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Settlement Agreements Advice For Individuals

Settlement Agreements Advice For Individuals

When an employment dispute arises (due to say dismissal, redundancy, discrimination or a transfer) or there is potential for disciplinary action or a grievance, few people willingly choose to take the matter to an employment tribunal if there is another option. Settlement agreements offer a fast, effective way to amicably resolve a wide range of employment issues to the benefit of both employers and employees without the need for an employment tribunal.

IBB Solicitors’ Employment Law team includes some of the region’s top-ranked employment lawyers with decades of experience representing employees of all levels in settlement negotiations. Having advised on thousands of settlement agreements, we are specialists in getting the best deals we can for our clients.

We can provide experienced, friendly advice you need so you can be clear whether a settlement agreement your employer has offered reflects your best interests. Where we feel an agreement does not represent a fair deal for you, we can advise and represent you during settlement negotiations to help you achieve a more appropriate resolution.

Where there are a number of employees requiring advice on settlement agreements, such as during large scale redundancies, we can attend your workplace and advise multiple employees.

For advice on settlement negotiations or assistance reviewing a settlement agreement you have been offered, please contact our experienced employment solicitors today on 03456 381381 or email employment@ibblaw.co.uk.

What is a settlement agreement?

A settlement agreement is a legally binding contract between an employer and an employee or ex-employee. They replaced compromise agreements in 2013 and offer a way for employers and employees to resolve a dispute voluntarily, without the need for an employment tribunal.

A settlement agreement usually involves the employer making a payment to an employee or former employee in exchange for the employee agreeing not to bring an employment tribunal claim against the employer. The agreement must be in relation to a specific complaint and cannot be a blanket agreement by the employee not to bring a claim under any and all circumstances.

The exact details of a settlement agreement will depend on the circumstances and can be tailored towards the specifics of the dispute and the goals of the two parties. They can include such things as a reference or leaving announcement, in addition to paying compensation to an employee.

What can a settlement agreement be used for?

Settlement agreements can be used in a range of situations involving conflict or potential conflict between an employer and an employee or ex-employee, including:

  • to settle actual or potential workplace disputes
  • where there has been a dismissal, to ensure that there is been a clean break
  • for redundancies where an employee receives an enhanced redundancy payment
  • where there is no dispute, but the employer or employee nevertheless wants to terminate the employment.

Why do employers use settlement agreements?

Employers use settlement agreements for a variety of reasons, including:

  • safeguarding against possible future claims to an employment tribunal or county court
  • ensuring confidentiality is preserved after the employment has ended
  • ensuring post-termination obligations owed to the employer are preserved after the employment has ended
  • ensuring company property is returned
  • preventing employees from saying anything bad about the employer
  • providing an indemnity against tax-free payments.

Are settlement agreements good for employees?

This will entirely depend on the terms of the settlement agreement, which is why it is critical to have specialist legal advice. In general, however, settlement agreements can offer a number of advantages for employees, including:

  • allowing an employment dispute to be resolved quickly, without waiting for an employment tribunal
  • avoiding the uncertainty of tribunal, where the decision might not be in your favour
  • giving you some control over the settlement process, rather than placing the decision in the hands of a tribunal
  • securing a guaranteed payment or other concessions
  • allowing you to avoid the stress and disruption to your life often involved in tribunal proceedings
  • helping to preserve a better relationship with your employer or former employer, which may be beneficial to your future career
  • allowing you to receive up to £30,000 in compensation tax-free (depending on the circumstances).

Are settlement agreements legally binding?

Settlement agreements are legally binding on both employer and employee as long as the right conditions are met. For a settlement agreement to be legally binding it must:

  • be in writing
  • relate to a specific complaint or issue
  • state the relevant statutory conditions regulating the agreement

Additionally, before signing a settlement agreement the employee must:

  • not be under pressure to sign
  • have taken independent legal advice from a lawyer or certified trade union representative (who must be identified in the agreement)
  • be given appropriate time to consider the agreement.

Why do you need to see a solicitor when you are offered a settlement agreement?

As stated above, it is a legal requirement that you take independent legal advice on the terms and effect of entering into a settlement agreement.  If you do not, the agreement will not be binding.

While you can take this advice from a trade union representative (where this option is available to you), there are significant advantages to relying on a solicitor instead.

It is very important that you understand the terms and effects of a settlement agreement before you sign it to avoid any risk of unintentionally compromising your interests or settling for less than you may be entitled to. Settlement agreements can be written in very legalistic language with lots of details which can be critical, but may not be apparent to those without specific legal training.

We therefore strongly recommend that you consult a solicitor who specialises in employment law and preferably one that has extensive experience in advising on settlement agreements to obtain the best possible advice.

Do you have to accept the terms of a settlement agreement?

