Springhouse Solicitors

What should I be watching out for in my settlement agreement?

If you have been presented with a settlement agreement, there will usually be an allowance for you to take legal advice about it. Springhouse’s employment law specialists will run through a checklist with you  which looks something like this:

  1. The most important question is whether the amount of compensation payment being offered in the settlement agreement is adequate. We have produced a separate article on addressing this question, which can be found here. If it is not, we will negotiate for you.
  2. Is the identity of the employer correct?
  3. Is the employer good for the payment? Alarm bells usually ring where the termination is being made because the business is not doing well financially, usually in a redundancy situation. If it appears that there is a risk that the employer will not make any settlement payment, a guarantor can be looked for, usually in the form of a parent company or one of the directors personally.
  4. Is the person signing for the company duly authorised? If not it may be that the agreement is not valid.
  5. When does the employment terminate?
  6. Is an adequate amount being offered in lieu of any notice period? This amount should include all benefits such as company car, medical insurance and pension contributions and will usually be taxable.
  7. If the employee is working after the settlement agreement has been entered into, is there an undertaking to provide them with all their usual pay and benefits up until the termination date?
  8. Is adequate compensation being paid for any untaken holiday?
  9. Is there any time limit for expenses claims?
  10. Is there a set date for making the termination payment? Is this a reasonable one?
  11. Are statutory redundancy payments being taken into account?
  12. In terms of tax, there will usually be an undertaking in the agreement that the employee covers any tax that should be payable in future. We have found that HMRC are getting more and more interested in termination payments, so we need to be very careful that the terms of this commitment made by employees are fair and reasonable.
  13. What is the scope of the settlement? Does it just relate to employment claims? Does it exclude personal injury claims, pension claims and claims to enforce the terms of the agreement?
  14. What other undertakings is the employee being asked to make? Usually all payments made under the settlement agreement will need to be repaid if the undertakings are breached. We will therefore need to look carefully through them to make sure they are reasonable. They will usually involve undertakings that the employee has been well behaved in the past, does not have work lined up, will keep matters confidential, and will not say anything bad about the company or its people after signing this agreement (even if true!). There is often also a commitment to assist with any legal proceedings etc. in future, and we need to make sure that the employee is being adequately compensated for this.
  15. Is the employee being offered a reference, and if so in what terms?
  16. Do any announcements need to be made, should we agree these now?
  17. Legal fees, are these adequate to cover the assistance being provided by the employment lawyer?

It is important to remember that any settlement agreement will be final and binding. Employees will not be able to bring any employment related complaints after signing it. It is a question, therefore, of “speak now or forever hold your peace”. It is therefore important that employees are full and frank with their lawyer about any potential claims they may have, as this may affect the value of the agreement and the amount of money that should be paid to them.

Speak to Springhouse about our fixed fee settlement agreement service.