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Settlement Agreement Lawyers (For Employees)

Our settlement agreement lawyers are experts in drafting, negotiating and advising employees on different types of settlement agreement. We can help with a wide range of employee settlement agreements in the context of redundancy or other ending of an employment relationship – get in touch with Helen Monson or Imogen Finnegan and we will guide you through the process.

What is a settlement agreement?

A settlement agreement is a legally binding contract made between an employer and an employee used to resolve an issue in the workplace. Most commonly used in the case of redundancy or when an employee’s employment is being terminated, a settlement agreement provides an alternative to going to the employment tribunal.

Negotiating a settlement agreement for employees

Our employee settlement agreement lawyers have extensive experience in negotiating different kinds of settlement agreement. In negotiations it is usual to specify that all communications should be treated as “without prejudice” and “subject to contract”. This is to ensure that:

  • The parties can speak freely in negotiations without fear of anything said being used in evidence against them should the negotiations break down.
  • Neither party is legally bound by anything “agreed” in the negotiations until a final written agreement is actually signed

Practical Tips

Know how much you’re entitled to

If you’ve received a financial offer, you need to know whether or not it is fair. If you have a strong potential claim against your employer, then you are more likely to get a higher termination payment. If you do not, then there is not much incentive for your employer to pay you a large sum. You should consider what potential claims you could bring, how likely it is that those claims would succeed, and how much you would be likely to recover if they did. The length of time that you have been working for your employer may also be taken into consideration.

Don’t be scared to negotiate

Before entering into settlement discussions with your employer, you should take some time to work out what you want to achieve and how you’re going to do it. Think about what’s most important to you and similarly, what you can do without. It may be helpful to think outside the box when negotiating a settlement agreement and consider whether there are any non-financial terms that you would like to include. A good, pre-agreed reference is often part of a settlement agreement.

Try and reach a deal

Remember, an employee settlement agreement is voluntary. You do not have to enter into a settlement agreement for employees and you should be given a reasonable amount of time to consider the proposal. According to the ACAS code of practice, you should get a minimum of 10 calendar days to consider a settlement agreement, unless you and your employer have agreed otherwise. There are, however, several advantages to reaching a settlement agreement, particularly if the alternative is going to the employment tribunal. A settlement agreement provides certainty, is confidential, and can be concluded within only a couple of days. In contrast, bringing a claim to the employment tribunal may take months, be costly, and you may not come out with the deal that you were expecting.

Take independent legal advice from our employee settlement agreement lawyers

A settlement agreement can be a long, complicated document. Our settlement agreement lawyers can help you understand whether you are getting a good deal and whether you have any grounds for a claim against your employer. Our employment solicitors can also help with the negotiation process. Getting independent legal advice is also a statutory requirement.

The Legalities

For a settlement agreement for employees to be valid it must comply with six statutory requirements, as follows:

  • The agreement must be in writing.
  • The agreement must relate to a particular complaint or to particular proceedings.
  • The employee must get legal advice from a relevant independent adviser on the terms and effect of the agreement and its effect on the employee’s ability to pursue any rights before an employment tribunal.
  • The independent adviser must have a current contract of insurance, or professional indemnity insurance, covering the risk of a claim against them by the employee in respect of the advice.
  • The agreement must identify the adviser.
  • The agreement must state that the above conditions have been satisfied.

Acas guidance on conducting settlement discussions

The agreement must relate to a particular complaint or to particular proceedings.

The Acas Code on Settlement Agreements states that parties should be given a reasonable period of time to consider the proposed settlement agreement and that, as a general rule, ten calendar days should be allowed to consider the proposed formal written terms of a settlement agreement and to receive independent advice, unless the parties agree otherwise.

Allowing employees to be accompanied

Although the Acas Code on Settlement Agreements acknowledges that there is no legal right for employees to be accompanied during pre-termination negotiations, it suggests that employers should allow this.

Termination payment

The amount of the termination payment is likely to be an important focus of discussions when negotiating the employee settlement agreement. The employee will usually seek to improve this, or to enhance the overall value of the package in other ways. This may be done by:

  • Negotiating a higher lump sum, having regard to the merits of any claims.
  • Seeking a more tax efficient way for the sum to be paid, for example having part of the termination payment paid into a pension scheme.
  • Negotiating the payment of discretionary sums under discussion, for example in relation to bonus, commission or share options.

Tax status of payment

Where a payment is made to an employee on the termination of employment, it is either taxable in the normal way as earnings under the Income Tax (Earnings and Pensions) Act 2003 or taxed as a termination payment under sections 401 to 416. The first £30,000 of payments that fall within section 401 is exempt from tax and any excess will be subject to income tax in the normal way, with the employer being responsible for accounting to HMRC.

Legal fees

It is usual for the employer to cover some or all of the employee’s legal fees, since one of the statutory conditions for settlement agreements is that the employee has received legal advice.

For any questions you may have on settlement agreements for employees contact one of our settlement agreement lawyers Helen Monson or Imogen Finnegan.

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