During and following the Coronavirus pandemic, unfortunately there is likely to be an increase in the risk of redundancies and therefore Settlement Agreement offers.
If you have been provided with a Settlement Agreement, you have probably been asked by your employer to get independent legal advice.
In order to help you consider a Settlement Agreement offer, here are the answers to some of our most frequently asked questions:
What is a Settlement Agreement?
A Settlement Agreement is a legally binding contract between an employer and an employee, whereby the employee agrees to waive any potential claims they may have against their employer in return for an enhanced settlement package.
When is a Settlement Agreement used?
A Settlement Agreement is usually used to terminate the employment relationship on mutually agreed terms. It can also be used where the employment is ongoing, but both parties want to settle a dispute that has arisen between them and bring the relationship to a quick end on agreed financial terms.
Do I have to get legal advice before signing the Agreement?
In order for the Settlement Agreement to be legally valid, it is essential to take legal advice on the terms and effect of the Agreement. We can advise you on whether you have any potential claims against your employer which you are waiving by signing the Agreement and whether the compensatory award offered is proportionate to the potential value of the claim(s) you are waiving.
Do I have to pay legal fees?
It is usual for your employer to make a contribution towards your legal fees in seeking advice on a Settlement Agreement. Depending on the complexity of the circumstances leading to the offer, and the terms within the Agreement, the contribution is usually sufficient to cover our costs and we will invoice your employer directly.
The rare circumstances in which we would charge you any fees is if you decide not to enter into the Settlement Agreement after you have sought legal advice, or if we need to enter into lengthy negotiations with your employer. We will always seek to increase the contribution payable by your employer to limit the fees payable by you.
What terms should a Settlement Agreement include?
The terms of the Settlement Agreement will be set out in the written document which will identify the claims you are agreeing not to pursue in exchange for the enhanced payment. The terms must include a clearly expressed waiver of the specific claims which you have or may potentially have against your employer.
Other terms which are commonly agreed as part of a Settlement Agreement include:
- An agreed reference for prospective employers;
- An agreed internal announcement to your colleagues in respect of your departure;
- Support from your employer to help you find another job, such as help with your CV and interviewing skills;
- Release from any post-termination restrictions in your employment contract that may prevent you working with competitors or customers in the future;
- A confidentiality clause around the terms of the Settlement Agreement.
What claims will I be agreeing to waive?
Most Settlement Agreements are intended to waive every possible type of claim you could bring against your employer in order to draw a line under everything that has happened during your employment. However, there are three claims that you can never waive: any personal injury you are not aware of at the time of signing the Agreement; any accrued pension rights; or to enforce the terms of the Settlement Agreement.
What should I be paid in a Settlement Agreement?
The Settlement Agreement should include a clause containing a clear breakdown of the payments to be made including:
- A ‘compensatory’ or ‘termination’ payment, for loss of employment. An ‘ex gratia’ payment of up to £30,000 can be paid tax free;
- A payment in lieu of notice;
- A payment for accrued but untaken holiday.
There is no set scale of payments and the amount of any compensatory payment will depend upon the individual circumstances of your case. We will go through the background with you to ascertain what potential claims you may have against your employer, how strong they appear to be and how much they may be worth, in order to establish whether the sum offered compensates you sufficiently for the legal rights you are giving up. Other important factors include the potential liability and cost to your employer of you bringing a claim in the Employment Tribunal and how long it will take you to find another job.
Do I have to accept the Agreement in the form given to me?
You are under no obligation to accept the offer from your employer. You are entitled to request a draft agreement in order to seek legal advice. The Settlement Agreement will only be legally binding once it has been signed by you, your employer and an independent legal adviser.
How long do I have to decide whether I want to accept the Settlement Agreement?
As a general rule, an employer should give you a minimum of 10 days to decide whether to accept a Settlement Agreement. Any demand on you to sign the Agreement immediately may be seen to be improper behaviour and invalidate the terms of the Agreement.
Why should I enter into a Settlement Agreement?
Although you may initially be unwilling to sign a Settlement Agreement, particularly if it is unexpected, there can be advantages of doing so. Employment Tribunal proceedings can be expensive, lengthy and incredibly stressful. A realistic settlement package can often represent a good outcome and bring a degree of closure to a difficult situation.
If you have been offered a Settlement Agreement, we are able to arrange an appointment at your earliest convenience (and over the telephone in the current circumstances) and guide you through the process as quickly and smoothly as possible.