Has your employer mentioned a Settlement Agreement to you or have you received a Settlement Agreement document and are unsure what to do next?

Due to the on-going Covid-19 and lockdown situation; employers inevitably will consider and implement various measures to help businesses survive the economic crisis created by it. These measures will likely include cost cutting which will result in some businesses re-structuring and reducing staffing levels by way of voluntary and compulsory redundancies and also the temporary measures such as furlough leave; lay-off; and short-time working, all of which can lead to redundancy.

These situations an employee may find themselves in could result in a Settlement Agreement being mentioned by the employer or the Settlement Agreement document itself being provided to the employee.

If a Settlement Agreement has been issued to you; you may find this worrying and feel like you don’t know what to do next.

Settlement Agreements are sometimes given in a restructure or redundancy situation outlining the terms of a financial deal before employment ends or they are offered if an employer believes an employee is under-performing or guilty of misconduct. In some cases some employees are aware that their employer is unhappy with them while for many others it can come as a complete shock.

A Settlement Agreement used to be known as 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 and are usually confidential documents.

When does a Settlement Agreement apply?

Settlement Agreements can apply to employees at all levels and in both the private and public sectors and sports industry and can arise from a number of situations including:

  • Compulsory or voluntary redundancy situations and re-structures;
  • Lay off and/or Furlough leave situations;
  • Disputes at work;
  • Variations to contracts of employment;
  • 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.

What do you need to do?

If you are asked to have a telephone, video call and/or to attend a meeting by your employer (sometimes described as a “protected conversation;” “without prejudice” and/or “off-record”) and then you asked to leave your job it can obviously come as shock and it can be hard to recall exactly what was said to you and also how you initially responded.

We recommend that as soon as you can; you write an accurate note of exactly what happened; what was said to you by your Employer and how you recall responding and reacting. These notes can help you provide evidence in a potential employment claim or negotiations on the terms of a Settlement Agreement.

We then recommend that you obtain legal advice from an employment law solicitor quickly. The sooner you take advice the better position you will likely be in.  An employer usually pays the legal costs for a solicitor for an employee’s consultation about a Settlement Agreement.

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.

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.

What does a Settlement Agreement usually contain?

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.

Should you sign the Settlement Agreement?

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.

We can help you consider whether you are getting a good deal and whether you have grounds for a claim. This is done in the context of why you are being offered the Agreement and what rights you are being asked to waive as a result of signing it. We may be able to help you negotiate a bigger pay out.

It is important an employee understands that if they get this wrong there is no going back which is why the legislation insists that independent legal advice is taken.

What if I don’t agree with the terms?

You do not have to sign a Settlement Agreement.  It is important not to panic when you are offered one and you can refuse to sign it.

If you don’t sign the Agreement then you preserve your full rights to make a claim against your employer but there are strict time limits in respect of employment claims which an employment solicitor can advise you upon.

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 complete our online contact form and a member of the team will get in touch with you.