If you have been issued with a settlement (compromise) agreement, it can be a worrying and stressful time for you and your family as you find yourself suddenly facing being imminently out of work, a loss of income and fears over the ability to find alternative employment.

A Settlement Agreement used to be called a Compromise Agreement. Once concluded a Settlement Agreement is a legal contract between an Employer and an Employee enforceable by both parties. The Agreement documents and agrees the termination of an Employee from employment with an Employer. Such Agreements are usually confidential.

Settlement Agreements can apply to employees at all levels and in both the private and public sectors and sports industry.

When does a Settlement Agreement apply?

Settlement Agreements can arise from a number of situations including:

  • Compulsory or voluntary redundancy situations and re-structures;
  • Variations to contracts of employment;
  • Disputes at work;
  • Grievances and disciplinary matters;
  • Ill-health termination of employment;
  • Retirement;
  • Allegations of poor performance or misconduct;
  • Director and shareholder disputes;
  • Business succession planning and
  • Commercial transactions including the sale or purchase of a business; and sometimes when TUPE (The Transfer of Undertakings (Protection of Employment) Regulations 2006 are relevant.

Whilst there are occasions where an employee can propose and negotiate an exit from employment by way of a Settlement Agreement; in reality most of the time, employees find themselves facing a request by their employer to sign a Settlement Agreement with a very short deadline; a potentially sub-standard package and a threat of formal action for example a disciplinary or dismissal.

A Settlement Agreement generally includes terms such as a termination date (the date an employee ceases employment with their employer), payments to an employee including payment dates and taxable status of particular payments, a reference and confidentiality. An Agreement requires an Employee to accept particular terms in return for waiving his or her rights to bring complaints, rights of action and/or claims against the Employer, its directors, officers and employees. It therefore seeks to remove the risk of potential claims and defence costs for an Employer.

A condition of a Settlement Agreement and for it to be a valid document is that an Employee must take independent legal advice on the terms and effect of a Settlement Agreement and certification that this has been provided by an independent legal adviser (usually an Employment Law Solicitor) has to form part of the Agreement.  For these reasons, Employers usually provide a contribution to an Employee’s legal fees.

Whilst Settlement Agreements may sometimes originate from a distressing and unfortunate set of circumstances, they can upon conclusion provide closure on a situation for an Employee and allow an Employee to move forward and begin a new chapter in their life.

The requirements of legal advisers are to advise an Employee on the terms and effect of a settlement agreement. However it is imperative to go much further than this.

We (Farleys Solicitors LLP) pride ourselves on “going that extra mile.”

We endeavour to understand our clients; their existing terms of employment; their objectives and what is of paramount importance to them.

To us, it is not just about ensuring all contractual entitlements are included in a settlement agreement but doing the very best for our client which includes advising you as to whether or not it’s a “good deal” and if not seeking to achieve an additional monetary amount to appropriately compensate an Employee. In addition to this, consideration will be given to relevant tax issues arising from payments due to an Employee.

We will also negotiate on your behalf to amend terms and agree additional elements to settlement agreements to protect you and ensure your ability to find alternative employment or pursue your career is not impeded by the settlement agreement and the Employer’s proposed terms.

To maximise your position, we advise you take legal advice at any early state.

For advice, assistance and representation with Settlement (Compromise) Agreements and any related negotiations, please contact Farleys Employment Law & HR team on 0845 287 0939 or contact us by email.