Settlement Agreement

A Settlement Agreement is a legally binding agreement between you and your employer over the end of your employment. A Settlement Agreement usually contains provision for a payment by your employer in return for your agreement not to bring any claims in a Tribunal or a Court. A core part of the Settlement Agreement is that is it usually confidential.

Why use a Settlement Agreement?

To get a clean break and to avoid wasting any unnecessary time and cost incurred through employment claims. A Settlement Agreement contains mutually agreeable terms and allows for a smoother termination of contract.

There is a range of scenarios in which Settlement Agreements are used. They usually apply where the employer does not want to follow what could be a long, drawn-out process. Such as a performance review or a full redundancy process, before being able to terminate. Also, where you already have issues about discrimination or have raised a grievance, the employer may want to circumvent a claim for constructive dismissal and/or discrimination.

What do I get paid?

Individual amounts will depend on your individual circumstances and will also relate to how long you have been working for your employer, you can however expect to receive a payment for the following basic items:

  • Payment in lieu of notice
  • Payment of any due bonus or commission
  • Pension payment
  • Medical Insurance
  • Life Insurance
  • Compensation for loss of employment

Most of the above will be subject to tax and National Insurance in the usual way; except compensation for loss of employment which will usually be tax free if below £30,000 in value.

Is it the right amount of money?

We will look at the sums offered to you in your Settlement Agreement and advise you if it is a good deal. We will take into consideration any reasons associated with the termination and the strength of any possible Tribunal claim.
Where the proposals are agreeable to you, or where you instruct us to continue despite the fact you might obtain more before a Tribunal, we will sign off the Settlement Agreement to ensure a speedy settlement of the sums offered.
How quickly do I get paid?
Once all parties have signed a Settlement Agreement, the monies are usually paid within 7 and 21 days. Some payments will only be made on the usual payroll date such as outstanding salary and accrued holiday, bonuses or commission payments.

What other matters are covered?

In addition to the monetary side, a Settlement Agreement will usually deal with the practical elements of the end of your employment, from the return of company property to confidentiality. This can include the following:

  • Terms of a reference
  • Return of company property
  • Restrictive covenants
  • Confidentiality

The exact terms will depend on your individual circumstances, but it is important to read these carefully, especially as covenants relating to working for competitors may still be in force.

Can I negotiate the terms?

It is entirely within your own discretion to reject or negotiate the terms of the Settlement Agreement, we will advise you of any likely outcome at Tribunal, but the decision to proceed is always yours; if you do proceed then you give up any claim for unfair dismissal or discrimination.

Do I need a solicitor?

Part of a Settlement Agreement is an agreement not to bring any employment claims, in order for this to be legally recognised a solicitor or certified trade union or adviser must sign to say you have received advice. This ensures that you know the merits of any claim and the amount of money you would be likely to receive at an Employment Tribunal.

A specialist employment solicitor may also identify any issue of which you might not be aware. For example, discrimination due to disability.

Can I be dismissed if I do not agree?

Any threat to dismiss you without the proper disciplinary process can be disclosed to a Tribunal. This includes the threat of dismissal for not signing a Settlement Agreement. Under these circumstances you may have grounds to resign and to claim constructive unfair dismissal.

How much does it cost?

Your employer will usually pay a contribution towards your legal fees of between £350 plus VAT (£420) and £500 plus VAT (£600). This will depend on the complexity and breadth of the issues. Wherever possible we will ensure that this covers all your legal fees.

If you wish to know more, or require assistance, please contact our employment team today.

For help with settlement agreements

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