Settlement Agreement

A ‘Settlement Agreement’ is a legally binding agreement between employer and employee. It usually provides for a compensation payment by the employer – in return for which, the employee agrees not to pursue any claim they may have at an employment tribunal. The Settlement Agreement may provide, for example, for payment in lieu of the employee’s notice period which may or may not be taxable. Often an agreed reference will be attached to the Settlement Agreement and your legal fees will be covered by the employer.

Why would an Agreement be necessary?

An employer can only protect itself from an employee bringing a complaint to a tribunal after redundancy or dismissal by having them sign away their right to do so in a Settlement Agreement. This has the effect of turning the redundancy package or dismissal into a “full and final” settlement of any claims the employee has against the employer. Likewise if there have been any internal grievances or disciplinaries an agreement can ensure a swift resolution without any come back for either the employer or the employee.

What are the benefits of entering into such an agreement?

When it is clear that the employment relationship will end, because of disciplinary or grievance procedures or potential claims, and both you and your employer would rather resolve any disputes without proceeding to the Employment Tribunal, a Settlement Agreement is a cost effective and time saving solution.

Furthermore, if dismissed, your dismissal can be kept confidential and usually an agreed reference will be attached to the Settlement Agreement.

Why should I seek legal advice?

Unfortunately, Settlement Agreements are not as simple as they sound. It is actually a legal requirement that you seek independent legal advice so you understand the terms and conditions. The Settlement Agreement will not otherwise be binding. Furthermore, negotiation is required to reach an agreement which satisfies both parties and a solicitor can explain to you whether the terms offer you adequate protection and make sure you are being paid a suitable amount of compensation. Since the agreement will bar you from making any claims to the Employment Tribunal it is essential you know what you are agreeing to, i.e. you may have restrictions in your contract which remain in force and which may prevent you obtaining income from a nearby competitor.

How much does it cost?

The employer should pay for the employee’s legal advice and its contribution will be set out in the Settlement Agreement itself. This firm will often fix the advice to the sum agreed by the employer or will negotiate these fees on your behalf.

If you are advised that your claim is worth more than that being offered then we can even offer you a ‘no win, no fee’ on any sums above what you have already been offered, that we achieve upon settlement. More money without the risk of costs to you (subject to terms).

What if I don’t agree to the terms?

If you do not sign the Settlement Agreement the employer will not pay you the compensation sum. Instead you will need to raise a grievance or issue a claim.

The solicitor should explore these options with you during the meeting. If, however, you simply wish to amend the clauses or negotiate a larger compensation sum then this will invariably be handled by the solicitor within days of you instructing them to represent you. It maybe that this involves further work and you will be liable for these costs. If you seek to recover further sums, reduce your termination restrictions or obtain a favorable reference, then this may result in additional costs.

How long will it take to conclude matters?

We can see an employee as soon as the draft Settlement Agreement has been provided to them. We will spend around 30-45 minutes with you taking you through the Settlement Agreement and addressing any questions you have. If there are amendments required then these will be sent to the employer within 24 hours of the meeting. Often Settlement Agreements are signed and concluded the same day, but it will depend on the circumstances and the complexity of the terms to be re-negotiated.

When will the compensation be paid?

Usually the sums are paid within 7 to 14 days of signing the agreement or in the next payroll. However, this can vary depending on your termination date or what has been agreed, but payment terms will be contained in the Settlement Agreement.

Is my notice pay taxable?

If you are working then your notice you will be paid as normal and subject to the usual tax deductions. If you are being paid in lieu of notice, in that you receive your notice pay but leave early, then this will depend on your employment contract. If there is a clause in the agreement permitting your employer to pay you in lieu of notice, known as a PILON clause, then all notice pay will be subject to tax. If there is no PILON clause the employer cannot force you to accept payment in lieu, but if you do accept it then there are some circumstances in which this can be paid tax free as part of the compensation sum. This is subject to a number of factors which we will discuss with you.

What if I live outside of London?

Providing you can fax or email us your draft agreement and photo identification, we can advise you on the telephone. As such we can advise you wherever you are in the UK: Milton Keynes, Leeds, Bristol, Nottingham, Newcastle, Chester, Wales etc.

Should you use solicitors recommended by your employer?

Often employers will have agreed fixed fees with local firms that have agreed to meet with you promptly. All firms will act independently for your benefit so you should not have any concern about using them. No solicitor can take you on as a client if they act for the employer.

In fact the benefit can be that they have met several employees already and worked through several problems you may not have thought. Also HR are more likely to agree the amendments if its requested for several members.

If your employment relationship is at an end, please do not hesitate to book an appointment with one of our employment specialists who will ensure you are getting the most out of your Settlement Agreement.

Our approach:

A ‘Settlement Agreement’ is a legally binding agreement between employer and employee. It usually provides for a compensation payment by the employer – in return for which, the employee agrees not to pursue any claim they may have at an employment tribunal.

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