Prior to 29 July 2013, settlement agreements were referred to as compromise agreements and they are still called this by many people. By changing the name, the government hoped to encourage their use and avoid parties involved in employment disputes being put off by the idea of compromise.
A settlement agreement is a legally binding document used to resolve all employment related claims, usually in return for a sum of money and the termination of your employment. Settlement agreements can be useful if you want to avoid the stress, risk and cost of legal proceedings, but of course, your employer would have to be in agreement. It should enable you to make a clean break from your company, potentially with an approved reference and a sum of money.
For a settlement agreement to be legally binding, you must seek independent legal advice from a relevant expert, such as one of our employment law solicitors at Taylor&Emmet. Your employer will usually offer a contribution to your fees, which generally covers the whole cost of the advice given.
We provide varying levels of advice to employees about settlement agreements. This includes whether it is in your best interests to sign one inclduing looking at the possible legal claims you may have and the potential to negotiate an increase in the amount of money on offer.
Settlement agreements are “without prejudice” and “subject to contract.” This means you are generally free to withdraw from negotiations at any time, up to the point you sign, without adverse consequences and you will retain the option to bring legal proceedings. Any claims for personal injury or accrued pension rights are not normally compromised and you are free to pursue them in the future, depending on the wording of the settlement agreement, if it becomes necessary.
Settlement agreements must be made in writing and relate to a particular complaint (potential or actual) or specific legal proceedings. Your solicitor will confirm that a certificate of insurance is in place covering the advice given and that all other conditions regulating the agreement have been satisfied.
Content of the settlement agreement
As well as a compensation payment, Taylor&Emmet can also ensure a reference is attached to the settlement agreement and a clause can be included to reduce the possibility that your employer will make any negative statements or comments about you.
We can also request any restrictive covenants are modified to help you secure another job. If your reputation is important, we can draft an agreed announcement or press release to be made about your departure from your employer, to be included as part of the settlement agreement.
Often the first £30,000 paid under a settlement agreement will not be taxed and we can negotiate this for you if this is possible. In limited circumstances, it is possible to request confirmation from HMRC that a higher amount can be granted tax free. If you are worried about exercising any share options in the future, we can make provisions for this as well.
The law has also changed to allow employers to have “protected conversations” with staff about the prospect of terminating their employment using a settlement agreement, without fear that the content will be used to support a constructive dismissal claim. There is still plenty of scope, however, for employees to say the conversation does not attract “protected” status as the employer acted improperly or in discriminatory manner.