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What is a Settlement Agreement?

A settlement agreement is a legally binding agreement which is made following the termination of your employment and/or an agreement to bring a dispute with your employer to an end, i.e. dispute concerning unpaid wages, or equal pay or dismissal or redundancy.

If your employment is being terminated i.e. you are being made redundant or you are being dismissed, entering into a settlement agreement can be in the best interests of both the employer and the employee. The employer has security of not being sued at a later date, and the employee maybe able to negotiate an enhanced redundancy package.

If you have a dispute with your employer a settlement agreement can be a good way to bring the dispute to an end.

A settlement agreement can ensure that an employee is adequately compensated without the need to bring a claim in the Employment Tribunal which can be a costly, lengthy and emotionally draining process.

 

Do I need to take legal advice ?

There are a number of legal requirements which must be fulfilled to make a settlement agreement binding.  One of the requirements is that the employee must receive independent legal advice from a legal professional.
 
A settlement agreement can be written in very legalistic language and can refer to statutes and regulations which you may never have heard of. It is important that you understand the effects of the agreement so that you know exactly what you are agreeing to. It is also a legal requirement that your legal advisor signs the agreement to confirm that advice has been given.
 
We are experienced in providing specialist, independent legal advice in relation to settlement agreements and will ensure that you receive relevant and accurate advice..

 

FREQUENTLY ASKED QUESTIONS

Why do I need to sign an agreement?

Settlement agreements are used by employers to ensure that, with limited exceptions, employees who sign them cannot bring any claims against them in the future, and/or that any existing claims are settled. In return for you giving up your rights to issuing a claim, you will receive a compensation payment. If you do not sign the agreement, your employer probably will not agree to pay you compensation, or at least not as much as they are presently offering.

When will I get my money?

Your agreement should specify a time limit within which the money should be paid. Check your agreement and if still in doubt, contact us.

Will Deen & Co’s costs come off the compensation payment?

No. You will receive the full payment.

Usually your employer will cover the full cost of your legal advice.

Will I have to pay tax on the compensation payment?

Whether tax is payable depends on how the payment is made up. You will usually have to pay tax and national insurance on any wages and holiday pay. Generally, the first £30,000 of a payment made as compensation for loss of employment is tax-free. Redundancy payments up to £30,000 (both contractual and statutory) are usually tax-free. Payments in lieu of notice are tax free, provided that your employer doesn’t have a contractual right to make a payment in lieu of notice; and, in a redundancy situation, provided that the employer does not usually make a payment in lieu of notice as a matter of course. Benefits such as continued use of a mobile phone  / company car are usually tax-free. If you want more specific advice about tax please ask, or seek independent financial advice.  Even if the payment is being made to you tax free, the agreement normally makes it clear that if the Inland Revenue says that tax or NI is payable, you will be responsible for paying it, not the employer.

What claims will I be able to make, if any, if I sign the agreement?

Generally, you will only be able to make three types of claim. Firstly, if your employer breaches the agreement, e.g. they do not pay the agreed amount to you , you could claim a breach of contract . Secondly, claims in respect of personal injury (PI) are usually still allowed – though your agreement may exclude PI claims in respect of injuries you were already aware of at the time you sign the agreement. This would usually be the case, for example, if your employment is being terminated in circumstances in which you have been off sick due to stress / anxiety. Thirdly, you should still be able to make claims in respect of accrued pension rights. 

Can I tell anyone about the agreement?

This depends on whether there is a confidentiality clause in the agreement. Sometimes these only cover the terms of the agreement. This would mean that you can still tell people that you have come to an agreement with your employer about the termination of your employment / employment tribunal claim but cannot say what the terms of the agreement are (for example, that you will receive a sum of money). Sometimes, the employer insists that you cannot even tell people you have come to an agreement. If you have any questions about confidentiality, please contact us

Can I say what I want about my employer now?

Sometimes an agreement will contain a non-derogatory statements clause – this basically prevents you from bad-mouthing your employer or people who work or worked for the company. You should therefore be careful what you say about your employer, particularly in a public setting where your comments may be reported back. 

Can I go to the press about what has happened to me?

This depends on the type of confidentiality clause in the agreement, if any, and whether there is a non-derogatory statements clause (see above). You should always seek advice before going to the press if you have signed an agreement.

Will my employer give me a good reference?

There is generally no obligation on an employer to provide a reference. Any reference that is provided should be true, accurate and fair. If not, the employer may be guilty of negligent misstatement.  It is possible to incorporate a reference into the agreement. If you specifically request this, , and one has not already been agreed with your employer, you need to contact your legal representative to help you to negotiate the content of the reference. We will, if asked, ensure the inclusion of an appropriate clause in the agreement. This may delay the time it takes to get the agreement signed.

What if my agreement states that the terms of the Agreement shall constitute the entire agreement between the parties?

This means that you will not be able to enforce any verbal statements given by the employer relating to the termination of your employment that do not appear in writing in theAgreement e.g. a promise to give you a reference, or extra payments.

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