Being offered or asked to sign a settlement agreement can be a stressful and uncertain experience. Many employees can feel overwhelmed by the many questions they need answers to.
Below are some of the most common questions we get asked by employees who have received or been offered a settlement agreement from their employer.
What process do I need to follow?
Read through your agreement and try to understand it the best you can. For it to be legally binding, you will need to take a copy of your agreement and your employment contract if possible and contact an employment lawyer. In some cases, your employer will recommend a local law firm or you’re free to make that choice yourself.
A meeting with an employment lawyer will need to be arranged either in person, by phone or using an online meeting platform.
During this meeting, your lawyer will explain what the agreement means and how that affects you now, and in the future.
You will have the chance to ask any questions that you may have. Your lawyer may conclude some of the terms are unfair and if they feel there is a strong case, recommend negotiating more favourable terms on your behalf.
The lawyer will sign a certificate that legal advice has been given to you.
What should my settlement agreement include?
Every settlement agreement will be unique and dependent on the result of any negotiations that may have taken place beforehand.
Here are some of the most common attributes included:
Confidentiality clauses or NDA agreements
A confidentiality clause is a provision in the settlement agreement that prevents either party from disclosing the terms of the settlement to anyone else.
An agreed reference
Although not a standard inclusion, an agreed reference will certainly be helpful to the employee.
An agreed reference is a document in which an employer agrees to provide factual information about the past or current work and performance of an employee.
Positive professional references are a valuable part of settlement agreements for most employees.
Termination payment or compensation
A termination payment is one of many potential payments in a settlement agreement. It may also include an “out of goodwill” or “ex-gratia” payment.
Ex-gratia payments are tax-free but only applicable in situations where an employee’s employment termination is a result of either redundancy or a dispute.
A settlement agreement should include a clause stating that the employer will contribute towards any incurred legal fees. For the simple process of processing and signing your agreement, employment solicitors’ fees would be covered in full by the employer.
What is a fair settlement?
There are many circumstantial characteristics that dictate the terms set out in an agreement. Length of employment, how strong the claim is and the nature of the claim are all contributing factors that affect the proposed agreement. With “fair” being arbitrary, it’s difficult to give a specific answer,
Who benefits the most in a settlement agreement, my employer or me?
A settlement agreement should be mutually beneficial. An employee should benefit from a lump sum or compensation payment and in some cases, an agreed reference.
For the employer, the biggest benefit is the peace of mind that the employee cannot raise a future claim in an employment tribunal.
What happens if I refuse a settlement agreement?
Employment termination and the loss of legal fee contributions from your employer may result from refusing to sign your settlement agreement.
However, if your employment is terminated or you are threatened with termination, make sure your employer follows a fair disciplinary process. If you feel your treatment is unfair, you may be able to raise a grievance against your employer.
What if I don’t agree with the terms, can I negotiate my settlement agreement?
Employees are within their rights to negotiate the terms in their agreement if they feel they are unfair.
Negotiations are not always made around financial payment amounts. An employee may wish the employer to agree to a fair reference or reduce any restrictive covenants that may come into play after their employment is terminated.
Should I sign my settlement agreement?
You’re under no obligation to sign a settlement agreement if you have received one from your employer. There can be advantages for an employee to accept and sign the agreement but there are also distinct advantages for the employer.
Remember, it is in your employer’s best interest for you to sign and waive the right to make a future claim against them. By not signing it, that right remains.
When does my settlement agreement become legally binding?
When both parties have signed the agreement, it then becomes legally binding. Until that point, it is still possible for either party to withdraw.
Both signed parties are now bound by the terms laid out in the agreement. Violating these terms constitutes breaking the law.
With over 10 years of experience in employment law matters, David Philip Harris specialises in providing legal advice on settlement agreements to both employees and employers throughout the UK. David’s opinion and advice are frequently sought after as he contributes often to BBC Radio Berkshire and the People Management Magazine. David Is a long-standing member of The Employment Lawyers Association and The Law Society.