Has a settlement agreement been mentioned to you by your employer or have you received a settlement agreement and are unsure what to do next?

If a settlement agreement has been issued to you; you may find this daunting and feel like you don’t know what to do next.

Settlement agreements are sometimes given in a 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 the termination of an employee from their employment, and is usually confidential.

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;

  • 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.

What do you need to do?

If you are asked to attend a meeting by your employer (sometimes the meeting can be described as a “protected conversation;” “without prejudice” and/or “off-record”) and then you are asked to leave your job it can obviously come as shock. 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 you to see a solicitor.

A condition of a settlement agreement, 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. 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:

  • a termination date (the date an employee ceases their employment),

  • payments to an employee including payment dates and taxable status of particular payments,

  • a reference

  • confidentiality agreement.

An agreement requires an employee to accept these 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 them 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 send your enquiry by email.