Settlement Agreement Solicitors

What is a settlement agreement?

Settlement Agreements (previously known as compromise agreements) are legally binding agreements between an employer and employee. The purpose of a settlement agreement is to allow the parties to agree a ‘clean break’. Once you sign the agreement you will not be able to bring the listed claims against your employer. Take a look at our tips on what to expect in a settlement agreement.

Have you received a settlement agreement and want to know what to do next?

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Why do I need legal advice?

Settlement agreements are not legally enforceable unless they meet certain requirements – one being that the employee has received independent legal advice on the terms. This advice is most often provided by a solicitor, preferably an employment law specialist.

Employees have to receive the advice before signing the agreement to ensure they understand the terms of the agreement and the effect this has on their ability to bring a claim against the employer.

• What rights am I waiving by signing the settlement agreement?

  The settlement agreement is likely to include a clause confirming that it represents the entire agreement between you and your employer. This means that you cannot rely on any other document, communication or promise unless the terms are accurately reflected in the agreement.

  You would be waiving the rights set out in the agreement; these can include:

  • Statutory rights; for example, your right not to be unfairly dismissed, your right to a statutory redundancy payment, maternity and paternity rights, as well as the right not to be discriminated against;
  • Contractual rights as set out in your employment contract, such as your notice period, salary and other benefits including bonuses, pension and shares; and
  • Other rights; for example rights to holiday pay and in some cases rights in respect of injuries or ill health you have suffered.

  The only standard exceptions to the waiver are any claims for breach of the agreement itself, personal injury claims (usually limited to claims of which you were not aware at the time of signing) and any accrued pension rights claims. It is therefore important that you ensure you are comfortable with the terms of the agreement.

  It is common for a settlement agreement to state that neither you nor your employer are permitted to tell anyone about the existence of the agreement, its terms and the circumstances surrounding your departure. There is generally an exception which allows you to tell your immediate family about the agreement (as long as they agree to keep the information confidential), your legal adviser, HMRC and your recruitment consultant or prospective employer (but only to the extent necessary to discuss your employment history).

  The agreement is also likely to contain a clause preventing you and the company making derogatory comments about the other. Failure to do so is likely to put you in breach of the agreement which may allow your employer to withhold payment or seek repayment of any sums already paid (save for any payments you are contractually entitled to).

  Do I have to sign the settlement agreement?

  No. An employee has a choice whether to enter into a settlement agreement or not. Our settlement agreement solicitors can advise you on this choice.

  I am not happy with the deal offered. Can I negotiate?

  Yes. To comply with the legal requirements, you do need to get advice on the terms of the agreement. However, if you feel that what has been offered is not acceptable to you then you can seek to negotiate a different arrangement. It is important to read the terms of the settlement agreement thoroughly and get legal advice on negotiation terms such as warranties and references. Our settlement agreement solicitors can advise you on these steps and have written some guidance on top tips on how to negotiate a settlement agreement.

  You may be asked to warrant that you have not received a job offer at the time of signing the agreement. It is often best to resist such a clause early in the negotiations to prevent a difficult situation later on if negotiations take longer than expected. It is a good idea to agree the terms of a reference as part of the settlement agreement, particularly if your employer has suggested that they consider you may be guilty of misconduct or poor performance. It is common practice for the reference to be brief and state no more than the factual details of your employment such as name, job title and dates of employment. Whilst it can be tempting to ask for a lengthy reference outlining all your achievements at work, this may raise suspicions especially where your employer or industry standard is to provide a brief factual reference.

  What are the legal costs for settlement agreement advice?

  If you have been given a settlement agreement by your employer, you are legally required to take advice on its terms.  Advice meetings for standard agreements are charged at £500 plus VAT which is usually paid for in full or in part by your employer.

  How much tax do you pay on a settlement agreement?

  In return for waiving all your claims, you are likely to receive a number of payments. Any contractual payments made to you on the termination of your employment will be taxable in the normal way. You are however entitled to receive up to £30,000 tax free on certain payments at the termination of your employment. Whilst employers are usually keen to utilise this tax free allowance, they will generally insist that you agree to indemnify them should HMRC make a demand for tax at a later date. Such indemnities usually cover the tax together with interest, penalties and costs.

• What happens next?

  Once you have been provided with a draft settlement agreement, you will need to seek advice on the terms from an independent adviser. If you decide to sign the agreement once you have been advised about the content, then your solicitor will normally be asked to provide a certificate confirming advice has been given.

  If a settlement agreement is offered we have extensive experience of providing the required independent advice, particularly in relation to senior individuals, including Directors.

  We are able to explain the implications of settlement agreement terms including those relating to employee benefits entitlements, such as share options and retention plan entitlements. If you feel the offer is not in your best interests, Brachers can negotiate with your employer on your behalf and draft changes to the documentation to protect your interests.

  Documents we will need to see to be able to advise generally include:

  • the draft settlement agreement
  • your employment contract (if you have one)
  • background documents including documents relating to any benefits.

  Before you sign the agreement, it is important to ‘check the small print’ and make sure you understand what you will be paid and when. Always check holiday and notice pay calculations as it is surprisingly common for employers to get these calculations wrong. Also consider when your benefits will end and what property you need to return to your employer and when (it is a good idea to list this so that both parties are clear).

  Get in touch with our settlement agreement solicitors

  Our settlement agreement solicitors are based in Maidstone and Canterbury and are ready to help with any legal advice you may require so please get in touch today.

  If you need guidance about your options, speak to one of our friendly team on 01622 690691. When you are ready you can book a one-hour chargeable online appointment with one of our experienced lawyers. As mentioned above the chargeable fee is usually paid for in full or in part, by your employer.