You should never feel pressured into accepting a settlement agreement without taking legal advice first. You need to know exactly what you’re signing when you go into a settlement agreement: you won’t be able to go back and change it or appeal it at a later date.
Contents for settlement agreements
What is a settlement agreement?
A settlement agreement is a legally binding agreement between an employee and an employer.
This settlement normally involves severance payment in return for the employee’s agreement that they will not follow any claims in court or an employment tribunal. If the employee already has a claim, a settlement agreement will normally mean that the employee will withdraw their claim.
Settlement agreements are primarily used in two situations:
1) To end a contract of employment cleanly.
2) To settle an existing dispute between employee and employer.
what needs to be in my settlement agreement?
Each settlement agreement is different and the exact information in each one will differ from another. However, usually, there are elements that will be in all settlement agreements. These are:
1. Any outstanding payments or balances, such as salary, bonuses, commission and holiday pay.
2. A termination payment that will be paid to the employee for agreeing to terminate their contract.
3. A confidentiality clause.
4. A non-derogatory clause which will prevent both parties from saying unpleasant things about each other.
5. A contribution by the employer towards any legal costs.
You should know…
1. If you don’t take legal advice, you may find that your claim could be challenged in the future, and you may have to pay out costs on behalf of the opposing party.
2. It is useful to have a solicitor review your agreement to see if there are any unfair terms or conditions. This way, a solicitor can propose a counter option to amend the agreement.
3. As an employee who is considering a settlement agreement and withdrawing their claim, your solicitor may advise you that your case is strong and it actually isn’t in your best interests to settle early or to accept a settlement that undermines your claim.
4. If you decide to reject your employer’s settlement offer, they must continue to treat you as normal. However, if they fail to do so, you may be able to raise a grievance based on discrimination.
How does the settlement agreement process work?
Talking to a lawyer about it
When you come in for your appointment, your lawyer will sit down with you and talk to you about your settlement agreement. They’ll check to see that you understand:
- What the terms of the agreement mean
- What you can and can’t do following your termination
- How much redundancy pay you will receive and when
- Which part of your redundancy settlement is taxable, if any
- Whether you are giving up any employment rights
- Any restrictions placed on you
signing the agreement
Once your lawyer is satisfied that you understand the terms of your settlement agreement and you are happy with what it says, you can sign it. They will complete your certificate of independent legal advice and you will need to return the original signed document to your employer.
Once this is done, you’ll have set in motion the termination of your employment. Your employment will terminate on the date specified in your agreement. Depending on your original employment contract you may have a notice period or a payment in lieu of notice or PILON.
It’s important to stick to the terms of your settlement agreement even after your employment finishes as you can still be in breach of the settlement agreement if you don’t. The same is also true for your employer.
do i pay for my settlement agreement?
The reason your employer covers this cost is that it’s important you understand what the agreement means. If you fail to take independent legal advice on the settlement agreement and later take legal action against your employer, a valid defence could be that you didn’t understand the terms of the agreement.
However, this doesn’t mean you should avoid getting independent legal advice, nor would failing to do so stand in court if your employer made a reasonable offer to cover this cost.
Confidentiality clauses are an extremely important part of settlement agreements for employers. However, the clause will need to be relatively relaxed so the employee is able to discuss the agreement with a family member and to enable employees to discuss the circumstances of their departure with future employers. It is important to note that this confidentiality clause may include a mutual clause to prevent the employee and employer from making derogatory comments about one another
How can a lawyer help with your settlement agreement?
The function of your settlement agreement is to make the termination of your employment as smooth as possible for you. You might find that your employer will offer you a settlement agreement right before the end of your employment, so to avoid any legal claims against them.
While you don’t have to have a lawyer to advise you on your settlement agreement, you might find that their advice can be really helpful, especially if the alternative to the agreement is a discrimination or unfair dismissal case.
Firstly, if you feel like you are being pressured into accepting a settlement agreement. For example, if you have a case of unfair dismissal, and your employer is pushing you towards a settlement agreement to avoid further action against them. In this situation, a lawyer will advise you on whether it is best to sign your agreement or not. Together, you might be able to find an alternative solution that suits you better.
You might also need a lawyer if your employer breaks the terms of your settlement agreement, for example, they may have agreed to pay you a sum of money that you never receive. Your lawyer will then look at all the evidence and will work hard to get your money to you.
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