A settlement agreement is a complex legal document. Typically offered to agree the terms of employment termination, they come at a highly stressful time – and most people are unsure about what the document actually is and what it would mean to sign on the dotted line.
This is where Prosperity Law can help. Our team of employment law solicitors have specialist knowledge in this area, and here they outline the key things you need to know.
1. It’s a legally-binding document
Essentially, an employment settlement agreement is a contract. It asks you to drop any claims you have against the employer (avoiding an official tribunal process), in return for financial compensation. Once you’ve signed the document, there’s no way to change the terms. For more on the clauses that you might find in a settlement agreement, read our article here.
2. It can be offered for a variety of reasons
Most settlement agreements are offered to compensate for employment dismissal or redundancy. But they can also be used to resolve an employee complaint or grievance in a confidential and amicable manner, or to offer financial compensation for changes to your contract. They don’t necessarily mean you’re losing your job.
3. Legal advice is essential
In order for a settlement agreement to be valid, you must receive independent legal advice. This is a requirement of the agreement itself. The advice can be given by a citizens’ advisor or a solicitor – who will carefully check the terms and clauses of the contract and make sure that your contractual, common law and statutory rights have been protected. Most employers will offer to pay for this legal advice on your behalf. But, if not, be sure to request this before you agree to sign.
4. You can negotiate the terms
If you’re happy with the terms of the contract, great – sign it, send it back. But if not, you’re under no obligation to agree to what has been offered. Settlement agreements are completely voluntary. With the help of a solicitor, you can enter into a process of negotiation and request both a larger sum of compensation and extras, such as an employment reference or apology letter.
5. The payment is tax-free
Contractual payments gained at the end of the employment, such as your final salary or bonuses, are taxable. However, any financial compensation – up to the value of £30,000 – received as part of an employment settlement agreement is tax-free. It is also exempt from national insurance.
6. Certain future claims are not covered
You may have been asked to sign a ‘full and final’ settlement agreement – but this doesn’t mean that future claims are impossible. If you were unaware of a grievance at the time of signing, such grievances are not covered by the original agreement, and you’re free to make a new claim.
Get in touch with Prosperity Law today
If you’ve been offered an employment settlement agreement and you need advice on the best way to proceed, feel free to get in touch below. We have a team of experienced employment law solicitors who can help.
