Settlement Agreements – What are they?
It is not unusual that in some circumstances, employees and employers may reach a stage in their relationship when the look to terminate all future association with each other, as a result of a dispute which has not been settled. Alternatively, a business may need to make changes to its personnel due to changes in need or owing to the wider commercial environment. These objectives are normally met through the use of what are known as Settlement Agreements. A Settlement Agreement is a legally binding document (a contract) that ends the employer-employee relationship. As mentioned earlier, Settlement Agreements do tend to be used to bring an end to a dispute between and employee and employer. Generally it is an employer who will propose that a Settlement Agreement is used to end the employer-employee relationship. However, it is open to employees to suggest that they be used.
The terms of a Settlement Agreement will be particular to the dispute in question, but will normally provide for an employee leaving their position with an organisation, and waiving any future right to bring a claim before an Employment Tribunal. In return, a business will normally issue a level of financial compensation, and provide a reference to allow an individual to pursue employment elsewhere.
Settlement Agreement Advice for Employees
Employment Law Edinburgh is powered by Thompsons Solicitors and we have a great deal of experience in advising on the terms of Settlement Agreements. We have a comprehensive understanding of the key terms of this type of document, and are prepared to negotiate the financial compensation that is suggested by employers if required. It is important that clients do not become concerned about having to pay for legal advice on the terms of Settlement Agreements. As a result of the legal requirement for employees to seek advice, it is often the case that employers will pay the fees of an employee's legal advisors. We at Employment Law Edinburgh have professional indemnity insurance and will provide objective advice with the best interests of our client in mind, which is never affected by an employer's payment of our professional fees. Our lawyers will ensure that you are appropriately advised on the meaning of all of the terms of a Settlement Agreement.
We understand that where an employment relationship has broken down, you may have questions about how to proceed. The guide below answers some of the most common questions employees may have about settlement agreements, but we are always on hand to discuss your specific circumstances with you.
What is a settlement agreement?
A Settlement Agreement is a document that, in law, ends the employer-employee relationship. It is quite common that the employer will suggest the use of a Settlement Agreement, but employees are also entitled to consider their use and bring it to their employer's attention.
When a Settlement Agreement is created, its terms will be specific to whatever scenario has led to it being drafted. Generally, it will be a dispute between an employer and an employee that merits its use. While most of the terms of the Settlement Agreement will be subject to negotiation, the vast majority of these agreements normally allow an employee to vacate their position with an employer, in exchange for their waiving any rights that they have to bring an employment law claim before an Employment Tribunal against their employer. An employer will normally provide a level of financial compensation and a reference to allow the employee to look for another position.
What do I do with a Settlement Agreement?
A Settlement Agreement often brings the employer-employee relationship to an end, and prevents you from bringing a claim against your employer at an employment tribunal. Because its use carries legal consequences, it is important that it is a valid document that is appropriately considered and signed by all of the parties. Before a Settlement Agreement will be recognised as legally binding, the employee must have received independent legal advice on the substance of the agreement. Any legal advice sought should also come from a law firm that has professional indemnity insurance.
What should be included in a Settlement Agreement?
There are several things that should be included in a settlement agreement, some of which are legal requirements. Normally a settlement agreement will include:
If you have agreed a notice period, this should be set out in the agreement. This could be the specific time or date you have agreed, a period of leave or garden leave or a payment in lieu instead. It is important that this period matches the terms of your employment contract, and we will make sure to check this for you.
Details of Payment to be Made
Where a payment is to be made to you, there should be a clause within the settlement agreement referring explicitly to this payment. It will set out:
- When payments will be made
- How much is to be paid
- If you will be liable for any tax on the payment
- Whether the payment is in relation to employment or something else. For example, a compensation payment relating to the termination of your employment, or outstanding holiday pay owed to you.
- In relation to tax, there will be a statement which outlines any tax indemnity. Under UK law, the first £30,000 of a termination payment is usually tax free because they payment is related to loss of employment as opposed to income. The statement will outline whether tax is to be paid or if it has been paid already. The reason for this is to allow HMRC to see whether tax is due on the payment. You can also request that responsibility for notifying you of any demand from HMRC be placed on your employer, and they must notify you. This should be included in the terms of the settlement agreement.
Settlement of Employment Law Claims
Normally, the primary purpose of a settlement agreement is to settle any claim you may have against your employer. This waiver means that you can take no further action in relation to the issues set out in the settlement agreement, as they are deemed to be settled in law. There are exceptions to this including:
- Your right to enforce the terms of the settlement agreement
- Anything related to pensions
- Any personal injury claim that you are not yet aware of, or that have not yet been raised
A settlement agreement document will typically also have a clause related to employee warranties. This includes things such as returning any company property to your employer, or anything containing confidential information. This clause may also include confirmation that you have not breached your employment contract through any act or omission.
