Settlement agreements (previously known as compromise agreements) are widely used by employers as a method of settling any employment claims that an employee may have against their business.

Entering into a settlement agreement is often attractive for both parties as it provides certainty, resolves the dispute and allows both parties to move on.  It is a process than can also be concluded relatively quickly and cheaply in comparison to pursuing claims in the Employment Tribunal.

A settlement agreement can be offered to an employee in a variety of situations including the following:

  1. Where you have expressed an interest in voluntary severance

  2. Redundancy or voluntary redundancy

  3. Where allegations of misconduct have been made against you

  4. Where allegations of poor performance have been raised

  5. Where you have raised concerns at work or a formal grievance regarding the manner in which you have been treated

  6. Where there has been a disagreement between yourself and a colleague

When you have been offered a settlement agreement and wish to agree the mutual termination of your employment, some of the key points that need to be considered are as follows:

  1. Termination Date – What date do you want to agree that your employment will end? You will only receive your salary and benefits up to this date.  Are you working your notice period or are you been paid in lieu of your notice entitlement?

  2. Termination Payment – How much is your employer offering to pay you to agree the mutual termination of your employment? How has this figure been calculated? Is there the ability to negotiate more?

  3. Salary and benefits – What sums of money are you owed? Has notice pay been dealt with?  How many days accrued but untaken holiday are you owed?  Are you owed any outstanding expenses?

  4. Reference – Do you want to agree the specific wording of a reference to be attached to the agreement to assist you in securing new employment?

  5. Announcement – Do you want to agree the wording of an internal and/or external announcement to explain your exit in a way that will not damage your reputation?

  6. Post-termination restrictions – Have you already agreed to any post-termination restrictions in an existing contract of employment? If these will affect your ability to secure new employment, it may be necessary to renegotiate these to protect your position going forward before entering into the settlement agreement

  7. Company property – What do you need to return and do you have any belongings to collect?

  8. Confidentiality – The terms of a settlement agreement should not be discussed

  9. Entire Agreement – Is there anything that you have been promised as part of the negotiations that has not been set out in the agreement?

It is important to seek legal advice on these matters to ensure you are able to secure the best possible settlement to protect your position going forward.

It is customary for an employer to pay an employee’s legal costs in full or at least a contribution for advice on a settlement agreement.  Such an agreement is not legally binding until a solicitor has advised the employee on the terms of the agreement. It is important to take advice before accepting an offer of settlement from your employer.

Farleys employment team are experts in advising on settlement agreements and termination packages.  We will advise you on the terms of the agreement, the offer itself and the ability to negotiate a higher sum to protect your position going forward and the alternatives to entering into the settlement agreement.  If you require any advice on a termination package or settlement agreement, please contact our specialist employment team by calling 0845 287 0939 or complete our online enquiry form.