EMPLOYMENT LAW

Settlement Agreements

Settlement agreements can be a very effective way of resolving a workplace dispute and bringing an employment contract to a mutually acceptable conclusion. Our employment law experts can assist with drawing up settlement agreements that allow a dispute to be finalised amicably.

A settlement agreement is legally binding on both parties and in many cases can be a better solution than a tribunal or court case. It’s essential that the settlement agreement is clear, unequivocal and comprehensive and includes terms and conditions which are agreeable to all.

If you would like to negotiate a Settlement Agreement settlement, or you have received one and would like a legal opinion, we can provide technical advice and assistance.

For more information about our employment law services please call us on +44 (0)20 3475 6751 or email info@carterbond.co.uk

More information about Settlement Agreements

Has your employer offered you a Settlement Agreement? Here are answers to some FAQs about Settlement Agreements from legal experts.

Known in the past as Compromise Agreements, a Settlement Agreement is a contract between an employer and an employee which formally ends their working relationship. Both parties must agree to the terms, and it is often used to agree a payment from the employer in return for the employee agreeing not to pursue a tribunal or other legal action. The phrase “waiver of all claims in full and final settlement” is typically found in Settlement Agreements.

You should not sign a settlement agreement until you are certain you fully understand all the terms and implications. It’s highly advisable to seek legal advice to check that the terms of the agreement are fair and enforceable, and that you’re not being asked to yield statutory rights.

Here are some of the most frequent questions we answer on the subject of settlement agreements:

Q: What is a settlement agreement ?

A settlement agreement is a legally binding document between both employee and the employer after a dispute agreeing to end a contract of employment on terms agreed by both parties. The settlement agreement lays out the exact conditions before the employee is terminated.

Q: What is the purpose of a settlement agreement ?

 A settlement agreement is needed so that any disagreements are settled before a claim against the company is taken to an employment tribunal. The purpose of the settlement agreement is so that an employee cannot make a claim against the employer from the act of their termination.

Q: How does a settlement agreement work ?

A settlement agreement is produced by the employer and is presented in a meeting between both parties or sent to them. The employer lays out the terms of the settlement agreement part by part and the employee can then decide to sign it or not, whereupon it becomes legally binding.

Q: Do I have to take legal advice on the settlement agreement ?

Yes, the employee must assess the settlement agreement with a legal professional for it to have validity. There will also be an advisors certificate attached to the settlement agreement to ensure that the employee’s rights have been protected and they understand the contents.

Q: Will I have to pay for professional legal advice when signing a settlement agreement ?

No. The advice provided by an employment solicitor in relation to the terms laid out in a settlement agreement should be covered by the employer. You are free to choose your own representative to make sure that the advice offered is impartial.

Q: Do I have to sign the agreement on the spot?

A: No. You must be given sufficient time to consider the offer and to obtain legal advice. The ACAS code specifies you should have a minimum of 10 days to reach a decision.

Q: Are there any rights which can’t be superseded by a Settlement Agreement?

A: Yes. Section 91 of the Pensions Act 1995 ensures that any accrued pension rights are protected (other than in very exceptional circumstances). The agreement should specify that these rights are unaffected.

Q: Does my employer have to offer me a Settlement Agreement if I want to leave?

A: No. Your employer is not under any obligation to offer an agreement. However, if you have grounds to pursue action against them such as discrimination, harassment and bullying, they may be inclined to do so.

For more information about your rights under Settlement Agreements, get in touch with us today.

Q: My employer says he will sack me if I don’t sign the agreement - can they do that?

A: No. It is not legal to use intimidation to coerce an employee into signing a Settlement Agreement. Your employer is able to say that disciplinary proceedings will commence if the Settlement Agreement does not go ahead but this does not extend to confirming your dismissal.

The Acas Code of Practice on Settlement Agreements explicitly states intimidation is not permitted. If this occurs, the clause which binds an employee to the agreement without prejudice will no longer apply.

All your questions on Settlement Agreements answered

What is a settlement agreement?

A settlement agreement is a legally binding document between both employee and the employer after a dispute agreeing to end a contract of employment on terms agreed by both parties. The settlement agreement lays out the exact conditions before the employee is terminated.

What is the purpose of a settlement agreement?

A settlement agreement is needed so that any disagreements are settled before a claim against the company is taken to an employment tribunal. The purpose of the settlement agreement is so that an employee cannot make a claim against the employer from the act of their termination.

How does a settlement agreement work?

A settlement agreement is produced by the employer and is presented in a meeting between both parties or sent to them. The employer lays out the terms of the settlement agreement part by part and the employee can then decide to sign it or not, whereupon it becomes legally binding.

Do I have to take legal advice on the settlement agreement?

Yes, the employee must assess the settlement agreement with a legal professional for it to have validity. There will also be an advisors certificate attached to the settlement agreement to ensure that the employee’s rights have been protected and they understand the contents.

