If you receive a settlement agreement offer from your employer it can be difficult to know what to do for the best. Depending on the circumstances of the offer, you may decide to negotiate on the settlement agreement and this guide will help you to identify some areas that could help you to get a better offer.
Key Points in an Employment Settlement Agreement
Firstly, you should understand some of the key points that are usually included in an employment settlement agreement. These are:
- You do not have to agree to a settlement agreement and you have the right to negotiate the terms of any agreement
- A settlement agreement usually means you can't take your employer to the Employment Tribunal if you sign the agreement (this only covers any claim types named in the agreement)
- A settlement agreement usually means you receive a financial payment as part of the settlement and normally a reference to use when applying for new jobs
- Any negotiations that take place are confidential and as a general rule cannot be used in an Employment Tribunal by you or your employer. You should always mark any written communications to your employer 'without prejudice' during settlement negotiations so that they cannot be used in any future legal proceedings.
- A settlement agreement is legally binding. Once the agreement has been signed by both parties and a Solicitor, it becomes a legally binding document which can be enforced by either party.
Ways to Use a Settlement Agreement
Most people think that settlement agreements are used as a way to end employment and this is a common use of settlement agreements. If the relationship with your employer is not working, a settlement agreement can help you both separate from your work relationship cleanly.
They can also be used to settle disputes with your employer, meaning you remain in your job and employed. Some disputes at work could be over holiday pay issues, workplace harassment or similar work related problems.
Your employer may approach you with a settlement agreement proposal or you may decide to ask your employer for a settlement agreement but however a settlement agreement is used, you have the right to negotiate the terms.
Things to Negotiate
You should carefully consider the amount of compensation you are being offered. It should reflect the seriousness of the issues you are facing at work. If your employer is adding in restrictive covenants that will hamper your ability to get a new job, there should be additional compensation for this. It should also reflect the amount of money you would potentially be awarded if you took your claim to an employment Tribunal and any additional costs this would have for your employer.
You should have a good idea of the amount of compensation you are looking for before you start negotiations. This will help you start high and then negotiate down to a level you feel comfortable with.
Negotiating face to face may not be your best approach. You may want to conduct these negotiations by email. Whether you negotiate face to face or by email, you should state that you are discussing this 'without prejudice'. This is simply a legal term to show that your discussions are off the record and therefore cannot be used at any employment Tribunal.
Is a Settlement Agreement Tax Free?
Settlement agreement compensation payments can be tax free in England and Wales depending on how the agreement is written. The first £30,000 of payments made in a settlement agreement can be classed as tax free, however any payments made in lieu of holiday or salary will be taxable as earnings as they would be in normal circumstances.
Payment in lieu of notice may be liable to tax in certain circumstances. Getting expert legal advice from a Co-op Legal Employment Law Solicitor will help you to minimise your exposure to tax.
Your employer usually pays for you to get independent legal advice about your settlement agreement. Once they have outlined the draft details of your settlement agreement, your Employment Law Solicitor can review it. If you feel more comfortable, you can pay a Solicitor to negotiate the terms of your settlement agreement for you. This removes you from the process and your employer may well concede more because they are dealing with someone other than you.
Positives and Negatives
A settlement agreement can offer positives and negatives for both you and your employer. Here are some of them:
Positive for you and your employer – resolves an issue without the time and cost of an Employment Tribunal (ET)
Positive for you – gives you a financial incentive and a reference to end the work relationship
Positive for you and your employer – helps an employee leave employment quickly when things aren't working out
Negative for your employer – the financial cost of a settlement agreement
Negative for you and your employer – more damage to your work relationship if the dispute is not resolved.
Negative for you and your employer – where settlement agreements are being used instead of good management.
You can see that most of the positives fall on your side as an employee and the negatives will only affect you if you are staying in the company.
Making a Settlement Agreement Legal
There are certain items that must be included in a settlement agreement. This is to ensure that you have relinquished any rights you have to take your employer to an employment Tribunal. These items are:
- The settlement agreement has to be in writing
- It must be explicit about the complaint or the claims it covers. If it does not explain fully each type of claim that it covers, your employer will not have protections against those claims.
- You must have had independent advice. This should not only cover the terms of the agreement, but the effect of it too. Full explanation should be given about the fact you will relinquish any chance of a claim against your employer.
- Your independent advisor must have Professional Indemnity Insurance in place.
- Your independent advisor should be named in the settlement agreement.
- The settlement agreement must state that all of these provisions have been met and that as a result, the agreement is valid.
How We Can Help You
Our Employment Law Solicitors know how important it is to have someone in your corner if you are negotiating a settlement agreement.
We've helped over 3,000 employees with their employment law claims and we can help you too.
We only represent employees, meaning there is no conflict of interest as we don't deal with employers. Our fixed fee services mean there are no nasty surprises at the end of your claim.
For legal advice on the meaning of the terms in your settlement agreement (without any financial negotiations and without advice on the merits of any Employment Tribunal claims) our minimum fixed fee is £420 including VAT. Your employer will usually pay these legal costs.
If you're not sure whether you are getting enough compensation as part of the settlement agreement, we can offer you strategic advice on your options. We charge fixed fees starting from £420 including VAT. These fees will be payable by you.
After receiving our strategic advice on your options, you may decide that you want us to try and negotiate a better offer from your employer. We can do this for you for a fixed fee of £300 including VAT, which will be payable by you.