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.
We represent a range of employees from junior staff to senior executives in many sectors including financial services, healthcare, retail, management, and legal services. If you have been given a Settlement Agreement, please get in touch and we will help you.
To try to assist you, we have set out some common questions we are often asked by clients about Settlement Agreements:
What should you do if you are given a Settlement Agreement?
- For a Settlement Agreement to be legally binding, you will need to take legal advice, on the Settlement Agreement, from a qualified and independent adviser. This includes Solicitors qualified and insured to advise about Employment Law (such as us).
- Advice on a Settlement Agreement should be sought as soon as possible so that you can fully understand the terms, the claims that you may have, the value of those claims and the implications signing the Settlement Agreement will have.
Can you negotiate the terms and financial package offered under a Settlement Agreement?
Yes. It is very usual for the employee to negotiate the financial package offered under the Settlement Agreement. The success of such negotiation will largely depend upon the strength of your bargaining position.
If you have less than 2 years’ service – can you still negotiate?
Yes. Even though you don’t have a claim for what is known as ordinary unfair dismissal, you may have claims for discrimination, detriment and/or automatically unfair dismissal. Even if you don’t have these claims, your employer may still be prepared to increase the financial package bearing in mind that the Settlement Agreement will often contain important confidentiality obligations, obligations to not make derogatory statements and restrictive covenants. This is usually the case if the employer is offering the Settlement Agreement to avoid the time and cost associated with a lengthy formal process, e.g., a redundancy process.
What key things should you look out for in the non-financial terms of the Settlement Agreement?
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.
Do you have to sign a Settlement Agreement?
In short, no. There is no obligation on you to sign a Settlement Agreement. However, if you are content with the offer that has been agreed then, in order, for the Settlement Agreement to be legally binding both parties will need to sign the Settlement Agreement. Your legal adviser will also have to sign a certificate to confirm that they have given you legal advice on the terms and effect of the Settlement Agreement.
Can People Legal help you with your Settlement Agreement?
Yes. People Legal are a team of specialist employment solicitors who regularly advise on Settlement Agreements, and we have experience across a wide range of industries. Settlement Agreements are generally drafted by the employer, or their solicitors. It is important that you understand your rights and those claims that you are settling under the Settlement Agreement. People Legal will try to negotiate the best compensation package and terms for you.
How much will it cost to take advice from People Legal?
Your employer should contribute towards your legal fees (often of around £350 – £1,500 plus VAT) which we can discuss with you and negotiate on your behalf should it be insufficient. We often work on a fixed fee basis where we simply charge the employer’s contribution. Alternatively, we can negotiate the settlement payment for you on a “No Win No Fee” basis. This means that if your employer does not agree to increase the settlement payment, and you still wish to accept it, you will not receive a bill from us for the time spent negotiating on your behalf”
What does your service involve?
- 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.
- 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.
- 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.
How quickly can People Legal provide advice?
Often, we can do so within one to two business days of receiving your instructions.
Contact our friendly team today for more advice and information regarding Settlement Agreements
Call us on 0800 368 8470 or click the button below for free initial advice. Please note the information contained in this briefing is intended as a general review of the subject featured and is not a substitute for obtaining specific legal advice.