Settlement agreements
Settlement agreement
If you have a settlement agreement, or expect to receive one, the best thing you can do is contact us and one of our partners will contact you within one hour and arrange a free consultation to provide you with bespoke advice on your settlement agreement that is tailored to your personal circumstances. We will also discuss with you the possibility of negotiating your settlement agreement.
What is a Settlement Agreement?
A settlement agreement is a contract between an employer and an employee that settles any claims between the two parties and ordinarily results in the termination of the employee’s employment in return for the payment of contractual benefits, such as notice, and a termination payment.
The precise details of each agreement are dependent upon your personal circumstances, but each agreement generally follows a similar template used by your employer’s solicitors. We have seen and advised on these templates thousands of times, so we know what it is we are looking for. Below are the main points that we look for that you should be considering. Please follow the links in each section for further information that may be found on the Employment Rights section on this website.
It is common for you to agree:
- That you have not commenced employment with another employer or expect to receive an offer of employment.
- That you will abide by the terms of the settlement agreement.
- That you will not commence legal proceedings.
- That you have no grievance against the company, or withdraw any outstanding grievances by signing the agreement.
- That you won’t start a DSAR, or any DSAR is withdrawn by you signing the agreement.
- That you won’t make any disparaging statements.
- You will have to abide the warranties in order to receive the payments set out earlier in the settlement agreement.
- It is usually a term of the agreement that you may have to repay the monies paid to you if you breach the warranties.
Settlement Agreement Signing Process
Once we have a copy of your settlement agreement, we will be able to provide you with our initial advice and view of your case. If the matter is simple and involves a bit of negotiation with your employer over the terms, the agreement can be signed off in short-order, typically within a couple of days. This will involve e-mails and telephone calls with you and your employer, followed by a call in which we take you through the agreement prior to signing off. Sign off is done electronically, or via scanned copies.
If your matter is more involved and requires significant negotiation, the process will likely take longer. How long depends upon the issues between you and your employer and the sums being negotiated. Usually, however, even in a relatively acrimonious case, we expect to reach agreement with your employer and sign off within two to three weeks of us becoming instructed.
When Employment Tribunal proceedings are required, the settlement process is inevitably much longer. We only recommend this process in select cases as it delays settlement and increases expense.
The anatomy of a settlement agreement
Termination Date
This is the date on which your employment with your employer will end. This is usually at the start of the agreement.
Termination Payment
The value of the Termination Payment is usually your paramount consideration when receiving a settlement agreement and is usually found near the top of the agreement, below the recitals. It is a payment in consideration of the termination of your employment and is almost always tax free up to the value of £30,000. If you have a Termination Payment in excess of £30,000, there are ways in which you can minimise your tax liabilities, such as allocating part of the payment to your pension. In valuable or complex cases, we can offer you the services of expert tax advisors. How much your Termination Payment will be depends upon your situation, including your salary and the value of any claims that you may have against your employer that you are settling by signing the agreement. Often, we can negotiate your Termination Payment, but we can advise you on your prospects of doing so when you contact us.
Notice Pay
In almost all circumstances, when signing a settlement agreement, you should expect to receive either Payment in Lieu of your notice, or an agreement that you will work your notice period and receive full payment for doing so. Usually, your employment will terminate on the Termination Date and you will receive a Payment in Lieu of Notice, which means you receive the money you would have earned during your notice period as a lump sum, but you don’t have to work to receive the payment. Notice pay is taxable, so you will receive the net value of the payment if you receive a Payment in Lieu of Notice, or your usual net pay if you have to work your notice period.
Holiday Pay
You will receive payment in lieu of any holiday days that you have accrued by working for your employer, but have not yet taken, usually including any holiday days that would have accrued during your notice period.
Settlement of Claims
By entering into the settlement agreement, you will be agreeing to settle all claims that you have against your employer in the employment tribunal or county court. There will be a list of claims that you are agreeing to settle, either in this clause or an attached schedule. Claims that are always excluded from settlement are claims against the pension fund or in respect or your pension rights, claims for persona injury that you are unaware of at the time of entering into the settlement agreement, or claims to enforce the settlement agreement (for example, if your employer doesn’t pay you, or pay you the correct amounts, then you can bring a claim against them for the outstanding money. This is extremely rare).
Expenses
Your employer will agree to pay any outstanding expenses you have legitimately incurred, so long as you submit the expenses within a certain timeframe.
Return of Property
You will agree to return any property that you hold that belongs to the company, usually by the Termination Date or within seven days of it. This will include physical property such as mobile phones and laptops, as well as literary property such as client lists, company documents and so forth. Occasionally, it is possible to negotiate the transfer of property such as laptops and mobile phones to you. There will be a small tax payment allocated to you based on the value of the equipment.
Warrantees
In entering into the settlement agreement, you will be expected to agree to do, or not to do certain things. Or that you have not, or will not do certain things.
Confidentiality and Confidential Information
It will be a condition of the settlement agreement that you have to keep the fact you entered into the agreement, and the clauses of the agreement, confidential. This means that any information regarding this matter may only be shared between you and your legal advisors, the regulatory authorities, your spouse or partner and certain other specified people.
Restrictive Covenants
If you have restrictive covenants in your employment contract, your employer will likely try to reinforce the terms in the settlement agreement by confirming they continue to apply. Sometimes it is possible to negotiate the removal or amendment of restrictive covenants to allow you more freedom as to where and how you work after the Termination Date.
Legal Fees
The legal fees incurred in respect of us advising you on your settlement agreement are almost always covered by your employer. We will invoice your employer directly for these fees. In certain circumstances, usually where employees are employed by international banks or financial institutions, a payment for legal fees is paid directly to the employee. This sum is taxed, so we will take as our fee for advising on the settlement agreement, the net value of this payment, which means you are not out of pocket.
Adviser’s Certificate
This document is usually found at the end of the settlement agreement and is for us to fill in and send to your employer. The certificate certifies that we have provided you with legal advice in respect of the terms of the agreement and your ability to pursue claims against your employer, and that we have a certificate of insurance in place indemnifying you against any loss as a consequence of the advice.