What to expect in a Settlement Agreement
Common clauses to expect in your Settlement Agreement
If you’ve been offered a settlement agreement (formerly known as a ‘compromise agreement’) then your employer is asking you to accept their offer, usually a compensation/termination payment, in exchange for you to give up your rights to bring a claim against them.
It is a legal requirement to seek independent legal advice before signing a settlement agreement. Our expert settlement agreement solicitors can help you better understand the complexities and practical implications of the terms on offer. There is nothing compelling you to enter into a settlement agreement and therefore the terms can be negotiated. Lawson West’s Employment Solicitors can help play a crucial role in delivering a successful outcome to negotiations.
But what should you expect to see in your settlement agreement? Here are some of the most common clauses found in settlement agreements.
Termination of Employment
You should expect the settlement agreement to state what your final termination date will be. It should confirm that you will be receiving your normal salary and other contractual benefits up until your termination date. Depending on what you agree with your employer, you may or may not be allowed to work during this time.
You should also be paid for any holidays that have not yet been taken and any entitlement to a bonus or commission.
Both your normal salary and holidays will be subject to tax and national insurance.
The settlement agreement should also deal with your notice period, which is usually dealt with in one of three ways:
1. Working your notice: you will be paid for the period of your notice and will be expected to work during this time.
2. Payment in lieu of your notice: you will not be required to work your notice period and instead, your employer will pay you the number of weeks’ pay equivalent to the notice you are entitled to.
3. Garden leave: you will continue to be paid for the period of your notice, and your employer provides that you will not be expected to work during this time.
Again, your notice pay will be subject to tax and national insurance contributions in the same way your usual wages would be.
If your employer provides a payment by way of compensation for your employment ending, you should expect the settlement agreement to specify this amount, and by when the payment will be made to you.
The payment will conditional on your compliance with the rest of the terms of the agreement. This means that any breach of the agreement terms can make all of the settlement payments repayable.
The first £30,000 of any compensation element can generally be paid free from tax and national insurance deductions from the employee. However, the agreement may require you to indemnify the employer for any further tax or national insurance which are due to HMRC but have been missed.
Settlement agreements may also ensure that your employer will provide a written or oral reference if they were ever requested to provide this in the future for you. Therefore, this can be in an agreed format, which is normally annexed to the agreement.
You should also expect to agree that the settlement agreement is in full and final settlement of the claims listed in the agreement and you will be agreeing to give up your statutory and contractual employment rights.
There are however several claims which are specifically excluded from this list, including:
Any claims by you to enforce the settlement agreement (namely, breach of contract).
Personal injury claims which you are not aware of and could not reasonably be expected to be aware of at the date of the settlement agreement.
Claims in relation to accrued pension entitlements.
Making protected disclosures (whistleblowing)
Rules and Fees
Your employer will almost always offer a financial contribution to your legal costs for the settlement agreement. The benefits of seeking independent legal advice from Lawson West’s Employment Solicitors, extends beyond us simply ticking a required box. We can also play a crucial role in delivering a successful outcome to negotiations.
The settlement agreement should also state that it complies with the conditions which regulate settlement agreements under the law. These conditions include, amongst others, that the agreement must be in writing and you must have received legal advice from an independent legal qualified adviser on the terms and effect of the agreement.
How we can help?
All settlement agreements include common terms which protect an employer’s interest however our expert settlement agreement solicitors at Lawson West can help you better understand the complexities and practical implications of the terms on offer.
We can advise you on any potential risks and pitfalls as well as helping to reach your objectives and protect your position for the future.
Our Specialist Settlement Agreement Solicitors are available to provide the appropriate advice and guidance in relation to any aspect of settlement agreements or employment law.
Please contact us on Tel: 0116 212 1000 or 01858 445 480, alternatively complete the free Contact Us form here and we will get in touch as soon as possible.