Employment law – Settlement Agreements

We will not charge you more than the legal costs contribution from your employer for reviewing and advising you on your settlement agreement. Please call 020 7100 5256

As specialist employment solicitors, we are highly experienced in advising on settlement agreements, and  successfully negotiating on their terms. We have advised on over 8000 agreements.

As a result of the familiarity of working in this area for so many years, we can turn around your settlement agreement within expected deadlines- and use our experience to ensure that the agreement you sign reflects the best possible outcome and settlement terms for you.

If you:

• need advice on a settlement agreement that you have already been presented with;
• wish to know whether what you have been offered is a fair settlement, or should be negotiated upwards;
• wish to negotiate a settlement agreement from your employer (without any offer presently on the table)

then please contact Philip Landau and the employment law team on 020 7100 5256, or email pl@landaulaw.co.uk

Click here to download our free settlement agreement guide

Visit our dedicated website on settlement agreements

Settlement Agreement FAQ’s

What is a settlement agreement?

A Settlement Agreement (just like its former name, Compromise Agreement), is a legally binding contract made between an employee and employer, either during or after employment, which formally agrees the leaving terms between the parties and prohibits the employee from bringing legal action against the employer in respect of his employment and/or its termination, usually in exchange for a termination payment.

What are the benefits of a Settlement Agreement?

Settlement Agreements offer the benefit of certainty and a clean break between an employee and his employer. An employee will have the security of a termination document setting out what financial settlement he is receiving together with other aspects of termination such as a job reference. The employer, in turn, has the guarantee that it will not have to deal with a future claim by that employee. It is for these reasons that many employers and employees utilise the Settlement Agreement process, even where an employer has followed a fair process and/or the employment has ended amicably.

When might a settlement agreement be offered?

Settlement Agreements may be offered in many situations, whether during or after employment. They may, for example, be used to avoid a drawn-out performance, disciplinary or redundancy process, which can often be costly and time-consuming for an employer and lead to ongoing contention with the employee.

An employer may also consider offering a Settlement Agreement where there is an existing dispute with an employee as a means of bringing that dispute to a close.

They will also be used routinely at the time of dismissal by some larger employers such as banks, as a “belt and braces” approach, even where there is no question of a dispute. This does not necessarily mean that your employer considers that they are at risk of a claim- it is that they do not want you raising issues after you have left (especially if they have made a termination payment (e.g. following a redundancy).

Of course, an employee is under no obligation to accept a Settlement Agreement and should only do so once independent legal advice has been obtained; an Agreement cannot be binding unless the employee has received this advice.

A 10 day cooling off period

You may be presented with a settlement agreement by your employer completely out of the blue. This is more likely to happen where your performance is brought into question, and your employer wants to give you the option to leave under agreed terms rather than go through a performance process.

You do not have to accept the offer. You can reject it, or request a proper performance process is followed.

ACAS have issued a statutory Code of Practice on Settlement Agreements, which sets out how settlement agreements should operate and also provides best practice of how pre-termination negotiations should be undertaken. The code is not binding, but employers would need to justify why they deemed it not necessary to adhere to it.

The ACAS Code recommends that you be given a period of 10 calendar days to consider an offer made by an employer, but it can be less if this is considered to be reasonable.

The Code also gives examples of “improper behaviour” associated with reaching a settlement including putting undue pressure on you to agree an offer. This includes, for example, an employer saying before any disciplinary proceedings have begun that you WILL be dismissed if you don’t accept the offer, and also all forms of bullying and harassment and intimidation.

You will need to be careful and guarded if there is an unexpected approach by your employer with an offer for you to leave.  It can be difficult to negotiate a figure upwards once you have already agreed to it (even though terms are not binding until you have taken legal advice on the settlement agreement). It is not wise to even provide the most basic signal that you are prepared to give up your employment.

