Settlement Agreements – what employees need to know

If you’ve been offered a settlement agreement at work but have no idea what it really means or how it will affect you, then this guide will take you through the key legal aspects and answer the most frequently asked questions we get on this subject.

What exactly is a settlement agreement?

In simple terms a settlement agreement is a contract that offers a termination payment to an employee in return for them leaving the business and agreeing not to pursue any tribunal or court claims against the employer in the future.

As an employee it’s vital to consider the terms of an agreement like this carefully and understand that by signing it, you’re essentially agreeing to give up your right to bring any kind of claim against your employer, its directors, or employees.

When are settlement agreements used?

There are many different scenarios where a negotiated exit from employment might happen, but these are some of the common examples:

– To settle an ongoing claim (outside of court or tribunal)

– As an alternative to gross misconduct or disciplinary procedures

– To resolve employment issues like long term poor performance

– To settle a discrimination or negligence claim

– To facilitate a clean break if the employment relationship has broken down

Do I need legal advice before signing a settlement agreement?

For the settlement agreement to be legally binding, the employee is required to take independent employment advice from a qualified adviser. This is to ensure you fully understand the meaning of the agreement and its impact on your ability to bring a legal claim against the employer.

An employer will usually offer to contribute towards your legal fees for this advice. But be aware that their contribution won’t always cover all your fees, and so you may need to negotiate an increase or be prepared to pay the difference yourself.

What else should I consider before agreeing to a settlement agreement?

Before entering into a settlement agreement, we would recommend you consider the following to help assess the value of the offer being made:

Check your existing employment contract

– What are your standard entitlements on termination of employment?

– Consider your salary, benefits, and any accrued holiday pay

– Consider any payment in lieu of notice if relevant

Think about your next steps

– How long will it take you to find an equivalent job?

– Consider your age, length of service and the current job market

– Might you need support or refresher skills training?

What else should be included in the offer?

– Ensure a reference is being offered

– Are they offering any outplacement support?

Check all the clauses in detail

– Understand the level of confidentiality required (both during and after your employment ends)

– Check for specific restrictions post-employment (like not poaching customers or other staff)

– Are you required not to make any derogatory comments about the employer?

– Ensure clauses also protect your own reputation, not just the employers

With all of these in mind, does the termination payment on offer provide enough of an incentive for you to agree to waive your rights to bring a claim? If not, there may be room for negotiation.

Can I negotiate a better deal?

Depending on your situation, settlement agreements can involve a negotiation stage between you and the employer until a mutually acceptable agreement is reached.

Once you’ve considered your own aims for the agreement, it’s useful to think about what your employers’ main concerns could be about the situation, as these can be key to the negotiation process. In most cases they will be concerned about the potential time and cost of defending a tribunal or court case and the associated bad publicity they may receive as a result.

It’s worth noting that in most cases, the employer holds all the power in relation to the terms of the settlement agreement, so it’s worth considering what terms are most important to you and what you’re prepared to compromise on.

Top tips for negotiating a settlement agreement

Your solicitor will help you formulate a strategy for negotiation that focuses on what you want to achieve from the agreement. Each case is unique, but we would always give the following advice:

– Don’t be afraid to ask for exactly what you want (it’s not always just money!)

– Try not to let things get personal

– Be prepared to compromise

– Remember any deal needs to be fair to both sides

What if I don’t want to go ahead with the settlement agreement?

Settlement agreements are voluntary, and you can’t be forced to agree to one by your employer. The alternative is to bring a claim against the employer in either an employment tribunal or a court.

Claims are time-consuming and there is no guarantee of success. Due to a current lack of administrative resources in the tribunal and court, claims are taking much longer to be dealt with, often resulting in employees waiting between 12-18 months for a full hearing. Also, it’s important to bear in mind that to ensure the best chance of negotiating a settlement package that you’re comfortable with, you’ll need professional assistance throughout the process which will cost you money.

Do I really have to keep all the details confidential?

Confidentiality clauses are commonplace in settlement agreements and yes you really do need to stick to them to retain your financial pay-out! These clauses usually require employees to promise not to disclose the terms (and sometimes the existence) of the settlement agreement to anyone, either at the time of the agreement or in the future.

There are limited circumstances in which a confidentiality clause would not apply, such as whistleblowing.

If you need help with a settlement agreement

We can act as your independent adviser if you’re offered a settlement agreement, providing advice on the adequacy of the financial package offered to you (compared with what you might achieve by bringing a claim) and the terms you’re being asked to agree to. We can also negotiate with your employer on your behalf.

Contact one of our friendly team today for an informal chat.