Settlement Agreement Advice For Employees

Does a settlement agreement need to be signed by a solicitor?

The short answer is yes. Formerly known as a compromise agreement, settlement agreements are in fact legally binding contracts. They allow an employment contract to be terminated on terms agreed by both the employee and employer. DPH Legal are settlement agreement experts and can help sign and process your agreement quickly.

The main objective of a settlement agreement is to provide peace of mind for the employer. By signing the agreement the employee waives their rights to take any future claim to the employment tribunal.

For the employee to waive the right of making a future claim, they receive a compensation payment and maybe other terms such as an agreed reference.

The Employment Rights Act 1996 is the legislation that governs settlement agreements and states that it is a legal requirement for an employee to seek legal advice from a qualified lawyer if a settlement agreement is received.

Getting legal advice from a lawyer that deals with settlement agreements will ensure your offer is fair and that you’re not waiving further rights which may impact your future.

Settlement agreements are written in legal language called legalese. Definitions of words in legalese have different meanings and implications than their English Dictionary counterparts. A layman would not be able to understand the full implications of the agreement, therefore a lawyer would be required to understand its full meaning..

Once a settlement agreement has been agreed and signed, a lawyer will certify it to confirm that you have been legally advised of your rights.

When are settlement agreements used?

There are many situations that may dictate the use of a settlement agreement.

Two reasons relate to an employee’s performance and their conduct within the workplace.

Redundancy is the most common reason for a settlement agreement being offered. Typically in a redundancy situation an increased payment is offered to the employee from the employer for not following the longer, often drawn out employment termination process which can include a performance review.

Am I being offered fair compensation?

Once you have chosen a settlement agreement advisor, they will be able to look at your agreement and determine if the compensation offered to you is fair.

The amount you have been offered would be compared to the circumstances which have led to a settlement agreement being offered. An experienced employment lawyer will have a good understanding of the average compensation sums associated with the different reasons for termination.

Your legal advisor will weigh up the sums offered against the strength of a possible claim made at the employment tribunal.

Most of the time both employees and employers wish for a quick completion even if the employee feels they could be entitled to an increased amount.

Should your lawyer advise that your current compensation amount is not fair, they may offer to negotiate on your behalf once instructed to obtain an increased payment. 

Post-termination restrictive covenants

This clause may also be referred to as a ‘post termination restraint’ or PTR’s.

You may find this clause in your settlement agreement. These clauses dictate things you cannot do once you have left your current employment. This may stop you from working with a competitor or approaching your current employer’s clients. 

Your lawyer will be able to examine if the restrictive covenant remains enforceable as it could be unenforceable if a serious breach of contract has taken place.

Agreed reference

Your lawyer will be able to help you negotiate that a good reference should also be attached to your agreement along with a clause that it cannot be rescinded. 

Confidentiality clause

Your employment lawyer will understand that the confidentiality clause is highly important to your employer. This clause is there to prevent you from disclosing specific information to specific parties. At times a confidentiality clause may even prevent you from speaking to your partner about matters mentioned in the clause.

Do employers have to pay legal fees for settlement agreements?

Employers typically make a contribution to your legal fees. For a straight forward settlement agreement the £300-500 fee contribution is usually sufficient. There are situations where an employer may pay over £1000 if the settlement agreement is a little more complicated by including clauses such as post termination covenants.

What payments are typically included?

There are various types of payment that may be included in your settlement agreement.

Compensation

A compensation amount of up to £30,000 can be made to an employee without it being subject to tax providing it’s not a contractual payment.

Loss of pension

In some cases your employer may contribute a lump sum into your pension included as a term in your agreement. This payment into your pension would be tax-free.

Notice

If you are not required to work your notice period, your agreement will include a notice payment. Payment in lieu of notice will be subject to tax and NI contributions.

Life insurance and medical schemes

It’s advisable to check whether this benefit will terminate on your last day of employment or up to the date that your employer has contributed up to.

Commissions and bonuses

Your agreement should clearly articulate bonus and commission payments that will be made to you. Your employment contract should be looked over by a qualified lawyer to ensure you receive the commission and bonus payments you’re entitled to.