At Waterfront, our specialist employment & HR lawyers advise on settlement agreements every week but for our employee clients, signing such an agreement can be a once-in-a-lifetime event. If you have been offered a settlement agreement or you are finding the process confusing or daunting, we are here to help.
A settlement agreement is a written contract between an employee and employer. Usually, it sets out the terms on which the employment relationship will come to an end, but it’s possible that the employment may have ended already.
The employer agrees to pay the employee a sum of money and the employee agrees not to claim anything further from the business or settle any claims that they could bring.
You can also expect there to be a number of other contractual provisions for the benefit of both parties, such as an understanding that certain matters will be kept confidential and that the parties will not bad-mouth each other. An agreed reference is also typical
There are a few different reasons why an employer might want to offer a settlement agreement.
In redundancies, they are often used when the parties agree to shortcut the usual consultation process or as a condition of an enhanced severance package.
Outside of redundancy situations, your employer may consider that the relationship isn’t working out because of performance or conduct concerns and so wants to discuss bringing your employment to an end by mutual agreement.
In other cases, employers and employees will use a settlement agreement to resolve a dispute between them, perhaps because the employee has raised a grievance or claim.
Because the agreement will waive your right to bring potentially valuable statutory claims, the law provides that you must take independent legal advice before you can enter into it validly. In other words, the agreement will not have the desired effect unless you take legal advice before you sign a settlement agreement. Accordingly, it is standard for the employer to pay for this legal advice, usually up to a certain limit.
To be more precise, the law requires that a valid settlement agreement must 1) be in writing 2) relate to a specific claim or complaint 3) be signed by the employee 4) confirm that the employee has received independent legal advice 5) identify the legal adviser (that adviser must be insured) and 6) record that the rules regulating settlement agreements have been satisfied.
In nearly all cases, yes, you should consult with specialist settlement agreement solicitors for the reasons set out above.
This is the main question we help you to answer when providing you with legal advice. Clients always ask “Am I getting a good deal?”
The answer will depend on the factual background to the offer, your negotiating position and the alternatives available to you.
A settlement agreement gives you the certainty of a payment and when it will be paid. However, it will mean that you are no longer able to pursue your legal rights in a Court or Employment Tribunal. Such litigation can be stressful, costly and uncertain so you will want to weigh up the benefits of reaching an agreement now against the potential for you to be better off if you don’t.
In many cases, yes! Like with any contract, there is usually room for negotiation. It could be on the key financial terms or on the non-financial terms such as the confidentiality clauses or the wording of your reference.
We will help you understand your rights and the options available to you so that you can decide what and how you want to negotiate. You could undertake this yourself or ask us to represent you.
Alternatively, you may find that you are satisfied with the terms offered and, after taking legal advice, you are content to proceed without negotiating.
As a team, we have been negotiating settlement agreements for both employees and employers for more than 20 years, so you can draw on our depth of experience when deciding what to do.
In some cases, the employee will have no viable potential claims anyway, but employers often require the finality of an agreement all the same, particularly where they have decided to be more generous than they need to be with the severance package.
In other cases, it will be a question of weighing up the value of the claims you might have against the offer of settlement on the table.
If you’re not happy with the terms, we will probably suggest attempting negotiation before walking away.
However, if you are not prepared to go ahead with the deal then it will be a case of considering your options, which we will discuss with you in detail.
Each agreement is different but they tend to be around 10 to 15 pages and cover:
We are able to explain in everyday language what each clause means for you.
Where there is a dispute between two parties it is common for them to attempt resolution by discussing matters on a “without prejudice” basis. It means that the correspondence will not be seen by the Court or the Employment Tribunal so the parties can talk more freely and make concessions without prejudicing their legal positions if talks subsequently break down and they ask a judge to decide who is right instead.
It’s a way of talking “off the record” so that whatever is discussed is not used as evidence against either party in the dispute or as part of any litigation.
When we are not discussing matters on a “without prejudice” basis, we are talking on an “open” basis.
“Subject to contract” simply means that whatever we discuss or agree in principle is subject to us formalising it in a written contract. It’s a way of avoiding agreeing terms during the course of your discussions as it means that even if a consensus is reached, it will not be binding until a contract – i.e. the settlement agreement – has been agreed and signed.
As an example, your employer might say on an open basis that you have no right to a settlement sum and that any potential claims would fail. However, on a without prejudice and subject to contract basis, they may be prepared to offer you a payment by way of a compromise and to conclude matters promptly. If you don’t go on to accept it and agree contractual terms then they will be free to revert to their open position, which is that nothing is owed, despite the concession they made on without prejudice basis. They will be entitled to withhold that earlier compromise from the judge as a consequence.
The rules on protected conversations – found in section 111A of the Employment Rights Act 1996 – are effectively an extension of the rules relating to without prejudice discussions (see above).
For a discussion to be without prejudice there needs to be a pre-existing dispute which is often not the case when an employer wants to discuss an exit proposal with an employee. Section 111A applies in a similar way to the without prejudice regime by making settlement discussions off the record for the purposes of unfair dismissal claims, but even if there is no pre-existing dispute.
It doesn’t apply to claims other than unfair dismissal (such as discrimination) or if there has been “improper behaviour”, which could include an employer putting undue pressure on an employee to accept.
Usually, the parties want to keep knowledge of the agreement on a need-to-know basis. Employers do not want others, including their remaining employees, to know that they have made a one-off payment and there could be several reasons why an employee would want to limit who knows about it. Of course, it’s a personal financial matter but you would want to keep it from future employers as well.
In practice, we see the parties agreeing to keep matters confidential, but with a list of exceptions. These usually allow you to discuss it with your partner or immediate family and your legal advisers (provided they keep it confidential too). You can also expect to remain able to report crimes or blow the whistle on illegal activity.
Yes. Until July 2013 settlement agreements were known as compromise agreements. The government decided to change their name but they are the same thing.
On most occasions, the process is straightforward and you can expect the following to take place:
This varies from case to case. For a simple agreement with no amendments, we can offer same-day service, subject to the availability of our employment specialists. For more complex matters, it can take several weeks.
In most cases, we can advise you within the contribution towards your legal fees offered by your employer. However, if we think that this might not be possible, we’ll discuss it with you at the outset.
Potentially, yes. It will depend on the situation you’re in and what negotiating position that gives you. In particular, will your employer view you leaving the business with an exit payment as a reasonable alternative to either retaining you or engaging with you in a dispute, if that is the alternative?
If you would like to leave your job with an enhanced severance package then please call us and we will be happy to discuss how this might be achieved. It’s something we’ve done for clients consistently and successfully over the years.
This will depend on the terms of the contract, which particular terms you have not complied with and how. However, you are likely to be in breach of contract and the other party could bring a claim against you for damages and potentially their legal costs too. You may also have agreed indemnities (an obligation to reimburse your employer for its losses) or to repay some or all of the money which was paid to you.
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