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Employment Settlement Agreements (formerly known as ‘Compromise Agreements’) are agreements between an employee and employer that effectively sign away the employee’s rights to any claims that they may have against the employer. Under the terms of the Settlement Agreement, the employee generally accepts a compensation sum from the employer in exchange for them agreeing to give up their rights in terminating their employment.
Settlement Agreements may be offered in circumstances where there is an employment dispute between the parties. By entering into a Settlement Agreement, it provides the employee with a compensatory payment, in exchange for providing the employer with the assurance that the employee will not bring a claim against it at Court or Tribunal.
In order for a Settlement Agreement to be validly executed, the employee must seek independent legal advice. It is usual for the employer to pay most, if not all, of the fees incurred by the employee seeking legal advice on the terms and effect of the Agreement. The parties may have already agreed the final form of the Settlement Agreement before the employee seeks legal advice, or a draft of the Settlement Agreement is prepared pending negotiations.
There is no ‘one size fits all’ answer and this generally depends upon the strength of the your claims against the employer, and the likely sums an Employment Tribunal may reward. In addition, you may also wish to consider how long it may take you to find suitable alternative employment and the losses you will incur in the meantime.
The first £30,000.00 of compensation for the loss of employment can be paid free from tax and national insurance deductions. Please note that contractual payments are not ‘compensation’ and should remain taxable. There should generally be a financial incentive for the employee to enter into the Agreement, over and above their basic contractual and statutory entitlements.
It is usual for the Settlement Agreement to include confidentiality clauses preventing the parties from discussing the contents of the Agreement and the circumstances leading up to it. The parties can also agree not to say unpleasant things about one another, something which can be beneficial where there has been acrimony between the parties. Further, the employer could offer a reference to the employee as part of the Settlement Agreement, something which could not otherwise be awarded by an Employment Tribunal.
In some cases the employer may choose to include restrictions, to ensure that the employee does not compete with the employer or do business with its clients for a certain period of time following the termination of employment. Settlement Agreements can be used to reaffirm or remove existing restrictions already contained in the employment contract.
We advise employees on the terms of their Settlement Agreements, providing advice on the way it is drafted and whether the amount of money that is being offered within the Agreement is reasonable in the circumstances.
A Settlement Agreement, formerly known as a Compromise Agreement, is an agreement between an employee and employer where the employee agrees to waive their rights to any claims against the employer. In return, the employee typically receives a compensation sum from the employer upon termination of employment.
Employees may enter into Settlement Agreements to resolve employment disputes. These agreements provide a compensatory payment to the employee while giving the employer assurance that the employee will not bring a claim against them.
For a Settlement Agreement to be valid, the employee must seek independent legal advice. This is a statutory requirement. Typically, the employer pays a contribution towards the employee’s legal fees for this advice. The final form of the Settlement Agreement may already be agreed upon before seeking legal advice, or it can be negotiated.
The compensation amount depends on various factors, such as length of service, the strength of the employee’s claims against the employer and the likely sums an Employment Tribunal may award. Employees should also consider how long it may take to find suitable alternative employment and the associated losses.
In most cases, the first £30,000 of compensation for loss of employment can be paid free from tax and national insurance deductions. Contractual payments are not considered ‘compensation’ and remain taxable. There should generally be a financial incentive for the employee to enter into the Agreement, beyond their basic contractual and statutory entitlements.
Non-financial benefits often included in Settlement Agreements are:
Franklins Solicitors LLP advises employees on the terms of their Settlement Agreements. We provide guidance on the drafting of the Agreement and assess whether the compensation offered is reasonable under the circumstances.
Similarly, if your business is considering offering employees a Settlement Agreement, our specialist employment solicitors can assist you in drafting Settlement Agreements that not only protect your interests but also facilitate an amicable ending to the employment relationship.
To arrange an appointment to discuss Settlement Agreements or any other aspect of employment law, please contact our Employment Law team by calling 01908 660966 or 01604 828282. You can also email us at info@franklins-sols.co.uk or click on the button below to arrange for someone to get in touch.
If you have any questions about employment law, please don’t hesitate to contact our team of experts who are on hand and ready to help you.