Your legal advisor will also be referenced in the settlement agreement, and this is a legal requirement in order for the waiver of your employment rights to be valid.
It is common for settlement agreement documents to include a confidentiality clause. Where there is a confidentiality clause in your settlement agreement, you may not discuss the reasons for terminating your employment, or the terms of the settlement agreement. The cause may also stipulate that you are prohibited from speaking negatively about your employer, the business or former colleagues. However, this clause may be reciprocal, which can be useful for you when you are seeking new employment.
Where you have previously benefited from additional benefits such as private healthcare or shares, your settlement agreement will stipulate whether you wish these benefits to continue after the employment has ended. Where these benefits are not to continue, this should be reflected in the financial sum offered by your employer.
Your employer may also include what is known as a ‘claw-back’ clause. This provision will come into play where you have been paid the financial sum agreed, but you have then breached the terms of the agreement or your employment contract. This clause will allow your employer to claw back some of the money that has been paid to you. We will explain all of the terms of your settlement to you to ensure that you understand your obligations to prevent any potential breach.
Reference and Company Statement
You may also negotiate a reference from your employer. This will normally be attached to the agreement, and will allow you to find other suitable employment. The agreement may also include a statement to other employees or clients about your departure, and the wording of this may also be included in the settlement agreement.
Do I have to accept the terms of a Settlement Agreement?
When an employer presents an employee with a Settlement Agreement, they should seek legal advice on its meaning. Employees need not accept what employers have suggested in the Settlement Agreement. If they are not satisfied with a Settlement Agreement's terms, they may ask their advisors to communicate this to the employer. This will normally result in employers reconsidering the terms of the Agreement, before providing a revised copy to the employee. Until the Settlement Agreement is signed by both the employer and employee, being acceptable to both parties, the employer-employee relationship will remain.
What happens if I accept the terms of a Settlement Agreement?
If an employee decides that the terms of a Settlement Agreement are acceptable, having received independent legal advice on what the different clauses mean, they may sign the document and give it back to the employer. Upon receipt of the agreement the employer will then identify what is to be the 'Termination date', which will be when the employer-employee relationship ends. The employer will include this and a timetable of when financial compensation will be paid to the employee. The employer will normally give the employee a reference, allosecureg them to pursue employment with another organisation.
After a Settlement Agreement has been signed, in law, the employer-employee relationship is terminated. The employee will leave their post and waive any rights they would have had to bring a claim before an employment tribunal. In exchange, they will receive the compensation that was agreed.
What are the legal requirements of a Settlement Agreement?
In order for a settlement agreement to be legally binding, it must meet the following conditions: the following conditions must be met.
- The settlement agreement must be in writing.
- The settlement agreement must relate to a specific dispute, event, complaint or proceedings.
- The employee must have received independent advice from a relevant independent adviser, such as a lawyer or a certified and authorised member of a trade union.
- The employees must be given a reasonable amount of time to consider the proposed terms of the agreement. The Acas Code of Practice on settlement agreements outlines a minimum of 10 calendar days unless otherwise agreed by the parties to the agreement.
- The independent adviser providing advice must have a contract of insurance or professional indemnity covering the risk of a claim by the employee
- The agreement must identify the independent adviser.
- The agreement must clearly state that the applicable statutory conditions regulating the settlement agreement have been met.
If you have been offered a settlement agreement by your employer, get in touch with us today. We are highly experienced in negotiating with employers to obtain favourable terms for our clients. Get in touch today.
What do I do with a Settlement Agreement?
A Settlement Agreement is a legal document. As a result, its use and signing by an employee carries with it certain legal consequences. Furthermore in order for a Settlement Agreement to be recognised as legal, and binding on the parties, an employee must receive independent legal advice on the terms of the Agreement. The advice must come from an independent legal advisor, who also holds professional indemnity insurance.
It is a quite common that during the life of the employer-employee relationship, circumstances may arise that lead the parties to consider terminating their relationship. This tends to arise as a result of a dispute or grievance that one party has with the other, which has not been resolved to one party's satisfaction. Alternatively, businesses may be struggling in a competitive market and might be forced to reconsider their position and staffing needs. Regardless of the scenario that prompts a party to consider terminating the employer-employee relationship, the way this is achieved is through the use of what are called Settlement Agreements. To discuss your specific circumstances, or to receive expert advice on the terms of a settlement agreement from a team of experienced employment lawyers, contact us today. You can call us on 0131 322 1032 or complete our online enquiry form and we will get back to you right away.
Contact our Settlement Agreement Lawyers in Edinburgh
If you are thinking about using a Settlement Agreement, or have been presented with one having been unable to resolve a dispute, speak to our expert employment solicitors now. We will provide advice which takes into consideration the terms of the Settlement Agreement.
Get expert Settlement Agreement advice from one of our Employment Lawyers today - call us 0131 322 1032 or complete our online enquiry form; and we will get back to you right away. We look forward to helping you move forward in your working life.