Being offered a settlement agreement to end your employment can cause you both stress and worry. To help reassure you, as settlement agreement solicitors, we have set out some key advice below.
Our team is always happy to talk through any queries you have in relation to your settlement agreement. We can quickly offer you advice on whether the settlement offered is appropriate, and if not what your options are.
What is a settlement agreement?
Typically, the employer will offer a financial incentive in exchange for you agreeing to terminate your contract of employment.
The settlement agreement should achieve a clean break.
What is the purpose of a settlement agreement?
Although one purpose of the settlement agreement is to terminate the employment contract, therefore, bringing an end to the employment relationship, by signing a settlement agreement, you waive all rights to pursue any* claim in the Employment Tribunal or Civil Courts arising out of your employment with the employer.
(*excluding latent personal injury claims, accrued pension rights, and any claim to enforce the terms of the settlement agreement).
In brief, the settlement agreement will prevent you from bringing the following claims, amongst others, against the employer:
Why have I been offered a settlement agreement?
The following scenarios (although non-exhaustive) often give rise to a settlement agreement being proposed:
- You have raised one or a number of grievances
- There is ongoing or pending disciplinary action against you
- The employer has concerns with your performance
- The employer is considering making redundancies
In each of the above scenarios, the employer should follow a fair process. This would include investigating, producing reports, meeting with you and sometimes other colleagues to discuss the circumstances, and finally taking steps to resolve or address any issues. Of course, this comes at a cost to the employer not only financially but these processes often take a long time. To avoid this, an employer may decide to offer a settlement agreement.
In some situations, such as redundancy, there may be no resolution and it is inevitable that the contract of employment will be terminated. At this point, a fair and reasonable employer will usually approach you on a ‘without prejudice’ basis and propose a settlement agreement.
If you have raised one or a number of grievances, and the employer can see neither an immediate nor long-term resolution to those matters complained of, the employer may suggest a clean break under the terms of a settlement agreement.
Many employees are approached with a settlement agreement due to performance issues. This often comes as a huge shock to employees, especially when there has been no prior warning of underperformance. In these circumstances, an employer will usually suggest that the employee will be placed on a Performance Improvement Plan (PIP). As an alternative, the employer may offer a settlement agreement. You should challenge any decision to place you on a Performance Improvement Plan if you have concerns.
What should I look for in a settlement agreement?
Settlement agreements can look daunting and complex, usually because they are. They often contain several different clauses. Some of the key terms to focus on are:
- The proposed termination date (Effective Date of Termination/EDT);
- Whether you are expected to work your notice period or will be paid in lieu of the whole or part of the notice period (PILON)
- Whether you have been placed on Garden Leave
- The amount of accrued unused holiday owing at the date of termination
- Whether there is an ex-gratia/termination payment
Other common clauses include the waiver of claims (as set out above), a confidentiality clause, post-termination restriction clauses (restrictive covenants), and a clause dealing with a request for a reference, amongst others.
Do I have to accept the terms of a settlement agreement?
You are under no obligation to accept the proposed terms of a settlement agreement, or at all. If you are unsure as to whether you should be accepting the terms of a settlement agreement, contact us to discuss your circumstances.
Can the terms be negotiated?
Settlement agreement negotiations are discussions with the employer to agree on the amount of money, type of reference, and restrictions on new employment. There are occasions when the removal of restrictive covenants is more important than the money itself. An example might be when the employee wishes to set up their own business which might be in breach of their current employment contract.
We can negotiate the terms of the settlement agreement on your behalf.
How long do I have to decide?
The employer should allow you a reasonable time to consider the terms of the settlement agreement. The ACAS Guidelines to Settlement Agreement states that an employee should be allowed at least 10 calendar days to consider the proposed terms.
Do not feel pressured into immediately accepting the terms of a settlement agreement. If the employer is asking you to decide within a very short time frame, we would suggest that you assert the general rule of a minimum of 10 calendar days. Alternatively, we can engage with the employer and request extra time.
It is not compulsory for the settlement agreement to be completed on or before the proposed termination date. Again, do not feel hurried into making a decision.
Do I need a Solicitor?
You should seek independent legal advice from a Solicitor to discuss the terms of the settlement agreement. This is because a settlement agreement is only legally binding if an employee has received independent legal advice.
Typically, the employer will pay the legal fees for a settlement agreement to allow an employee to seek advice on the offer, so often all your legal costs are covered.
What is a re-affirmation?
The settlement agreement may contain two signature pages. One will be signed by you when the terms of the agreement are agreed upon. The second will be signed by you, usually on the termination date or very soon after. This is usually when the settlement agreement is agreed upon and signed by the parties at least 1 week prior to the agreed termination date. However, a re-affirmation is not always necessary.
Can I (the employee) request a settlement agreement?
Yes. If you have concluded that your relationship with your employer is no longer tenable, we would advise you to request a “protected conversation” with your employer. By doing so, you get the opportunity to explain to your employer how you are feeling and why. Requesting a protected conversation is often requested by an employee after a grievance has been submitted or determined although there may be other occasions when an employee wishes to do so.
Winston Solicitors Settlement Agreement Solicitors & Lawyers
Whatever your situation, it is important to obtain the best legal advice when commencing settlement agreement negotiations. Our team of expert employment lawyers are here to help.
We have assisted a number of employees from Asda, Morrisons, Virgin Media, and Vodafone with their settlement agreements.
Settlement agreements are legal contracts between an employer and an employee (or former employee to terminate the contract of employment. We often see settlement agreements in the following circumstances:
- Performance review
- Disciplinary process
The agreement usually contains provisions for the following:
- Payment in lieu of notice (unless the employer wants you to work your notice);
- A sum equivalent to any accrued, unused holiday
Any payment in lieu of notice and holiday pay with be subject to your usual tax and national insurance deductions.
Depending on the circumstances, sometimes there may be an ex-gratia (one-off) payment. This is often referred to as the termination payment and ideally should be an incentivised sum of money to sign the agreement. This sum is tax free up to £30,000.
Yes, it is possible to approach your employer on a “without prejudice” (off the record) basis to investigate whether they would be willing to negotiate the terms of your exit from the business. This may be an appropriate course of action if you:
- are unhappy at work;
- have received an unsatisfactory outcome to a grievance and feel unable to continue in the work environment;
- face disciplinary action or performance management;
- believe you may have grounds to bring a claim against your employer in the Employment Tribunal.
Although you do not have to accept a Settlement Agreement offered by your employer, once you have signed the document, it is seen as full and final settlement of any potential claims you may have against your employer.
If all the required formalities are fulfilled, such agreements are legally binding agreement and cannot be revoked.
For these reasons it is a legal requirement that you receive independent legal advice from a qualified solicitor who is adequately insured.
You are not obliged to enter into a Settlement Agreement if you do not wish to do so. If you would like to negotiate the terms of the Settlement Agreement it is possible to make a counter offer. If negotiations are unsuccessful, depending upon the circumstances, the employee can decide whether they wish to issue a claim in the Employment Tribunal. The time limit for bringing such a claim is three months less one day from the date of termination/last act of discrimination. If the discussions regarding the Settlement Agreement are “off the record” they cannot usually be referred to in any legal proceedings.
Although it may appear that Settlement Agreements only benefit employers, with expert advice from our Settlement Agreement solicitors here in Leeds, you can ensure that all issues between you and your employer are resolved and you receive a fair and appropriate settlement.