Settlement Agreement
When an employment relationship has broken down, a settlement agreement is often the method used to end the employment contract. They can be initiated by either the employer or the employee, although it is often the employer who turns to them as an option. In the past, they were known as compromise agreements. But in 2013 the law changed, enabling a settlement agreement to be offered even if there is no ongoing dispute within the workplace.
First things first… key information about settlement agreements
- It is a legal requirement that an employee obtains legal advice on the terms and effect of a settlement agreement. This advice MUST come from an independent legal adviser with relevant knowledge. This is usually paid for by the employer.
- The adviser MUST be named in the agreement.
- The agreement MUST be in writing
- The agreement is legally binding and the employee cannot make any form of claim for unfair dismissal once it has been signed.
- A settlement agreement is voluntary, so you DO NOT have to accept one if it is offered to you. In fact, you don’t even have to enter into discussions or negotiations about it if you don’t want to. The agreement MUST be mutual.
- A settlement agreement can be offered at any time in your employment. There does not have to be an ongoing dispute in the workplace. However, the settlement agreement MUST relate to the dispute or reason given for proceeding.
What happens?
If you are asked to consider a settlement agreement, there will at some point be a meeting. It’s important to note that your employer is not obligated to allow you to have a representative at this meeting. However, employers often do allow a work colleague or union representative to be present because it can help towards speeding up an agreement.
What is in a settlement agreement?
- The following points are usually covered by a settlement agreement:
- Outstanding salary and holiday pay (which is tax deductible).
- A payment compensating you for your loss of employment. This payment is tax free up to £30,000.A waiver of claims against your employer (so you cannot make a claim for unfair dismissal in the future).
- A clause ensuring confidentiality, whereby both you and your employer agree not to disclose details of the settlement agreement to third parties.
What will happen if I don’t want to sign a settlement agreement?
Depending on the nature of the dispute, or desire to terminate the contract of employment, the other options available (usually to your employer) are:
- Performance management
- Disciplinary procedure
- Grievance procedure
- Mediation
What should I do now?
If you have been offered a settlement agreement, it is important that you don’t find yourself losing out just because you didn’t have a full understanding of your rights. At Astons Solicitors, we regularly advise employees on settlement agreements and thus can ensure you have a complete understanding of what is being proposed to you. The key is to establish whether you are being offered the right deal for you.
To find out more, call us on 0800 304 7254. You can also review our free guide on “7 Key things you need to know about settlement agreements” by clicking here.
