Settlement Agreements

What is a Settlement Agreement?

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.

How we can help

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.