Have You Been Offered A Settlement Agreement By Your Employer, As Part Of A Redundancy Package Or To Resolve A Dispute Or Claim You Have Made?
Before you sign anything, you will need to seek independent legal advice on the agreement. This is a legal requirement, designed to protect you, and to ensure that you are not pressured into signing away your rights.
As employment law specialists, we will ensure that you fully understand the terms and effect of the settlement agreement you have been offered, and any implications it may have on your future business activities. Once we have advised you, and you have confirmed that you would like to proceed, we will sign the adviser’s certificate to confirm that you have received our advice.
Clients coming to us have many questions about settlement agreements. Some of the most commonly asked questions are:
What Is A Settlement Agreement?
A settlement agreement (previously known as a compromise agreement) is often offered by an employer to an employee to end an employment relationship in a mutually acceptable way, and to settle any disputes or claims (for example a claim for discrimination, unfair dismissal or money owed).
It usually involves a sum of money being offered to the employee in exchange for their giving up their rights to bring particular legal claims against the employer, and should set out the full details of the arrangements around termination.
What Payments Should I Expect To Receive?
Usually, you should expect the following payments under a settlement agreement:
- your salary and benefits to the termination date
- your accrued but untaken holiday up to the termination date
- payment in lieu of your notice (if you are not working notice)
- a lump sum compensation payment, which may include a statutory redundancy payment (if applicable)
Will I Pay Tax On Compensation Payments?
Typically, up to £30,000* of a compensation payment is normally tax free, and payments above £30,000* are subject to tax and national insurance contributions.
*The taxable status of your compensation payment is decided by HMRC. So your employer may require you to enter into an indemnity within the settlement agreement in relation to the tax status of the compensation payment. We will explain the implications to you as part of the support we provide, but we do not provide specific tax advice.
What Other Terms Should Be In The Agreement?
A settlement agreement is a commercial agreement, so it is open to you and your employer to negotiate terms specific to the issue which arose between you. For example, it might include:
- the amount of your compensation payment;
- an agreed reference and/or announcement;
- an agreement not to bring each other into disrepute by spreading malicious gossip.
- the provision of outplacement support;
- a waiver of restrictive covenants;
- payment of a discretionary bonus;
- any arrangements for shares.
It is vital that anything that you are expecting, and which has been promised by your employer, is included in the agreement, as neither you nor your employer (or anyone else) can rely on anything not contained or referred to in the agreement. We will discuss your situation with you in full, and encourage you to raise any points with us which you consider you are entitled to.
What Happens When A Valid Settlement Agreement Is Signed?
Once you and your employer have signed a settlement agreement (as long as it complies with the legal requirements), it becomes binding. This means you will no longer be able to pursue certain claims against your employer or any connected parties (e.g. group companies).
However, there are three claims which cannot normally be waived under a settlement agreement and which you would still be entitled to pursue. These are:
- enforcement of the settlement agreement itself (for example, if your employer fails to make the agreement payments);
- claims regarding your accrued pension rights;
- personal injury claims that you are not yet aware of or have not yet suffered at the time of the agreement, for example longer term, hidden medical conditions.
Should I sign it?
The decision whether or not to sign your settlement agreement must be yours, and yours alone. Hine Legal’s role is to advise you on the terms and effect of the agreement and, if you instruct us to do so, offer advice on whether the compensation on offer is a ‘good deal’. Our aim is always to give you the best possible advice and sufficient information to allow you to make an informed decision.
Who Pays For Me To Get Advice From Hine Legal?
Usually, your employer will offer a contribution towards your legal fees for receiving advice on the settlement agreement, but there is no legal obligation for them to do so. If they do pay some or all of your legal fees, it is important to be aware that this does not affect our status as your independent advisor. You are our client, and we will always act in your best interests.
An employer’s contribution usually covers the full cost of our advice on the terms and effect of the agreement, but you may ask us to do additional work – in which case you will need to pay the extra costs. When you engage us to support you we will provide you with our client care letter, terms of business and details of our fees.