What is a settlement agreement?
A ‘settlement agreement’ is a legally binding agreement in which you waive your right to bring various claims, including statutory claims. It also sets out the basis for the termination of your employment, where applicable.
Why do employers use settlement agreements?
Employers are now increasingly using settlement agreements as a mechanism for preventing possible future complaints to a tribunal, especially in redundancy situations.
Why do I need a solicitor?
For a settlement agreement to be a legally binding waiver of claims, you are required to take independent legal advice on the terms and effect of the agreement. You will also be required to provide background information as to how the settlement agreement came about.
How much will it cost?
Your employer will normally make a contribution towards legal fees. This will usually cover all of the legal fees, however, if our fees are in excess of this contribution, we will first seek an increase from your employer before asking you to agree to a fee in excess of their contribution.
Is a settlement agreement legally binding?
Settlement agreements are legally binding contracts. By signing the agreement, you usually agree to waive any claims (along with your statutory right to bring any claims) that you may have against the employer arising out of your employment and its termination.
How is a settlement paid out?
Under the agreement, your employment will terminate on the date set out in the agreement. You will be paid your normal salary up to that date, together with any additional sum due to you in lieu of holiday pay accrued but untaken. These amounts will be minus any deductions for tax and national insurance.
It is also common under a settlement agreement for the employer to make an ex-gratia payment to you. This will be paid to you solely to compensate you for your loss of employment.
The payments made under a settlement agreement will be conditional upon your compliance with the terms of the agreement. You will be required to give warranties and honour obligations such as:
- Returning your employer’s property;
- Confirming that you have not breached any term of your employment contract;
- Confidentiality (including keeping the agreement confidential);
- Not making derogatory statements about your employer or any of their members of staff.
Will a settlement agreement affect my next job?
Your employer may provide you with a form of reference under the agreement, which will be provided to prospective employers upon request. This will often be a simple and factual reference.
Depending on the terms of the agreement, you may remain bound by (or be asked to enter into) post termination restrictive covenants that could affect your ability to obtain employment in certain fields or geographical areas for a specified period of time.
Can I claim benefits after a settlement agreement?
Leaving your employment under a settlement agreement may affect your ability to claim under an income and/or mortgage protection policy. If you have one of these, we suggest you contact the provider of the policy to clarify your position.
Leaving your employment under a settlement agreement may also affect your ability to claim Job Seekers Allowance and other income support benefits.
What if I have shares or am a director of the company?
If you have shares with the company that you are employed by or you are a director of that company then you will need to inform us of this so that we can advise you of any additional steps you will need to take.