Settlement Agreements

"Your Questions answered"

What is a Settlement Agreement?

Your Contract of Employment may come to an end in a variety of circumstances and you may be asked to sign a "Settlement Agreement" when that happens. This Agreement ensures that your Contract is terminated in a legally binding way. The terms of the Agreement will be discussed with you but effectively amount to you surrendering the right to bring any Proceedings in return for a negotiated exit package. An Employer will take legal advice on the wording of the Agreement to make sure it is water tight. You also will be told to take legal advice before you sign it & your Employer will pay for or contribute to the cost of your so doing.

The Consequence of a Settlement Agreement

The primary effect of a Settlement Agreement is that you agree not to pursue any claim you may have against your Employers in either a Court or an Employment Tribunal.

As part of a Settlement Agreement, you may also be restricted from poaching Clients and other Staff. Again, the exact wording of any such restriction will be something you should take advice on. The Agreement may confirm that the terms of the restrictive covenants in your Contract of Employment still apply.

Why am I asked to see a Solicitor?

This is because for a Settlement Agreement to be legally binding the Employee has to be independently advised by a Solicitor or Trade Union representative.

The Solicitor giving the advice must also certify that the appropriate advice has been given.

“I don’t need advice, I just want to sign the Agreement”

You have probably already negotiated a settlement figure directly with your Employers but advice is still essential. Your Solicitor should have expertise in Employment Law so that any legalistic language,  references to Sections of Acts and Regulations which you may never have heard of can all be explained. Equally, you might also not have realised the impact the Agreement may have in relation to Tax, Pensions, Benefits, or the possibility of negotiating an increase in your settlement figure.

What are your Costs? How will my Employers pay you and why is the bill in my name?

Usually we keep to those Fees paid by your Employer. You are the Client although the payment is made by your Employers. The bill is therefore in your name but “payable” by your Employers. We shall obtain payment directly from your Employers so there is one less thing to worry about. If we are undertaking additional work for you then we shall agree this with you in advance.

What happens to my Pension

Your Occupational Pension will simply be frozen. We suggest you speak to your Employer's Pension provider about, transferring the Pension, or continuing to pay in via another Employer.

What should I do after I have signed the Settlement Agreement?

Any agreed compensation will usually be paid within 14 or 28 days.The payment date will be specified in the Agreement.

You should also register for Benefits, even if you are not entitled to them, because your National Insurance will then paid by the Government.

Do I have to pay Tax on the money I receive?

Not if the compensation package is less than £30,000. However, you do have to pay Tax on pay in lieu of Notice, holiday pay, bonuses, perks etc.

What sort of things does a Compromise Agreement include?

  • The Settement Agreement will usually also provide for confidentiality both in terms of your Employer's trade secrets and business affairs and also of the terms of the Agreement
  • You will also usually be required not to make any derogatory comments about your Employer. Some Employees prefer such Agreements to be mutual, and Employers are often receptive to that
  • The Settlement Agreement may confirm your existing restrictive covenants. In some cases, the covenants are new, having appeared in the Settlement Agreement for the first time. In either case, you need to take specific advice on this as your ability to work for a competitor and/or service old clients and customers could be hampered after you leave
  • Most Employers will attach a reference to the actual Settlement Agreement. Some will only give basic information such as when you started, your position, days off sick and when you left. The reason for this, is consistency with all other Employers or, to avoid a situation where something is said which could be detrimental to you and expose the Employers to being sued

You can call us from anywhere in England & Wales for advice on Settlement Agreements or any Employment Law issue - 0800 195 7517