What is a Settlement Agreement?
Your Guide To Settlement Agreements
There are many reasons why employers and employees might want to use a Settlement Agreement to resolve an issue or dispute. It is an area of law that our specialist solicitors at HLF Berry Solicitors fully understand..
What Is A Settlement Agreement?
A Settlement Agreement is a contract between you and your employer that records the terms of an agreement entered into in order to resolve a set issue or issues between you and your employer.
When you sign a Settlement Agreement, you waive your right to bring an employment related claim against your employer in exchange for a sum of money, called a termination payment.
Why Does It Include “Without Prejudice”?
This term means that a Settlement Agreement cannot be used in court as evidence by either party – “without prejudice” means the agreement and associated negotiations are all off the record. This is to ensure both parties can be open during the negotiations, to assist finding a resolution.
When Is A Settlement Agreement Used?
Normally, a Settlement Agreement is used either at the point of an employment relationship ending..
As a guide, Settlement Agreements are used in various situations, including:
- If an employee is underperforming and faces a disciplinary hearing and potential dismissal
- If there are potential redundancies and an employee would otherwise need to go through the redundancy process
- If there are allegations of gross misconduct and the employee faces a disciplinary procedure and possible dismissal
- If an employer wants to make payment to an employee when their employment ends, and the employer wants to be sure that the payment will not be seen as an admission of liability for any employment related matters.
What Payments Are Made Under A Settlement Agreement?
The sum of money agreed in a Settlement Agreement depends on the circumstances.
Factors influencing a payment, include:
- Contractual entitlements such as salary and notice
- Length of employment
- Value of a potential claim
- Why a Settlement Agreement is being offered
- Severity of dispute
- Whether compensation is offered as an incentive to sign
Why Sign A Settlement Agreement?
There are many benefits of signing a Settlement Agreement, depending on the situation.
It provides a straightforward and more cost-effective way of resolving a dispute or ending an employment relationship, compared to the alternative of pursuing a legal procedure or hearing.
For the employer, it provides peace of mind that the employee can’t make a claim at a later date. And for the employee, it usually provides a payment they wouldn’t have received otherwise and avoids the need for a stressful procedure and uncertain outcome.
As a rule, an employee can be paid up to £30,000 tax-free in compensation under a Settlement Agreement.
Independent legal advice must be sought for a Settlement Agreement to be valid. Employers usually provide a contribution towards the legal fees. By having a solicitor check the terms, it ensures the agreement is fair to both parties.
What Are The Negotiations Like?
It’s a good idea to be realistic in your expectations when negotiating the terms of a Settlement Agreement. Don’t ask for too much or accept too little – consider your circumstances and how strong your position is.
Also consider non-financial factors such as garden leave or payment in lieu of your notice period, or a reference from your employer..
Your solicitor can discuss these matters with you when advising you on theterms of the Settlement Agreement.
How Much Does A Settlement Agreement Cost?
As it is a legal requirement for employees to seek legal advice before signing a Settlement Agreement, most of the time employers will contribute towards the fees and pay the amount directly, although it isn’t a requirement. The costs are usually in the region of £250-£500 plus VAT.
What Happens If You Don’t Sign A Settlement Agreement?
It is your right to decide whether to sign a Settlement Agreement or not.
Consider your circumstances carefully and what might happen if you don’t sign. If you would like advice on the merits of any claim you may have then an Employment Law specialist will be able to advise you on this.
It’s worth bearing in mind that your employer’s contribution to your legal fees is only valid if you sign. By deciding not to sign, you may have to pay the solicitor’s fees.
Helping You With Your Settlement Agreement
Our specialist solicitors can help you with Settlement Agreements, from an initial discussion about your situation through to negotiations and completion of the agreed terms.
We will ensure your rights are fully represented and that the agreement is fair.
To speak to one of our professional solicitors about a potential Settlement Agreement, please contact us at our Chorlton office on 0161 860 7123 or email chorlton@hlfberry.com or at our Failsworth office on 0161 681 4005 or email failsworth@hlfberry.com