What Comes To Mind When You’re Offered A Settlement Agreement?

Why do companies offer settlement agreements?


Companies offer settlement agreements for a diverse number of reasons. These can include a breakdown in the relationship arising from the employee’s conduct or the employee’s performance.


Alternatively, there may be less contentious reasons for a settlement agreement being offered by a company including restructuring or redundancy which results in a position disappearing.


In either case, a company offers a settled agreement to an employee typically with a view to shortcutting a process which would otherwise be required in accordance with the law.


An additional benefit is that employees are required to waive their rights to pursue a claim in the Employment Tribunal or other courts and employers understand that they have the security of knowing that there won’t be a claim arising from the termination of employment in the event the individual accepts the offer of a settlement agreement

How do you maximise a Settlement Agreement?


Individuals often ask us how to maximise a settlement agreement which is been offered by your employer. The answer is it depends on whether a claim has arisen during the process in which you have been offered the agreement or prior to this in relation to the employer’s conduct.


Whether or not this is the case will depend on all of the circumstances surrounding the offer of a settlement agreement and it is incumbent on individuals to seek legal advice to determine whether or not such a claim has arisen.


In the event that there has been a floor in the process or a claim has arisen, it may be possible for your settlement agreement advisor to assist you in negotiating an increased payment to be made to you under the settlement agreement.


One factor that you will need to consider prior to negotiating an increased settlement payment is the legal fees that you will incur in doing so.


It is your advisor’s obligation to take you through the settlement agreement and to advise you as to whether it is possible to negotiate an increased settlement payment under the agreement.


In addition to this, your adviser should also explain to you and risks of carrying out such negotiation and the likely legal costs which would apply in the event that you choose to go down that route.

How much is a reasonable settlement agreement?


We often get asked how much is a reasonable settlement agreement.  The answer to this is that it depends on all of the facts surrounding the offer to each individual of a settlement agreement.


Your advisor will need to discuss with you all of the circumstances surrounding your settlement agreements including whether any process has been put in place by your employer and what this process relates to.


Depending on your length of service, your salary, and all the circumstances surrounding the offer of a settlement agreement to you, the offer that has been made to you may be reasonable or it may be negotiable.


What is a reasonable offer in a redundancy situation to a long-standing employee may not be a reasonable offer to an individual being unfairly dismissed for allegations arising from misconduct if a discrimination claim has arisen.


Whether or not any claim arises from the termination of employment will dictate whether or not these sums of money being offered under the settlement agreement are reasonable or unreasonable.


It is for this reason that it is essential that your advisor understands exactly what has happened, giving rise to the offer of a settlement agreement in order to advise you correctly as to how much a reasonable settlement agreement will constitute in your case.

How much do solicitors charge? 


This is one of the first questions that is asked by any individual who is offered a settlement agreement by their employer.


The answer to the question is that under the settlement agreement, the solicitor’s legal fees should be a cost contribution to be made by your employer. This is typically anywhere between £250 and £750 plus VAT.


Unlike many law firms, we offer the guarantee that we will not exceed that cost contribution without our clients’ prior approval.


In many cases, the advice required under a settlement agreement may be given within the legal fee contribution offered by the employer. This means that there is no extra fee payable at all by the individual for the complete process of signing and completing the settlement agreement.


In some cases, an employee seeks to negotiate the terms of his or her settlement agreement. In that case, the lawyer is responsible for advising the individual as to whether or not that is the correct course of action and what costs would apply in the event that negotiation is followed.

How long does the Settlement Agreement process take?


We often deal with settlement agreements on the same day they are received from our employee clients. This means that we can review the agreement and undertake a consultation with the individual offered a settlement agreement on the same day that we receive it, either in person or over the phone.


Quite often in situations where the individual is keen to conclude the matter quickly, we can complete the agreement by providing our certificate and liaising with the employer on the same day as receiving instructions from the individual. 


In cases where an individual is keen to negotiate on the terms of his or her settlement agreement, there may be a requirement for the legal adviser to draught letters setting out the legal position, in which case, negotiations may take slightly longer to conclude.


However, even in those situations, it is quite common for the matter to be resolved relatively quickly i.e. within one week of receiving the initial instructions for advice on the settlement agreement.

What should be included in a Settlement Agreement?


We are often asked what should be included within a settlement agreement by individuals who have never received one in the past from their current or former employer.  Typical clauses which are included within a settlement agreement include the following:-


  1. A clause detailing the termination date.
  2. A clause detailing all payments to be made under the contract, including notice payments and holiday payments.
  3. A clause detailing an ex-gratia payment which may be paid tax-free to the individual.
  4. A waiver confirming that the employee will not pursue any claims in the Employment Tribunal or courts against the employer.
  5. Confidentiality and non-derogatory statements are undertakings that prevent parties from badmouthing one another and discussing the settlement agreement situation.
  6. An agreed form of wording for a reference to go to prospective employers of the employee upon request.


The above list includes some common clauses included within a settlement agreement; however, it is important for every situation to be determined by its particular facts.


There may be additional clauses not mentioned, which should be included in your situation.


Your advisor will be able to advise you regarding whether or not the clauses within the settlement agreement have been drafted correctly and in addition, whether you should be considering negotiating further clauses to be included which have not been included in the first draft by your employer.