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Employees: Settlement Agreements

Blanchards Bailey LLP has a specialist employment law team that can offer straightforward expert advice on your Settlement Agreement. The vast majority of employers will provide a contribution to our fees, and in almost all cases we will be able to provide our advice within this set amount. This means that you could receive this service for free. 

We can advise you via telephone and email, which enables you to liaise with us at your convenience wherever you are based in the UK. Alternatively, please come and see us at one of our offices if you would prefer a face to face meeting.

What is a Settlement Agreement?

A Settlement Agreement is a legal document between you and your employer to settle claims arising out of your employment. Your employer will normally make a payment to you, usually for more than you are legally entitled to. The agreement sets out the terms on which your employment will end or the dispute between you and your employer will be resolved.

The effect of a Settlement Agreement

When you sign a Settlement Agreement you will be waiving almost all of your rights to bring claims against your employer in Court or an Employment Tribunal. The only rights that are usually protected are for personal injury claims that arise in the future and for your accrued pension rights.

You will also be making various promises under the agreement, which include keeping the agreement and the circumstances leading up to it confidential, not making derogatory comments about your employer, not disclosing any trade secrets that you may have had knowledge of and returning any property that belongs to them.

Is a Settlement Agreement different to a Compromise Agreement?

Compromise Agreements were renamed Settlement Agreements on 29th July 2013, so there is little difference between the two.

However, the new rules for Settlement Agreements protect certain discussions about the offer of the agreement from being used as evidence in certain claims against your employer should you not proceed with the agreement. You will only be able to use the discussions as evidence if your employer has behaved improperly in the negotiations, such as by threatening to dismiss you if you do not accept the agreement.

Why should I sign a Settlement Agreement?

The most important advantage of signing a Settlement Agreement for most employees is that by doing so you receive a lump sum worth more than their contractual entitlement at the end of your employment. This often provides peace of mind and financial security whilst securing your next job. 

Another advantage is that a reference can be agreed with your employer. They will then be obliged to provide this when reference requests are made to them, giving you certainty about what they are telling prospective employers. The agreed reference can also be worded to keep the circumstances behind the termination of your employment confidential.

Finally, the process is much quicker and cheaper than taking your employer to Court or an Employment Tribunal. 

Will I need to pay tax on the settlement payment?

Compensation payments up to £30,000 can usually be paid tax free. However, there are some situations where sums of less than £30,000 may be taxable, such as if the payment includes wages, contractual pay in lieu of notice or holiday pay. We can offer you advice on how to best structure the payments in the agreement to ensure that it is the most tax efficient.

How long will it take?

We work hard to agree the terms of a settlement agreement as quickly as possible for you and can offer a flexible service to suit your requirements. We can offer face to face appointments at short notice, or can advise you over the telephone if you prefer. Depending on your circumstances and priorities, we may be able to advise you on the agreement and sign off the advisor’s certificate the same day that you instruct us.

How much does your advice cost?

In almost all cases your employer will pay a contribution to your legal fees under the Settlement Agreement. Depending on the complexity of your agreement this commonly varies between £350 and £500 plus VAT. This will usually be sufficient to cover your entire legal fees for our advice on the agreement. If substantial negotiations on sums or terms are required, the cost may be more than your employer is willing to pay. However, in all circumstances we will negotiate with your employer for a contribution that covers the entirety of our fees. 

In the majority of circumstances you will receive our advice without having to pay us a penny.

How we can help

A Settlement Agreement will only be legally binding if a solicitor or a certified trade union representative or legal adviser has advised you on its terms and signed it off. 

The benefits of instructing a specialist employment solicitor is that we can advise you of any claims that you may have against your employer and the amount of money you could be awarded if you won. This information can be used to negotiate a better settlement offer for you under the agreement and ensure that your employer is offering you a good deal. If your employer is not willing to negotiate over the offer, we can explore other options with you to improve your negotiating position.

Often employers use template Settlement Agreements that are not suitable in all instances. If this is the case, we can advise you on any clauses in your agreement that are particularly unfavourable towards you and whether all your contractual entitlements are included. 

Instructing us should not cost you anything.