You are under no legal obligation to sign a settlement agreement and, as stated above, your employer is not allowed to pressure you to sign an agreement as this could mean the agreement will be invalid.

Whether signing a settlement agreement will be in your best interests will depend on the terms of the agreement and facts behind the dispute in question. Where appropriate, our solicitors may be able to help you negotiate more favourable settlement terms. On the other hand, our solicitors may advise that it may be better to reject the settlement agreement altogether.

What happens if you reject a settlement agreement?

If you decide that you do not wish to accept a settlement agreement you have been offered by your employer, depending on the circumstances you may wish to initiate internal proceedings or make an employment tribunal claim.

Your employer may continue with any proposed disciplinary or performance action against you or your employment may just carry on.

Our employment lawyers are highly experienced with settlement negotiations. We can advise you on whether we believe you may realistically be able to secure a better deal from your employer and effectively represent you during any subsequent negotiations.

We also regularly act for individuals during employment tribunal claims, so can offer the pragmatic, efficient and highly skilled representation you need to secure the best available outcome in tribunal proceedings where required.

How much does legal advice about a settlement agreement cost?

An employer will usually cover the legal costs involved in providing appropriate legal advice to an employee or former employee on a settlement agreement. This is because the agreement will not be legally binding without that legal advice having been given, so it is in the employer’s interests to cover the associated costs.

This means you will usually not have to pay us anything towards the cost of legal advice for settlement agreements.

However, it is worth noting that if you reject a settlement agreement you are offered or if the settlement agreement is disputed or needs negotiation, you may be liable for the legal costs of the advice you received.

Our expertise with settlement agreements

The solicitors within our Employment Law team have decades of experience advising employees on settlement agreements in relation to all types of employment disputes and situations where a dispute might potentially arise, including dismissals and redundancy proceedings.

IBB Solicitors is one of the top ranked legal firms for employment law in the South East, being ranked Tier 1 by the highly respected Legal 500 client guide. Marc Jones from our employment team has been individually recognised by the Legal 500 as a leading individual in the field of employment law.

Marc Jones has specialised in employment law form more than 20 years and acts for employees at all levels across a wide range of employers, including multinationals, small to medium-sized enterprises, public sector bodies and charities. Marc is also a qualified workplace mediator, allowing him to offer mediation as a non-confrontational approach to resolving workplace disputes.

Common questions about settlement agreements

Q1: Are settlement agreements tax-free?

Any payment you receive as part of a settlement agreement will usually be offered by your employer as tax-free, up to a limit of £30,000. However, whether it is truly tax-free will depends on the circumstances and some payments offered as part of a settlement agreement may be taxable.

Payments included in a settlement agreement that are taxable include:

  • any outstanding salary and benefits owed for the period of your employment
  • payment in lieu of holiday owed
  • payment in lieu of notice
  • any compensation that exceeds the £30,000 threshold.

Q2: Are settlement agreements confidential?

A key point of a settlement agreement is that it will usually require the employee not to discuss the terms of the agreement. As such, a settlement agreement will normally contain a ‘confidentiality clause’ meaning that if the you discuss the terms of the settlement, your employer/former employer may be able to bring a ‘breach of contract’ claim against you.

Q3: Can you change your mind about a settlement agreement after you’ve signed it?

Once you and your employer have signed a settlement agreement, it is legally binding and will be considered a ‘full and final settlement’ of any potential claim you might have had. This means you cannot usually change your mind about the agreement after signing.

However, if you believe your employer/former employer is in breach of the terms of the settlement agreement, you may be able to bring civil proceedings against them for breach of contract.

Q4: Do you have to use the solicitor recommended by your employer for a settlement agreement?

While your employer may recommend a solicitor to advise you during settlement discussions, you are free to choose your own legal representative.

Q5: Do you have to see a solicitor in person for advice on a settlement agreement?

Normally we are able to advise you over the telephone if that is what you prefer. As long as we are able to confirm your identity that is not usually a problem.

Q6: Are settlement agreements different from compromise agreements?

Settlement agreements replaced compromise agreements on 29 July 2013. They are essentially the same.

Q7: Can an employee suggest a settlement agreement?

Yes, as an employee, you can request a meeting with your employer to discuss the possibility of using a settlement agreement to resolve a dispute or to manage your exit from the business. It is strongly recommended to have specialist legal advice and support before suggesting this option to your employer and during any settlement discussions that take place.

Anything disclosed in a settlement discussion cannot be used later in employment Tribunal proceedings, except in certain circumstances. This allows both parties to discuss the matter without needing to worry that anything they reveal or any concessions they make can later be used against them if a settlement agreement cannot be concluded.

Contact our employment law experts today

If you would like to discuss your employment situation or settlement agreement, please call our experienced employment solicitors today in confidence on 03456 381381, or email your details to employment@ibblaw.co.uk.