What is a settlement agreement?
A settlement agreement is a legally binding contract between employer and employee which settles claims that the employee may have against their employer. However, this does not 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 are free to make a new claim.
A settlement agreement is usually issued when an employee’s employment comes to an end. Settlement agreements are voluntary and are signed by both employee and employer.
Will I receive financial payment in a settlement agreement?
Settlement agreement often include payment for an employee upon termination of employment. Payments of up to £30,000 compensation can often be paid without tax being deducted, if the payment is being made on an “ex-gratia basis”, this means that the payment is something an employer has decided to make rather than being legally obliged to make or as damages to compensate a breach of contract. However, we would always advise you to take tax advice from a professional adviser before committing to any payment.
How much should I be paid in a settlement agreement?
There is no set scale of payments and the amount of any settlement payment will depend upon the individual circumstances of each case. Factors to be considered can include:
- The length of service of the employee.
- The circumstances around why a settlement agreement is offered.
- How long it would take to settle the dispute if agreement was not reached.
- Potential liability and cost of having to defend an Employment Tribunal.
What is a confidentiality clause?
The confidentiality clause is an extremely important part of the Settlement Agreement for your employer. However, sometimes the scope needs to be reduced to allow you to speak to those closest to you, such as a spouse or immediate family or to be able to tell future employers about the circumstances of your departure.
There may also be clauses preventing you from making derogatory comments against your employer. These can be changed to be mutual clauses, stopping your employer from denigrating you.
What are post termination covenants?
Post termination covenants are usually repeated in a settlement agreement or referred to. Post termination clauses often restrict your right to conduct activities in competition with a previous employer after the relationship has ended.
Post termination covenants still apply even if an employee is dismissed and as such it is important to take advice from a solicitor on the content of the clauses.
How much does a settlement agreement cost?
The employer should expect to pay a contribution towards the legal fees of the employee. The employee will be required to obtain legal advice on the agreement to ensure they understand the full terms of the agreement.
Can you negotiate the terms of the agreement?
If you are happy with the terms of the contract, great – sign it, send it back. But if not, you are 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.
Can an employee be dismissed if they do not agree to the terms of the settlement agreement?
Threatening dismissal before any form of disciplinary process has begun, if the settlement agreement is rejected, also constitutes improper behaviour and will be disclosable to a Tribunal. The likelihood is that an employee will want to raise a grievance about this type of behaviour which, if not upheld, may result in them resigning and claiming constructive unfair dismissal.
Is it a settlement agreement legally binding?
In order for the settlement agreement to be valid and binding, it will need to meet a number of statutory requirements, including that it must be written and must specify the particular complaints which the agreement is now settling.
Importantly, the employee must have received legal advice from an independent legal advisor on the terms and effects of the agreement. The legal advisor must be clearly identified in the agreement and they must be covered by a valid insurance policy.
For more information on settlement agreements please contact Zara O’Hare on zara@prosperitylaw.com or 0161 667 3697.
