Settlement Agreements (formerly Compromise Agreements)
Covering Oxford, High Wycombe, Aylesbury, Banbury, Witney and more.
A settlement agreement (which prior to 29th July 2013 was called a compromise agreement), is a legally binding agreement between an employer and an employee, usually on or after termination of employment, under which the employee agrees not to pursue any claims against the employer regarding their employment or its termination, in return for some sort of ex gratia benefit, usually a payment.
If you are an employee who has been presented with an offer of settlement, or you believe that circumstances may be heading that way, we advise that you contact us on 01865 487136 as soon as possible. In fact, for the agreement to be binding, an employee must be independently advised by employment solicitors. Our solicitors have advised on many hundreds of settlement agreements, and will explain the terms and effect of the settlement agreement and answer any questions you may have.
In respect of costs, the settlement will invariably contain a contribution towards your costs, and in most cases this will completely cover all your costs. We can advise on all aspects on the agreement, and in particular on:
- Whether the agreement is reasonable in the circumstances.
- Negotiating amendments to the agreement, and if appropriate a higher settlement figure.
- What the clauses mean, and the effect of the agreement.
- The taxable status of the payments to be made under the agreement.
- Post-termination restrictive covenants.
- Confidentiality obligations.
Settlement Agreements from an employer’s point of view
From an employer’s point of view, it is critical that all settlement agreements are drafted by solicitors with specialist experience in employment law. Poor drafting often means that the agreement does not effectively settle the claims the employer believes are settled.
We here at Oxford Employment Law Solicitors have extensive experience on advising both employees and employers on settlement agreements, and obtain up to the minute information on legal developments concerning settlement agreements. We can therefore ensure that the settlement agreement protects you, as an employer, against future claims by the employee.
We cover a wide area including Oxford, High Wycombe, Aylesbury, Banbury, Witney and more.
What is a Settlement Agreement?
A settlement agreement is the formal name given to a legally binding agreement between an employer and an employee to settle existing or potential disputes. The effect of you signing a settlement agreement is that in exchange for a severance payment and any other benefits you will be giving up most, if not all, of your employment related legal rights.
Why might I have been given a Settlement Agreement?
A Settlement Agreement is usually used in the following situations:
- Where there is a potential legal dispute between the employer and the employee and the employer is prepared to pay compensation to the employee to settle or prevent proceedings in the Employment Tribunal or where the employer/ employee relationship is not working out and a mutually agreed severance package is agreed between the parties to terminate the employment.
- Where an employee is being offering an enhanced payment over and above statutory or contractual entitlements on redundancy.
Is the Settlement Agreement offered by the employer fair?
Our main obligation is to ensure that you understand the terms and effect of the settlement agreementand its effect on your ability to pursue your rights in an employment tribunal. However, we will also advise as to whether you are getting a fair deal under the terms of the proposed settlementagreement. As specialist employment law solicitors, we are experts in this field. The relevant factors are likely to be the circumstances leading to your employer offering you the settlement agreement, how long have you been employedand how long you expect to be out of work.If you have a reasonable case to pursue in the employment tribunal (or civil courts) as an alternative to signing the settlement agreement, you will want to ensure that the settlement payment offered includes a reasonable sum to reflect this.
Most compensation is based on financial loss. If you have been unfairly dismissed, your compensation will reflect your net loss of salary and benefits until either you find alternative employment or the employment tribunal reasonably considers you should have found another job. In an unfair dismissal claim, you are also entitled to a basic award based on salary, age and length of service. This sum is similar to a statutory redundancy payment.
In cases of discrimination, you may be awarded compensation for injury to feelings as well as compensation for any financial loss. The award for injury to feelings will reflect the seriousness of the discrimination. Lower awards are made for one-off incidents and the highest awards are made for lengthy campaigns of harassment.
We will also need to work out the payments you are entitled to receive under your contract of employment and/ or statutory payments (e.g. notice pay and redundancy pay, and accrued untaken holiday pay, bonus due etc). The settlement payment should be more than the payments you are entitled to receive under your contract, otherwise there is no incentive or benefit to you in waiving your employment related rights.
If we think the terms are not fair, we will, if you instruct us to do so, negotiate with your employer to improve them.
Do I really need a Solicitor?
Yes you will need a solicitor even if you are comfortable with the terms, and really you should take advice from specialist employment law solicitors. For a settlement agreement to be legally binding an employee must receive independent legal advice on the terms of the settlement agreement and their effect on their ability to pursue their rights in an employment tribunal.
Getting independent legal advice ensures that you do not sign away valuable employment rights without receiving fair compensation in return, and that you are fully aware of the implications when signing the agreement.