Unless you consider the offer is too good to turn down, you should preferably just listen to what your employer has to say at the first meeting- without committing yourself either way, and then take immediate legal advice.

What are the usual terms of a settlement agreement?

A Settlement Agreement should reflect the specific circumstances of an employee’s departure. Below is an example of the types of clauses which are likely to be found in the majority of Agreements:-

Termination Date: Confirmation as to when the employment has ended/will end.

Compensation: For the majority of employees, this is likely to be the most important aspect of the Agreement and negotiations will normally focus on this. Ideally, the employee will receive an amount which reflects the value of any claim(s) he might have against the employer and considering the circumstances. The first £30,000 of any compensation under a Agreement should be free of deductions for tax or N.I. It is also important that the Agreement provides a timeline for payment of this sum and any other sums in the Agreement.

Tax indemnity: Makes the employee responsible for the payment of any tax and national insurance should HMRC determine that this is owing. This is usual.

Notice: Unless the employee has worked or is working his notice period, the Agreement should confirm payment of a payment in lieu of notice (PILON).

Payments up to the Termination Date: In most cases, this will include salary, accrued but untaken holiday, any benefits under the employee’s contract and expenses.

Bonus or commission, deferred stock options and share awards: The parties will need to check the terms of the employee’s employment to determine whether he is entitled to either of these payments. If so, the amount(s) will need to be inserted in the Agreement.

Pension: Where applicable, payments into the employees’s pension fund should continue up to the Termination Date and, where a payment in lieu of notice is being made, the employer may be obliged to continue to make contributions for an equivalent period.

Return of the employer’s property: The employer will usually be required to return property within a certain timeframe, usually on or before the Termination Date.

Waiver of claims: The employer will want to make sure that the Agreement prevents the employee from bringing claims against the employer. The Agreement should specify which claims are being waived; it should not give a blanket cover. The employer cannot, however, compel the employee to waive his right to claim for personal injury of which he is not aware at the date of signing, accrued pension rights, and to enforce the terms of the Agreement.

Warranties:  The employee usually confirms that he is not aware of any circumstances which would have entitled the employer to dismiss him without notice (summary dismissal) prior to the signing of the Agreement.

New job offers: Ordinarily, an employee is not under an obligation to disclose job offers (and would not be advised to do so). However, in some cases, the Agreement will require the employee to warrant that no job offer has been made or is expected. Payment is likely to be conditional on this. In this case, should the employee have been offered a job, he should let us know, so we can advise on the options.

Reference: In the absence of an Agreement, the employer is under no obligation to provide a job reference, so it is advisable to include one in the Agreement. Most employers will only provide a factual reference which sets out dates of employment and the employee’s job title. It may be possible, however, to negotiate a more personal reference which, again, should be attached to the Agreement.

Confidentiality: This prevents the employee discussing the terms of the Agreement and, in some cases, the circumstances surrounding it. An employee should ensure that he is able to discuss the Agreement with his immediate family and the circumstances of his termination with prospective employers.

Non-derogatory obligations: Prevents the employee making derogatory remarks/statements about the employer. It is important to ensure that this obligation is mutual so that the employer may not disparage the employee either.

Restrictive covenants: Where an employee has restrictive covenants in his contract of employment, these are likely to be re-affirmed in the Agreement. It is important to check that the restrictions set out in the Agreement are no more onerous than those in the contract of employment. It may also be possible to negotiate a reduction or, in some cases, a complete removal of some or all of the restrictions.

Legal fees: Most employers will agree to pay a contribution for the employee to receive legal advice in relation to the Settlement Agreement. This will usually be between £350 and £500 plus VAT, but it can be more or less than this.

Entire Agreement: Normally, the Agreement will specify that the employee, by signing the Agreement, is not relying on any other document that exiisted prior to the signing of the Agreement. In other words, the Settlement Agreement contains the full terms between the parties.

Please call Philip Landau or any member of the employment team on 020 7100 5256 for further advice.

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