Settlement agreements are legal contracts between an employer and an employee (or former employee to terminate the contract of employment. We often see settlement agreements in the following circumstances: 

1. Performance review
2. Disciplinary process
3. Redundancy 

The agreement usually contains provisions for the following:

1. Payment in lieu of notice (unless the employer wants you to work your notice); 
2. A sum equivalent to any accrued, unused holiday 

Any payment in lieu of notice and holiday pay with be subject to your usual tax and national insurance deductions.

Depending on the circumstances, sometimes there may be an ex-gratia (one-off) payment. This is often referred to as the termination payment and ideally should be an incentivised sum of money to sign the agreement. This sum is tax free up to £30,000.

Employers tend to favour settlement agreements because they can resolve disputes amicably and quickly but also, the terms of the agreement ensure no claim can be brought in the future by the employee.

Settlement agreements can also be highly cost effective for both the employer and the employee. If a claim is brought in the employment tribunal, legal costs are not recoverable therefore, terminating employment under the terms of a settlement agreement can save time, money and stress. 

Yes, it is possible to approach your employer on a “without prejudice” (off the record) basis to investigate whether they would be willing to negotiate the terms of your exit from the business. This may be an appropriate course of action if you:

• are unhappy at work;
• have received an unsatisfactory outcome to a grievance and feel unable to continue in the work environment;
• face disciplinary action or performance management;
• believe you may have grounds to bring a claim against your employer in the Employment Tribunal.

The law stipulates that it is a legal requirement for a solicitor (or other accredited advisor, for example a trade union official) to review the terms of a settlement agreement.

A solicitor will review the terms of the agreement and give legal advice on whether the terms are favourable. We do not only consider the financial elements but also whether there are any restrictions which may stop you finding a new job. Also, a solicitor will consider your employment rights including whether there is any discrimination or potential flaws which may give rise to a potential claim.

These agreements are designed to draw an employment contract to a close or to make amendments to a contract in a fair and reasonable way. You should not be prejudiced as a result of the process.

It is normal for the employer to contribute towards the employees legal costs and this is typically between £250 and £500 plus Vat.

Our employment solicitors are acknowledged in Legal 500 and Chambers & Partners as being highly experienced in settlement agreements. Where appropriate we will negotiate the terms of an Agreement on your behalf and ensure that your best interests are fully protected.

The concept of a protected conversation was introduced in 2013 enabling an employer to enter into discussions (“out of the blue”) with an employee with a view to terminating their employment under a settlement agreement, without the parties being able to rely on the details of the conversation as evidence in an unfair dismissal claim. The purpose of the legislation is to enable employers to facilitate the exit of underperforming staff without the necessity of going through a lengthy formal performance management process which can be stressful for both parties.

Although it may appear that Settlement Agreements only benefit employers, with expert advice from our Settlement Agreement solicitors here in Leeds, you can ensure that all issues between you and your employer are resolved and you receive a fair and appropriate settlement.

We are able to discuss the terms of the Employment Settlement Agreement with you over the telephone or arrange a meeting if you prefer. The offer made will depend upon the circumstances leading up to the discussions and the relative strength of any claim you have. If you have not secured another job to go to, as a general rule of thumb, a payment equivalent to six months’ salary would be considered a good settlement. For a more accurate assessment please use our settlement agreement calculator.

You are not obliged to enter into a Settlement Agreement if you do not wish to do so. If you would like to negotiate the terms of the Settlement Agreement it is possible to make a counter offer. If negotiations are unsuccessful, depending upon the circumstances, the employee can decide whether they wish to issue a claim in the Employment Tribunal. The time limit for bringing such a claim is three months less one day from the date of termination/last act of discrimination. If the discussions regarding the Settlement Agreement are “off the record” they cannot usually be referred to in any legal proceedings.

In order for a Settlement Agreement to be binding it is a requirement that you receive independent legal advice. It is common practice for the employer to contribute to your legal fees and the amount of the contribution should be set out in the Settlement Agreement. If the contribution offered is unlikely to cover the cost, we shall try to obtain an increase from your employer in the first instance.

Usually a document consisting of several pages outlining issues such as:

• The details of any severance payment you are to receive at the end of your employment.
• Settlement of any claims the employee may have against the employer.
• Assurance by the parties that no future legal action regarding your employment relationship will be pursued.
• The details that will be provided to other employers after your departure.
• The reference you will receive from your employer (we usually agree the wording of any references).
• Whether certain matters are required to be kept confidential.
• Whether there will be any restrictions placed on the employee after leaving the employer.

Although you do not have to accept a Settlement Agreement offered by your employer, once you have signed the document, it is seen as full and final settlement of any potential claims you may have against your employer.

If all the required formalities are fulfilled, such agreements are legally binding agreement and cannot be revoked.

For these reasons it is a legal requirement that you receive independent legal advice from a qualified solicitor who is adequately insured.