation.
2. Once you have agreed a financial package, we undertake a thorough review of the non-financial terms and advise about any necessary amendments. We prepare a table summarising the key terms, to make it easier for you to understand what you are agreeing to. We then have a call/meeting/video call to discuss our advice and next steps.
3. We then negotiate the non-financial terms on your behalf, reverting to you for instructions at each round, until the terms are agreed. Once the agreement is legally binding, we send you a summary email advising about next steps.