A Settlement Agreement (previously known as a “Compromise Agreement”) is a legally binding agreement following the termination of your employment.
Settlement agreements are often given to employees when they are being made redundant. However, they can also be offered to employees if an employer thinks they are performing badly in their job or are guilty of misconduct. In some cases, an employee will be aware that their boss is unhappy, while for others, being offered a settlement agreement can come as a shock.
Essentially, an employee is given money or severance pay in return for not bringing a claim against their employer. Each settlement agreement will vary but usually the documents will include clauses that deal with: the claims to be settled; the payments you will receive and the relevant tax issues; a confidentially/gagging clause (so you can't bad mouth your employer) and any agreed reference from your employer. Once signed by both the employer and the employee and certified by an independent solicitor, a settlement agreement becomes legally binding.
When you're pulled into a meeting and asked to leave your job, it can be a shock. Later on, it can be hard to recall exactly what was said. The best advice is therefore to make a note about what happened and what was said as soon as possible. The next thing to do is get some decent advice. An employer will usually pay the legal costs for you to see a solicitor or qualified adviser independent of the employer as it is a legal requirement for the settlement agreement to be contractually binding on the employee.
An employment solicitor can help you consider whether you're getting a good deal and whether you have any grounds for a claim against your employer – such as discrimination or unfair dismissal. If you're facing a period of unemployment, you need to be able to meet your household living expenses until you get another job. One of the considerations you need to make is whether the money that is being offered is enough.
You need to consider why you are being offered the agreement and what rights you are being asked to waive as a result of you signing. Armed with this knowledge, you can often save legal costs by negotiating yourself directly with your employer and in our experience, you often end up with a better deal, which may include a bigger payment.
The employer will often insist that the settlement agreement be signed by a particular date, but you are not legally obliged to sign a settlement agreement and if you don't sign the agreement, then your full employment rights are reserved for you to make a claim against your employer.
To see some typical terms of a settlement agreement and our advice on them, please click here:
The compensation being offered was very low, being only slightly higher than his contractual notice period. Over the previous months, he had been placed on a PIP (Performance Improvement Plan), had received a disciplinary warning and was now being told that he would face another disciplinary hearing and the likely result was that he would be dismissed for failing to perform.
When we discussed the matter, it became clear that my client was actually working very hard to try and meet his targets and had been one of the company’s top performers in the past. However, there had been various organisational changes, including a new line manager for my client and unfortunately, they did not get on well.
My client felt that his line manager had unfairly manipulated the various changes taking place in the organisation so that in his new role, my client no longer had sufficient sales-leads to generate the targets he was being required to achieve. He had also asked for more support and training, but his requests had been ignored or turned down. In effect, he was being set up for failure through no fault of his own.
I advised him to raise a grievance regarding all the factors that he felt had contributed to his failure to achieve his targets. This resulted in the threatened disciplinary being postponed and there was considerable further discussions between my client and his employer regarding the various issues raised in his grievance.
In the end, the matter was resolved by a significantly revised settlement agreement. My client did leave the firm, but with considerably more compensation than had first been offered, a reference and perhaps more importantly, with his pride intact and his confidence in his ability restored.
Problems with your employer can be overwhelming. You feel outgunned, outmanoeuvred and powerless. We can advise you what your rights are, but more importantly we have the experience to advise you on tactics and negotiating styles to increase your chances of achieving a favourable outcome.
- Justin Sadler