Will I have to pay for professional legal advice when signing a settlement agreement ?

No. The advice provided by an employment solicitor in relation to the terms laid out in a settlement agreement should be covered by the employer. You are free to choose your own representative to make sure that the advice offered is impartial.

Do I need to use a solicitor in a settlement agreement?

Yes. This is a legal requirement in any settlement agreement so that the employer does not try to coax you into an agreement you do not fully understand the implications of. They will then sign an advisors certificate to that effect. Having a legal body explain the settlement agreement is useful.

Do I have to accept a settlement agreement provided by my employer?

No. You do not have to accept the terms and conditions in any settlement agreement if you do not feel that it is in your best interest. However, the terms offered in such an agreement are likely to be favourable towards the employee to avoid any employment tribunals which can cause issues.

How are terms decided in a settlement agreement?

The terms are largely dictated by the employer, however the employee with the assistance of a legal expert can also request that certain terms or payment conditions be written into the settlement agreement to their benefit. It will be up to the employers to agree to those new terms.

How much should be paid in a settlement agreement?

Every case is taken on an individual basis and in direct proportion to the need for a settlement agreement. Factors taken into account will include how long you’ve worked for the company, the amount of time taken to settle various disputes, and the cost of pursuing the case in tribunal.

What should be included in a settlement agreement ?

This will vary on a case by case basis but it should include the basics such as: how much will be paid and the dates, claims which are to be and are not to be fully waived by the employee, any confidentiality issues, any property which needs to be returned and also the exact end date.

Will a settlement agreement be taxed?

It depends on the amount. Claims under £30,000 are often paid out without having any tax taken, however this is determined by a number of factors such as whether the payment is being made voluntarily or if it has been obliged legally.

How much does it cost for a settlement agreement?

The legal fees are covered by the employer and are usually around £400, but this can vary depending on how many clauses and terms need to be written into any settlement agreement, and if an in person meeting is needed between all the parties and the legal team.

Can I negotiate against a settlement agreement ?

Yes. The first settlement agreement presented to you has been drafted by the employer and is an offer you can accept, decline, or request amendments to. You can dictate reasonable requests such as an increase in payment, however waive clauses are usually non-negotiable.

What happens if a settlement agreement is not accepted?

It is within the interests of both parties to come to a settlement agreement, and this is usually the case. If the agreement has not been accepted, then the dispute will be heard by a dedicated employment tribunal. This adds extra cost to the employer and employee, thus a last resort.

What is a good settlement agreement?

A good settlement agreement is one that benefits both parties, and that can be agreed upon by everyone. The employer should be content that no claim can be brought against them, and the employee needs to be satisfied with the financial payout detailed in the settlement agreement.

Should I accept a settlement agreement?

It is probably in your best interests to accept a settlement agreement put before you by your employer. Your solicitor will also likely seek to find reconciliation in this regard to avoid a lengthy tribunal which could mean you end up with less money than originally offered.

Is a settlement agreement the same as redundancy?

No. A settlement agreement can be used when you have been made redundant by your employer however it is not the same as redundancy. When you are made redundant, your employer might want to create a settlement agreement, especially if you’ve worked there for a long time.

How long do I have to accept a settlement offer?

It is generally advisable to accept a settlement offer within a short timeframe however you need to give yourself time to properly evaluate the settlement agreement with your legal advisor. Your employer will want a swift resolution to the matter, and it’s better for you to avoid a tribunal.

What happens if you refuse a settlement offer?

When a settlement agreement has been refused you have two options. You can either request changes to the original agreement in terms of payment, or you can reject the agreement as a whole and begin to prepare your case in an employment tribunal against your employer.

What happens after a settlement agreement is reached?

The terms laid out in the settlement agreement will dictate the next steps. After signing you will be legally obliged to have your employment terminated on a specific day, return any equipment by that date and you will also find out in writing when you will receive your cash amount.

How is a settlement agreement paid out?

This will be determined by the terms in the document, and your settlement agreement is likely to be paid out in one lump sum within one calendar month of the agreement being signed in most cases to bring a swift resolution. You may also agree to be paid in instalments if it is a large amount.

YOUR EMPLOYMENT LAW TEAM
Howard Lewis-Nunn

Howard Lewis-Nunn

Employment Partner / Barrister

e: howard@carterbond.co.uk
t: +44 020 3475 2713
m: +44 07572 823 361

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Reena Popat

Reena Popat

Managing Partner

e: reena@carterbond.co.uk
t: +44 020 3475 2724 
m: +44 07931 347 854

READ MORE >


HIGHLIGHTS

We have acted for high ranking City executives and settled for a payout of £5m in relation to significant bonus claims

Acted for an associate in the banking sector who was discriminated against because of their background, and settled for a year’s worth of salary and a bonus

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