Settlement agreements are increasingly being used by employers when dismissing an employee or during redundancy procedures.
If you are in this situation and have been offered a settlement agreement from your employer, it is important to seek independent legal advice before signing.
We can help you negotiate the best possible terms of any proposed settlement agreement and advise on your legal rights and remedies. You can find out more about settlement agreements and how we can help you here:
What is a Settlement Agreement?
If you have been made redundant or been dismissed by your employer, you may be asked to sign a Settlement Agreement (sometimes referred to as a severance agreement, separation or release agreement and formerly known as Compromise Agreement). By doing so, you are waiving your right to bring a claim against your employer in return for a sum of money.
Not only are they used for redundancy (voluntary or compulsory) and dismissal situations, but settlement agreements are also used to settle potential claims, or as an alternative to a disciplinary or performance procedure.
What is the process?
A settlement agreement is an offer and can therefore be accepted, rejected or negotiated.
The first step is to contact a solicitor for legal advice. This is crucial step as in order to be binding, settlement agreements must be in writing, signed and you must have had independent legal advice from a solicitor or another suitably qualified person.
During your initial meeting with your chosen solicitor, you will need to provide a copy of both the settlement agreement and your contract of employment together with details of how and why you have been offered a settlement agreement.
These documents will be reviewed in light of the circumstances. At this point it is possible for your solicitor to give an initial view as to whether or not the offer is suitable in the circumstances and if any standard amendments need to be made to the agreement itself. These amendments can then be put to your employer for consideration.
Once the amended agreement is received a meeting will be arranged so the terms and effect of the agreement can be explained to you.
How much will it cost me?
As employers are aware that it is a requirement that you take legal advice in order for a settlement agreement to be effective, most employers will make a contribution towards your legal fees. Your employer will offer you an initial budget, often this will be £250 +VAT.
We operate on an hourly rate basis which means that we charge for our time according to the amount of time you use. £250 + VAT will allow you approximately an hour of time which should be sufficient to discuss with you the background to the termination of your employment, advise you as to the value of any claims you might have and discuss with you any changes which might be needed to the draft agreement. In our experience, if you are in agreement with your employer as to the amount of money that they are willing to pay you then £250 + VAT will be sufficient to conclude the agreement.
However, if you need us to help you to negotiate further either with regard the amount of money that you will be paid or in relation to specific clauses in the agreement then this is likely to cost more money. We will advise you as to how much we think it will cost and will then seek to negotiate with your employer an increase in their contribution as part of our discussions with them.
Rest assured we will not charge you any more than your employer is willing to contribute without you being aware that we have incurred those additional fees in advance.
How long will it take?
Settlement agreements are usually concluded within a relatively short period of time. If you are happy with the content and the amount of money which is paid then we should be able to complete the work within a matter of days. If there are negotiations involved then it will depend how quickly your employer is able to respond, but we would anticipate most agreements would be finalised within a couple of weeks.
If your employer is putting pressure on you to conclude matters quickly or you have a particular deadline that you want to work to, we can work with you to conclude matters within your timescale if we are able to.
What are the key clauses of a settlement agreement?
We will advise you through your settlement agreement, explaining each section to you. The key clauses we will draw your attention to are:
- Termination date – the date on which your employment will end if you sign
- Payment – the money you will receive for signing the agreement
- Waiver – the potential tribunal claims you are waiving
- Tax Indemnity – the promise to repay to the employer any additional tax which is due on the sums received
- Confidentiality – the promise that you will keep the terms of the agreement, including the payment, confidential
- Derogatory comments – a promise to refrain from making derogatory comments about your employer
- Reference – under UK law you have no right to receive a reference so it can be a valuable inclusion particularly if you can draft it yourself
- Return of company property – that you will return all company property on or before the termination date
- Restrictive covenants – these are clauses in your contract which aim to restrict who can work for and who you contact with a view to providing services or employment in competition with your employer. These might be included in your settlement agreement and more details can be found here.
How have we helped clients before?
A recent client of our team attended their first appointment with a settlement agreement offer of £3,915 but, following negotiations this was increased to £10,000. Also included was a contribution to legal fees of £700 plus VAT.
We were able to achieve this as we identified that the employee had potential claims against the employer. We contacted their HR team and confirmed with them that although the employee could see the benefits of reaching an amicable deal, the offer was not enough.
We focused on the manner in which the offer was made, the length of service of the employee, their contractual rights and the likely award that an Employment Tribunal would make. Following negotiations we were able to agree the increase to £10,000.
In order to negotiate this increase, there needs to be some merit in the concerns you are raising and/or an oversight on the part of your employer as to key terms in the contract of employment. We were able to highlight these on this occasion and the employer conceded.
Is there any risk in seeking to negotiate?
A settlement agreement is not a done deal until both you and your employer sign and the solicitors certificate is completed. There is always a risk that if you seek to negotiate the employer will take offence and will withdraw the proposal from the table.
In our experience employers usually react in one of two ways. Either they will say that the offer they have put is non-negotiable and you can take it or leave it, or they will come back with a revised offer either at the level you have requested or somewhere between the two. However, there have been situations where the employer has been affronted by the negotiations and has withdrawn the offer from the table. This tends to be the case when you are dealing with smaller employers where the person paying the bill is the person accused of doing wrong.
You need to be confident of your ability to achieve more in an Employment Tribunal claim before risking a deal by putting forward a counter proposal.
We have a dedicated independent Financial Services department who can assist you in how to invest your money or avoid unnecessary tax by taking advantage of certain allowances and exemptions.
We can also provide independent pensions advice which may be important if your old employer’s scheme is closed to you and your benefits are deferred.
We are specialists in providing advice on termination payments and severance schemes for senior executives, as well as in negotiating a successful exit from an employer.
If you have a draft settlement agreement for review, you can contact us on 023 8071 7717 or email firstname.lastname@example.org and we will assist as quickly as possible.