JMR Solicitors can advise you on your settlement agreement, help employees read and understand the settlement agreement, and provide help with many other employment related legal matters.
Here are some frequently asked questions:
What is a settlement agreement?
A settlement agreement is made for the purpose of an employer and an employee to agree terms under which the employee waives their right to bring certain claims against the employer. They can be used to dismiss you from your employment and are often used to negotiate a claim you are bringing in a court or employment tribunal.
A settlement agreement can be suggested by either an employer or an employee to part from a company on agreed terms.
A settlement agreement is a distinct type of legal agreement between employer and employee, which sets out the terms of an ‘agreement’ both parties have made to settle a dispute amongst them.
Typically, the employer pays the employee an approved sum of money that they would not usually be eligible for and the employee agrees to waive his / her right to bring any claim in relation to their employment or the termination of their employment. This payment is then considered as a compensation for the employee’s potential claims. For example, an employee who has been given notice of dismissal for redundancy may disagree with the criteria used to make them redundant but is prepared to settle their claim between themselves, as an alternative of bringing an employment tribunal claim for unfair dismissal.
When is a settlement agreement valid?
A settlement agreement is effective to avoid an employee from bringing proceedings only if:
The settlement agreement is in writing;
- it relates to the specific complaint or proceedings of the employee;
- the employee must have obtained independent advice from a relevant adviser (such as JMR Solicitors) as to the terms and result of the proposed agreement
- advice will be given on the effects of the settlement agreement and your ability to pursue your rights before an employment tribunal;
- the adviser must be covered by professional indemnity insurance;
- the adviser is acknowledged in the agreement; and
- the agreement includes that the related statutory conditions regulating settlement agreements are fulfilled.
Settlement agreements were known as compromise agreements before 29 July 2013.
As an employee, do I have to enter into a settlement agreement to terminate my employment?
Not always, but it is more common now that an employer will insist on it before they pay out any settlement sums owed to you. The reason for this is because they will not want to risk the chance of you bringing a claim in the future against them. A settlement agreement is the only certified way they can guarantee that you have given up the right to claim.
Who can give advice on a settlement agreement?
You must obtain advice for a settlement agreement or it will not be valid.
Advice can be given by:
- a qualified lawyer (or certified legal executive);
- a certified and approved officer, official, employee or member of a trade union; or
- a certified and official worker at an employment advice centre who is not paid for providing advice to the employee.
The legal adviser must be clearly identified in the agreement. JMR Solicitors can provide employees with independent advice on their settlement agreements.
Who pays for the cost of my legal advice?
Although there are no customary guidelines for this, usually you will find that most employers will subsidise towards the employee’s legal fees. Any fees beyond what the employer contribution is, will generally be payable by you (although it is often possible to negotiate a bigger contribution with the employer).
Please note that employers will only contribute to your legal fees if the agreement is signed by an employee. If you choose not to go ahead, the employer will not contribute towards the fees.
What happens if there is a breach the terms of the settlement agreement?
When both parties (employer and employee) have signed the settlement agreement it becomes a legally binding document. If either party breaches the terms, the wronged party will be eligible to bring a claim in the courts for breach of contract. The customary resolution for breach of contract is a claim for damages for loss suffered due to the other party’s breach. If the settlement agreement has an enforceable repayment clause, an employee who later breaches the terms of their settlement agreement may be asked to repay all or some of the money they were paid by the employer, plus any legal fees incurred by the employer as a result of the breach.
Why is there legal jargon in my settlement agreement?
For a settlement agreement to have legal standing against the employee, it needs to mention detailed sections of employment legislation. It will also need to include clauses that say you are surrendering some or all your employment rights.
What happens if I don’t sign?
You do not have to sign the agreement if you don’t agree with it. This sometimes happens if, after taking legal advice, you do not think the deal offered is fair in the circumstances, so you choose to bring an employment tribunal claim instead.
It’s important to note that if you decide against signing the settlement agreement then your employer will not contribute to your legal fees and therefore you will need to pay them.
How do I negotiate a better deal?
JMR solicitors will work with you to articulate an approach for the negotiation.
Our advice is to stay realistic in your expectations and not to be afraid to voice what you really want out of the deal. Be prepared to compromise to get the best deal and to ensure both parties feel that the settlement agreement is fair.
Aim high but be prepared to compromise; to strike a deal both sides will need to feel that it’s fair.
Do I need to pay tax on my settlement agreement?
Most settlement payments under £30k can be made tax-free. The tax handling of notice pay is more complex and you will need to discuss your conditions with your solicitor.
Does it matter if you do not understand the whole settlement agreement?
It is critical that you understand everything in the agreement and if there is anything you won’t be able to fulfil (or any term or condition which you have already breached), you need to discuss it with your solicitor prior to signing.
For example, you might have spoken to your colleagues about your settlement agreement negotiations before you saw the confidentiality clause and realised you were supposed to keep the agreement confidential. If you sign up to a clause that you have already breached and then your employer finds out about it, they might argue that they no longer need to fulfil the agreement from their side. They could possibly refuse to pay the settlement payment or even try to retrieve money they have already paid to you.
Settlement Agreement Advice by JMR Solicitors
If you require independent advice for your settlement agreement or need a solicitor to check any employment documents, feel free to get in touch with JMR Solicitors or call us on 0161 491 3933.