What is a Settlement Agreement?
Settlement Agreements were formerly called Compromise Agreements.
A Settlement Agreement is a legally binding contract between parties (you and your employer) whereby your employer offers you some consideration (usually a financial lump sum sometimes referred to as an ex-gratia payment, severance payment, termination payment or compensation payment) in exchange for your agreement to waive your employment rights and ability to bring any Employment Tribunal claims against your employer.
Settlement Agreements are often offered as an amicable solution to avoid the risk of litigation and going to Employment Tribunal or as an exit (severance) package.
Do I Need a Settlement Agreement Solicitor?
In order to make a Settlement Agreement legally binding, you would need to get independent legal advice through an Employment Solicitor who is qualified to provide legal advice on the terms of a Settlement Agreement.
Your independent Solicitor, Lawyer or legal adviser will need to hold a current practising certificate and also have professional indemnity insurance in place to protect you. Your adviser will also either need to sign the Agreement or provide an Adviser's certificate.
At Co-op Legal Services we can give you specialist employment law advice on your rights if you are unhappy with the amount of compensation you have been offered, or on any of the terms or clauses in the Settlement Agreement, and you wish to negotiate better terms or an increase in the termination payment.
How our Settlement Agreement Solicitors Can Help You
- We can provide you with practical advice on the merits and potential value of your claim for a fixed fee starting from £420 including VAT. Once we have provided you with a written quote for the agreed work, that price will not change.
- Our specialist Solicitors/Lawyers can advise on the terms and effect of the clauses in your Settlement Agreement and can also help you negotiate better terms i.e. a higher settlement payment under our settlement negotiation service.
- We can provide you with legal advice on the prospects of your potential Employment Tribunal Claims through a telephone assessment or an investigation report.
- Advise you on reducing your tax liability and maximise the settlement payment you receive without worrying about tax deductions.
How Much Compensation Should You Expect?
The amount of settlement agreement compensation you are offered depends on the circumstances of your potential Employment Tribunal claims. Here is a list of what may be offered as part of your Settlement Payment:
- Your salary and benefits
- Any contractually owed sums i.e. payment in lieu of accrued but untaken holiday, notice pay, payment in lieu of notice (PILON), bonus, commission
- Ex-gratia payment – this is usually a tax-free amount, the maximum tax-free amount is up to £30,000
- Payment for any additional restrictive covenants i.e. duty of confidentiality, non-poaching clause, non-dealing clause, non-compete clause
- Statutory redundancy payment
- Enhanced redundancy payment
- An agreed reference for prospective employers
- Outplacement counselling i.e. careers advice and help with CVs.
How to Minimise Your Tax Liability in a Settlement Agreement
With the right advice you can reduce your tax liability and maximise the settlement payment you receive without worrying about tax deductions. Taxable sums are usually any contractually owed sums i.e. your usual salary, holiday pay, notice, bonus, commission payments.
An Employee's Guide to Negotiating a Settlement Agreement
- Before you have the conversation with your employer it is important that you are clear about what financial sum you are seeking and what potential Employment Tribunal claims you may be giving up. You will need to be realistic about what compensation you are seeking as you do not want to aim too high so your employer does not consider settlement as an option.
- Try to keep negotiations amicable.
- Check your Employment Tribunal limitation deadline with a specialist Employment Solicitor. It is usually 3 months less one day from the date of the dismissal/discriminatory act. Make sure you start settlement negotiations through ACAS Early Conciliation before your Employment Tribunal claim is due. If you make any offer then set a deadline for acceptance so you do not miss your Tribunal deadline.
- It is advisable to begin any correspondence whether by email or verbally by stating that you are speaking "without prejudice" (off the record) as these conversations will be protected and kept out of Tribunal.
- Once you have agreed an amount in principle then ask your employer to send a draft copy of your Settlement Agreement to you (ideally by email in Word format to help speed up the process) so that you can get independent legal advice on the terms offered if you have not already engaged a legal adviser.
How our Settlement Agreement Solicitors Have Helped
Mr S. came to us asking for assistance with his employment situation as he was signed off sick from work due to stress and had just been placed on a performance management plan for alleged capability issues by his employer. Mr S. was considering resigning due to the treatment he was receiving at work but was unsure of his employment rights.
Mr S. had worked for his employer as a Sales Manager for 5 years with an unblemished record and had no issues with any prior appraisals. However, due to a recent change to his line manager he began suffering bullying from his new line manager and they increased his sales targets which led to Mr S. having a breakdown.
We advised Mr S. that he could have an Constructive Unfair Dismissal claim if he decided to resign or could have an unfair dismissal claim if he was dismissed, but when he came to us there was no actionable claim in an Employment Tribunal as he had not resigned or been dismissed. There were no discrimination claims.
We discussed his legal options. He could raise a grievance against his line manager to try resolve matters internally if he wanted to stay working for his employer. He did not feel he could return to work so we suggested that we approached his employer on a without prejudice basis to negotiate an exit package. We advised him on the amount of compensation he would expect and on the terms of settlement.
As a result we successfully advised Mr S. with his exit package through a settlement agreement and secured 6 months' salary as compensation for loss of employment as a tax-free payment with his notice pay, and all accrued benefits until his agreed leaving date. We also negotiated an agreed reference for Mr S. that he could use when applying for future employment.