We will provide you with a certificate or letter signed by us to confirm that you have received legal advice.
The solicitor’s role is to advise you on the terms and effect of the settlement agreement and its effect on your ability to pursue your rights in an employment tribunal.
I am concerned that my employer is likely to respond better to comments from me rather than a solicitor.
If you want us just to advise you so that you can talk to your employer about your agreement yourself, that’s absolutely fine, and often the best strategy for obtaining the best terms. We can help you with the necessary information you will need to negotiate on your own behalf. When you are happy with your settlement agreement, we can check it again and provide you with an adviser’s certificate confirming you have received independent legal advice.
Are all payments under Settlement Agreements tax free?
Usually you can receive a termination payment of up to £30,000 tax free. However any payments which an employer is under a contractual obligation to make must be paid subject to deductions for tax and national insurance before they are paid to you. This may include, for example, holiday pay, contractual bonus payments and other contractual payments or benefits. In some cases payments in lieu of notice can be made tax-free, but in many cases all or part of the payment has to be taxed. When we advise you on your settlement agreementwe will be able to advise you on the taxable status of the payments.
Does the settlement agreement only deal with money?
The settlement agreementusually covers a whole range of terms that cover return or retention of the employer’s property, confidentiality and in some cases restrictions on what work you can do after termination of your employment. It is also often possible to agree wording for a reference.
What are the common clauses in settlement agreements?
Settlement agreements usually contain a number of common clauses, though the wording of those provisions does differ for each settlement agreement. Examples of the usual matters covered in a settlement agreement are as follows:-
- An agreed termination date;
- Agreed arrangements up until the termination date, if the contract of employment has not already been terminated;
- Agreed payments and benefits to be made up to termination (e.g. salary, payment in lieu of accrued untaken holidays, bonus payments), and the taxable status of those payments and benefits;
- The agreed termination payment and the taxable status of that payment and details of when that payment will be made;
- The arrangements in relation to the independent legal adviser (e.g. requiring the solicitor to sign an adviser’s certificate)
- A waiver clause setting out a list of the claims you are agreeing to waive in return for the payments and benefits set out in the agreement;
- A tax indemnity – There is usually a clause in the settlement agreement which states that you agree to indemnify your employer against the risk of the HMRC seeking income tax and NICs.
- A confidentiality clause – Employers will normally want to stop you from talking to other people about the settlement agreement and its terms. As such, settlement agreements usually contain confidentiality clauses which state that you cannot tell anyone about the agreement or its terms;
- A clause requiring one or more of the parties not to speak detrimentally about the other party;
- A clause confirming that statutory requirements have been complied with;
- A repayment clause if, despite the agreement, the employee brings a claim or otherwise breaches the agreement;
- A clause providing that the employer will pay for, or contribute towards, the cost of the employee receiving legal advice on the agreement; and
- A warranty that the employee has not guilty of any serious misconduct which would have entitled the employer to dismiss you without payment of notice.
Can I get a free consultation about my Settlement Agreement?
If you have received a draft settlement agreement, you will need to make sure you receive legal advice on it. We offer a free initial consultation on the phone if you would like to discuss your situation before committing yourself to appointment of a solicitor and incurring costs. Our main number is 01865 487136.
Who pays the solicitor?
Your employer will normally make a contribution towards the costs you incur obtaining legal advice on the terms and effect of the Settlement Agreement. The contribution offered is usually between £250 and £1000 plus VAT. Often this contribution is sufficient to cover the whole bill.
However, this may not be the case where the agreement is complex, or if you would like us to advise on the merits of potential claims or we are instructed to negotiate directly with your employer on your behalf to obtain a better settlement.
It is sometimes possible for us to negotiate a higher contribution for legal fees from your employer but if we are unable to do so, any fees over and above the employer contribution will normally be payable by you.
It is important to note that most employers will only contribute to your legal fees if the agreement is actually signed. If you decide not to go ahead, there will almost certainly be no employer contribution.
What happens if I don’t sign?
It is entirely up to you whether you decide to sign the settlement agreement.This would only usually happen if, after taking legal advice, you do not think the deal offered is fair in the circumstances, and it is not possible to negotiate a better deal,. You would then be free to bring an employment tribunal claim instead, though you should always be mindful of time limits for bringing employment tribunal claims.
The basic time limit for bringing most employment tribunal claims is three months less one day from the date your employment terminated. You may have to act more quickly ifyou are complaining about discrimination which occurred during your employment. You will also be required to notify Acas of your claim before you can commence tribunal proceedings, and this can have an effect on the time limit.
Do I need to come to your offices or can we do this over the phone?
There is no need to come to our offices. We can do this over the phone if you prefer not to travel, though a face to face meeting is often better.